ADDL CIT 8(3), MUMBAI V. SULHUR MILLS LTD, MUMBAI

ITA 8846/MUM/2010

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4290 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 17-12-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 20-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AARSI PRASADDR
• Assessee Lawyers: K S CHOKSHI; PATEL ARS
• Keywords: Business income; Question of law; Tax effect
• Section: 43B; 143(3); 10B; 2

Judgement Text

, ,, , INCOME TAX APPELLATE TRIBUNAL,MUMBAI- E,BENCH , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & SANDEEP GOSAIN,JUDICIAL MEMBER /.ITA NO.8846 /MUM/2010 , /ASSESSMENT YEAR-2006-07 ADDL. CIT-8(3) ROOM NO.217, AYAKAR BHAVAN M.K. MARG, MUMBAI-400 020. VS. SULPHUR MILLS LTD. 604/605, 349 BUSINESS POINT WESTERN HIGHWAY EXPRESS ANDHERI (E),MUMBAI-400 069. PAN NO.AABCS 8736 K ( / ASSESSEE ) ( / RESPONDENT) /.ITA NO.9186 /MUM/2010 , /ASSESSMENT YEAR-2006-07 SULPHUR MILLS LTD. MUMBAI-400 069. VS. ADDL. CIT-8(3) MUMBAI-400 020. ( / ASSESSEE ) ( / RESPONDENT) /ASSESSEE BY :SH. K.S. CHOKSHI & MS. M.R. PATEL - ARS / REVENUE BY :SH. AARSI PRASAD-DR / DATE OF HEARING : 17 - 11 -2015 / DATE OF PRONOUNCEMENT : 01.01.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT.6.10.10 OF CIT(A)-18,THE A SSESSING OFFICER (AO) AND THE ASSESSEE HAVE FILED CROSS APPEALS RAISING VARIOUS GROUNDS OF APPEAL. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING OF SULPHUR PRODUCTS AND AGRO- CHEMICALS FILED ITS RETURN OF INCOME ON 14.11.2006 DECLARING TOTAL INCOME OF RS.7.93 CRORES.THE AO COMPLETED THE ASSESSMENT ON 24.12.200 8 U/S. 143(3) OF THE ACT DETERMINING THE INCOME OF THE ASSESSEE AT RS.10.54 CRORES. ITA 8846/MUM/2010 ASSESSMENT YEAR 06-07(REVENUES A PPEAL): 2. FIRST GROUND OF APPEAL RAISED BY THE AO DEALS WITH DISALLOWANCE OF RS.18.59 LACS MADE UNDER SECTION 40(A)(IA) OF THE ACT WITH REGARD TO D EDUCTION CLAIMED U/S. 10(B) OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD ADDED EXPENSES OF RS.18,59,902/-INADMISSIBLE U/S. 40(A)(IA) FOR THE Y EAR UNDER APPEAL PERTAINING TO THE EOU FOR THE PURPOSES OF COMPUTATION OF DEDUCTION ADMISSIBLE U/S.10B OF THE ACT, THAT IT HAD REDUCED DISALLOWANCE OF RS.17.67 LACS MADE IN THE EARLIER AY, WHICH WAS ADMISSIBLE IN VIEW OF THE SUBSEQUENT PAYMENT.AS PER THE AO THE ASSESSEE HAD I NCREASED DEDUCTION ADMISSIBLE U/S.10B, THAT THE SAME EXPENSES WERE TO BE CONSIDERED FOR DE DUCTION IN SUBSEQUENT AY, THAT IT WOULD AFFECT THE DEDUCTION AT LEAST FOR ONE YEAR WHEN THE ASSESSEE WOULD NO LONGER REMAIN ELIGIBLE FOR DEDUCTION, HE DISALLOWED AN AMOUNT OF RS.18.59L ACS WHILE COMPUTING THE ASSESSMENT. 2.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM,IT WAS ARGUED THAT THE AO HAD MADE THE DISALLOWANCE ON THE PRESUMPTION THAT THE YEAR UNDER APPEAL WAS L AST YEAR FOR CLAIMING DEDUCTION, THAT IT WAS 5 TH YEAR OF CLAIMING DEDUCTION,THAT THE PRESUMPTION OF AO WAS FACTUALLY INCORRECT.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER, THE FAA HELD THAT THE ASSESSEE DID NOT DEDUCT AND PAY TDS IN TIME ON EX PENSES OF RS.18.59 LACS, THAT THE EXPENSES WERE ADDED BACK IN COMPUTATION,THAT THE INCOME THER EBY WAS ENHANCED ON WHICH DEDUCTION 8846/10 & 9186/10-SULPHURMILLS 2 U/S. 10B WAS CLAIMED, THAT THE AO WAS NOT JUSTIFIED IN DENYING THE DEDUCTION,THAT THE CLAIM MADE BY THE ASSESSEE WOULD REDUCE DEDUCTION IN THE SUBSEQUENT AY.HE DIRECTED THE AO TO ALLOW DEDUCTION CLAIMED BY THE ASSESSEE. 2.2. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE(DR)SUPPOR TED THE ORDER OF THE AO.ON A QUERY BY THE BENCH,HE FAIRLY CONCEDED THAT THIS WAS NOT T HE LAST YEAR FOR CLAIMING DEDUCTION U/S.10B.THE AUTHORISED REPRESENTATIVE (AR) RELIED U PON THE ORDER OF THE FAA.HE REFERRED TO THE CASE OF S.B. BUILDERS AND DEVELOPERS(45 SOT 33 5)AND GEM PLUS JEWELLERY INDIA LIMITED (233CTR240)AND PYRAMID ENTEK PVT. LTD.(ITA 6186-640 0/MUM/2012 AY.09-10 DT.10.7. 2014). 2.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS BEFORE US. WE FIND THAT IN THE CASE OF S.B. BUILDERS AND DEVELOPERS(SUPRA), TH E ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE.IN THE CASE OF PYRAMID ENTEK PVT. LTD.(SU PRA),SIMILAR ISSUE HAD ARISEN.AFTER CONSIDE -RING THE RIVAL SUBMISSIONS THE TRIBUNAL HAD DECIDE D THE ISSUE AS UNDER : 7. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AN D CONSIDERED THE RELEVANT MATERIAL ON RECORD. WITHOUT GOING INTO THE ISSUE OF CORRECTNESS OF DISALLOWANCE UNDER SECTION 40(A)(IA) WE FIND THAT EVEN THE AMOUNT IN QUESTION IS LIABLE TO BE DISALLOWED UNDER SECTION 40(A)(IA), THE SAME WOULD BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B AS IT WOULD INCREASE THE ELIGIBLE PROFITS OF THE ASSESSEE. CIT(A) HAS RELIED UPON THE DECISIO N OF ITA NO. 6186/M/12 &ITA NO.6400/M/12 AY: 2009-10 5 HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. (SUPRA), WHEREIN WHILE DECIDING THE QUESTION OF GRA NTING OF EXEMPTION UNDER SECTION 10A ON THE ENHANCED INCOME DUE TO DISALLOWANCE OF EMPLOYERS AS WELL AS EMPLOYEES CONTRIBUTION TOWARDS PF/ESIC, THE HON'BLE JURISDICTIONAL HIGH COURT HAS HELD IN PARA-12 AS UNDER :- 12. BY REASON OF THE JUDGMENT OF THE SUPREME COURT IN CIT V. ALOM EXTRUSIONS LTD. [2009] 319 ITR 306 THE EMPLOYER'S CONTRIBUTION WAS LIABLE TO BE ALLOWED, SINCE IT WAS DEPOSITED BY THE DUE DATE FOR THE FILING OF THE RETURN. THE PECULIAR POSITION, HOWEVER, AS IT OBTAINS IN THE PRESENT CASE ARISES OUT OF THE FACT THAT THE DISALLOWANCE W HICH WAS EFFECTED BY THE ASSESSING OFFICER HAS NOT, THE COURT IS INFORMED, BEEN CHALLENGED BY THE ASSESSEE. AS A MATTER OF FACT THE QUESTION OF LAW WHICH IS FORMULATED BY THE REVENUE PROCEEDS ON THE BASIS THAT THE ASSESSED INCOME WAS ENHANCED DUE TO THE DISALLOWANCE OF THE EMPLOYER'S AS WELL AS THE EMPLOYEES' CONTRIBUTION TOWARDS PROVIDENT FUND/ESIC AND THE ONLY QUESTION W HICH IS CANVASSED ON BEHALF OF THE REVENUE IS WHETHER ON THAT BASIS THE TRIBUNAL WAS J USTIFIED IN DIRECTING THE ASSESSING OFFICER TO GRANT THE EXEMPTION UNDER SECTION 10A. ON THIS POSI TION, IN THE PRESENT CASE IT CANNOT BE DISPUTED THAT THE NET CONSEQUENCE OF THE DISALLOWAN CE OF THE EMPLOYER'S AND THE EMPLOYEE'S CONTRIBUTION IS THAT THE BUSINESS PROFITS HAVE TO T HAT EXTENT BEEN ENHANCED. THERE WAS, AS WE HAVE ALREADY NOTED, AN ADD BACK BY THE ASSESSING OF FICER TO THE INCOME. ALL PROFITS OF THE UNIT OF THE ASSESSEE HAVE BEEN DERIVED FROM MANUFACTURIN G ACTIVITY. THE SALARIES PAID BY THE ASSESSEE, IT HAS NOT BEEN DISPUTED, RELATED TO THE MANUFACTURING ACTIVITY. THE DISALLOWANCE OF THE PROVIDENT FUND/ESIC PAYMENTS HAS BEEN MADE BECAUSE OF THE STATUTORY PROVISIONS - SECTION 43B IN THE CASE OF THE EMPLOYER'S CONTRIBUTION AND SECT ION 36(V) READ WITH SECTION 2(24)(X) IN THE CASE OF THE EMPLOYEE'S CONTRIBUTION WHICH HAS BEEN DEEMED TO BE THE INCOME OF THE ASSESSEE. THE PLAIN CONSEQUENCE OF THE DISALLOWANCE AND THE A DD BACK THAT HAS BEEN MADE BY THE ASSESSING OFFICER IS AN INCREASE IN THE BUSINESS PR OFITS OF THE ASSESSEE. THE CONTENTION OF THE REVENUE THAT IN COMPUTING THE DEDUCTION UNDER SECTI ON 10A THE ADDITION MADE ON ACCOUNT OF THE DISALLOWANCE OF THE PROVIDENT FUND/ESIC PAYMENTS OU GHT TO BE IGNORED CANNOT BE ACCEPTED. NO STATUTORY PROVISION TO THAT EFFECT HAVING BEEN MADE , THE PLAIN CONSEQUENCE OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER MUST FOLLOW. THE SECO ND QUESTION SHALL ACCORDINGLY, STAND ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE A SSESSEE. SINCE THE CIT(A) HAS FOLLOWED THE ABOVE DECISION O F HON'BLE JURISDICTIONAL HIGH COURT WHILE GRANTING THE DEDUCTION UNDER SECTION 10B IN RESPECT OF DISALLOWANCE MADE UNDER SECTION 40(A)(IA) THEREFORE, WE DO NOT FIND ANY ERROR OR IL LEGALITY IN THE ORDER OF CIT(A) QUA THIS ISSUE. THE GROUND RAISED BY THE REVENUE HAS ACCORDINGLY BE COME ACADEMIC IN NATURE. 8. IN THE RESULT ASSESSEES APPEAL IS ALLOWED AND R EVENUES APPEAL IS DISMISSED. 8846/10 & 9186/10-SULPHURMILLS 3 RESPECTFULLY FOLLOWING THE ABOVE, WE DECIDE GROUND NO.1 AGAINST THE AO. ITA NO.9186/M/2010 ASSESSMENT YEAR 06-07(ASSESSEES APPEAL): 4. DURING THE COURSE OF HEARING BEFORE US THE AR DID N OT PRESS GROUND.NO.1 AND 3. WITH REGARD TO GROUND NO.5, HE STATED THAT CONSIDERING T HE SMALLNESS OF TAX EFFECT THE ASSESSEE WAS NOT INTERESTED IN PURSUING THE SAME.HENCE, GROU NDS NO.1, 3 AND 5 STAND DISMISSED AS NOT PRESSED.HE FURTHER STATED THAT GR.NO.4 WAS CONSEQUE NTIAL IN NATURE AND WAS NOT TO BE ADJUDICATED. 5. GR.NO.2 IS ABOUT DEDUCTION U/S.10B OF THE ACT.DURIN G THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S.1 0B IN RESPECT OF EOU AT PANOLI AMOUNTING TO RS.5.89 CRORES,THAT IT HAD EARNED INTEREST IN TH E EOU UNDER THE HEADS INTEREST RECEIVED FOR CUSTOMERS(RS.12,648/-),INTEREST ON FDR WITH BANK OF INDIA (RS.31.97 LACS) AND INTEREST ON DEPOSITS(RS.11.93 LACS). HE DIRECTED THE ASSESSEE T O EXPLAIN AS TO WHY DEDUCTION U/S.10B IN RESPECT OF INTEREST INCOME SHOULD NOT BE DISALLOWED .AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE AO HELD THAT THE INTEREST RECEIPTS WE RE NOT DERIVED FROM EXPORTS.HE REFERRED TO THE CASES OF CAMBAY ELECTRICAL SUPPLY INDUSTRIAL CO MPANY.LTD. (113 ITR 84), STERLING FOODS AND PANDIYAN CHEMICALS LTD. (233 ITR 497),THAT THE INTEREST INCOME COULD AT BEST BE SAID TO HAVE BEEN ATTRIBUTABLE TO THE EXPORT,THAT SAME WAS NOT DERIVED FROM THE BUSINESS OF THE ASSESSEE, THAT GROSS INTEREST RECEIPTS WERE TO BE D ISALLOWED FOR CALCULATING THE DEDUCTION U/S. 10B OF THE ACT.FOR THE SIMILAR REASONS INCOMES CRED ITED UNDER THE HEAD CSD REFUND RECEIPT- (RS.9.31LACS),HANDLING CHARGES(RS.1.79 LACS),CHEQUE BOUNCING CHARGES(RS.1.37 LACS), MISCELLANEOUS INCOME(RS.50,398/-) AND SUNDRY BALANC ES WRITTEN BACK (RS.4,00,738/-) WERE HELD NOT TO BE ELIGIBLE FOR DEDUCTION U/S.10B.HE WA S OF THE OPINION THAT THE INCOMES CREDITED UNDER ABOVE MENTIONED FIVE HEADS WERE NOT DERIVED F ROM THE EOU.AS A RESULT, HE MADE A FURTHER ADDITION OF RS.16.99 LACS. 5.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).AFTER CONSIDERING THE SUBM ISSION OF THE ASSESSEE AND THE ASSESS - MENT ORDER,THE FAA HELD THAT THE INTEREST ON DEPOSI T WITH BANK FOR OPENING LOC WAS NOT DERIVED FROM INDUSTRIAL UNDERTAKING AND WAS NOT ELI GIBLE FOR DEDUCTION U/S.10B. HE REFERRED TO THE CASE OF MENON IMPEX PVT. LTD. 259 ITR 403.HE AL SO REFERRED TO THE CASE OF KK DOSHI (245 ITR 849);CJ INTERNATIONAL(13SOT 280);ORCHID CH EMICALS AND PHARMACEUTICALS (97 ITD 277),SOVIKA INFOTECH LTD.(19SOT412) AND HELD THAT T O CLAIM DEDUCTION U/S. 10B OF THE ACT, THE INCOME SHOULD HAVE BEEN DERIVED FROM THE EXPORT ACTIVITY OF THE UNDERTAKING, THAT THE AO HAD RIGHTLY DISALLOWED THE CLAIM MADE BY THE ASSESS EE. 5.2. DURING THE COURSE OF HEARING BEFORE US THE AR CONTE NDED THAT SECTION 10B WAS A SELF CONTAINING CODE,THAT NO ADJUSTMENT WAS PERMISSIBLE WHILE CALCULATING DEDUCTION U/S10B.HE REFERRED TO THE CASES OF ADVANCE DETERGENT LTD.(188 TAXMANN 15),NIRMA INDUSTRIES LTD (153 TAXMANN 550);HRITNIK EXPORTS P.LTD.(IT APPEAL NO.21 9 AND 239 OF 2014);MOTOROLA INDIA ELECTRONICS(46 TAXMANN .COM167);TECHNOCRAFT INDUSTR IES(INDIA)LTD.(43 TAXMANN.COM.110); EMPIRE PUMPS PVT.LTD.(IT APPEAL NO.187 OF 2003);LUB RIZOL ADVANCE MATERIALS INDIA (P.) LTD.(42TAXMANN.COM.263),GEM PLUS JEWELLERY INDIA LT D(233CTR240). WITH REGARD TO OTHER FIVE ITEMS THE AR ARGUED THAT THE AO COULD NOT MAKE ANY ADJUSTMENT WHILE COMPUTING THE INCOME AS PER THE PROVISION OF SECTION 10B,THAT THE INCOME WAS ASSESSED AS BUSINESS INCOME,THAT SAME COULD NOT BE ASSESSED AS INCOME FR OM OTHER SOURCES,THAT THE PROVISIONS OF SECTION 10B PROVIDED STRAIGHT JACKET FORMULA AND SA ME HAD TO BE APPLIED.HE REFERRED TO THE ORDER OF CENTURY TEXTILES AND INDUSTRIES LTD. (ITA 3926/MUM/2005-AY01-02DATED 16.5. 8846/10 & 9186/10-SULPHURMILLS 4 2012), ARVIND FOOTWEAR (ITA 363/LUCK/2010 ORDER DT. 27.8.13),TESSITURA MONTI INDIA(P) LTD. (ITA/7127/MUM/2010 AY05-06, DT.11.01. 2013).DR SUPP ORTED THE ORDER OF THE FAA.THE DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDE R OF THE FAA. 5.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AO HAD MADE THE DISALLOWANCE AS HE WAS OF THE OPINI ON THAT THE INCOME EARNED BY THE UNDER VARIOUS HEADS WAS NOT DERIVED FROM THE ACTIVITIES O F THE INDUSTRIAL UNDERTAKING-THOUGH IT COULD BE ATTRIBUTABLE TO THE BUSINESS ACTIVITIES OF THE A SSESSEE.WE FIND THAT THE ISSUE OF INTEREST INCOME ACCRUING TO THE ASSESSEE HAS BEEN DEALT WITH BY THE HONBLE COURTS.THEY HAVE HELD THAT INTEREST RECEIVED FOR CUSTOMERS,INTEREST ON FD R WITH BANKS AND INTEREST ON DEPOSITS HAS TO BE TAKEN AS PART OF THE BUSINESS INCOME OF THE A SSESSEE AND IS ENTITLED FOR 10B DEDUCTION. WE WOULD LIKE TO REFER TO THE CASES OF ADVANCE DETE RGENT LTD.(SUPRA),NIRMA INDUSTRIES LTD (SUPRA);HRITNIK EXPORTS P.LTD.(SUPRA);MOTOROLA INDI A ELECTRONICS (SUPRA); TECHNOCRAFT INDUSTRIES(INDIA)LTD.(SUPRA); EMPIRE PUMPS PVT.LTD. (SUPRA);LUBRIZOL ADVANCE MATERIALS INDIA (P.)LTD.(SUPRA) IN OUR SUPPORT.NOW,COMING TO THE OTHER FIVE ITEMS OF INCOME WE WOULD LIKE TO MENTION THAT THE AO IS NOT PERMITTED TO MAK E ANY ADJUSTMENTS WHILE COMPUTING THE DEDUCTION U/S.10 A OR 10B OF THE ACT.HERE,WE WOULD LIKE TO REPRODUCE RELEVANT PORTION OF THE ORDER OF TESSITURA MONTI INDIA(P) LTD.(SUPRA) AND S AME READS AS UNDER: 4.3 IT WOULD, THUS, APPEAR TO US THAT THE PROCESS OF DETERMINATION OF QUANTUM OF PROFITS DERIVED BY A 100% E.O.U. FROM THE RELEVANT EXPORTS WOULD INVOLVE THREE STEPS. THE SECTION APPLIES ONLY TO AN ELIGIBLE UNDERTAKING, I.E., A 10 0% E.O.U., RECEIVING EXPORT PROCEEDS IN CONVERTIBLE FOREIGN EXCHANGE. AS SUCH, THE FIRST ST EP WOULD BE TO ASCERTAIN IF THE ASSESSEES UNDERTAKING IS AN ELIGIBLE UNDERTAKING U/S.10B. THE PROFITS OF THE BUSINESS OF THE UNDERTAKING WOULD BE REQUIRED TO BE COMPUTED AS THE SECOND STEP , WHICH REPRESENTS THE MOST CRUCIAL STEP. THIS IS AS IT PROVIDES FOR THE PROFITS DERIVED BY A N UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE TO BE THE PROFITS OF TH E BUSINESS OF THE UNDERTAKING IN A DEFINED RATIO, I.E., THAT OF ET TO TT. THE EXPRESSION PROFIT OF THE BUSINESS OF THE UNDERTAKING IS NOT DEFINED UNDER THE PROVISION. ONE THING, HOWEVER, IS CLEAR; THAT THE THIRD STEP, I.E., THE ADJUSTMENT BY WAY OF APPORTIONMENT OF SUCH PROFIT I N THE RATIO OF ET TO TT IS TOWARD FURTHER LIMITING THE PROFITS OF THE BUSINESS OF THE UNDERTA KING TO THAT DERIVED FROM EXPORTS ONLY. THIS IS AS THE ELIGIBLE PROFITS MUST BE FIRSTLY DERIVED BY THE UNDERTAKING AND, SECONDLY, FROM ITS EXPORTS (S. 10B(1)). AND IT IS THIS, THE THIRD STEP, THAT S EC. 10B(4) IS TOWARD. ALSO, AS A 100% E.O.U IS LICENSED TO UNDERTAKE ONLY EXPORTS, THE OTHER ELEME NT OF TT WOULD NORMALLY INCLUDE EITHER THE EXPORT PROCEEDS THAT ARE NOT BROUGHT INTO INDIA WIT HIN SIX MONTHS (OR SUCH EXTENDED PERIOD AS MAY BE ALLOWED) OR THE SALE PROCEEDS OF A PART OF I TS PRODUCTION THAT IT COULD UNDER THE TERMS OF THE 100% EOU LICENSE SELL IN THE DOMESTIC MARKET , OR THE SALE OF OTHER PRODUCTS (OF THE ASSESSEES UNDERTAKING) WHICH ARISE INCIDENTALLY TO ITS OPERATIONS IN THE DOMESTIC MARKET. IN FACT, THE SECOND PROVISO TO THE PROVISION IS ONLY B Y FINANCE ACT 2002, W.E.F. 01/4/2003; ITS EARLIER VERSION, SINCE OMITTED, BEARING A TOLERANCE OF UP TO 25% OF THE TOTAL SALES FOR DOMESTIC TURNOVER. COMING TO THE SECOND STEP AFORE-SAID, THE WORDS BUSINESS OF THE UNDERTAKING ARE WIDER IN AMBIT THAN THE WORDS PROFIT OF THE UNDERT AKING AND COULD ONLY HAVE BEEN SO PROVIDED WITH A PURPOSE. IN OUR CONSIDERED VIEW, THEREFORE, ANY PROFIT WHICH IS DERIVED FROM THE BUSINESS OF THE ASSESSEES UNDERTAKING WOULD QUALIFY TO BE T HE PROFITS OF THE BUSINESS OF THE UNDERTAKING, AND UPON SUITABLE APPORTIONMENT TOWARD EXCLUDING AS MUCH OF IT AS CAN BE REGARDED AS ATTRIBUTABLE TO THE DOMESTIC TURNOVER O R NON-QUALIFIED EXPORTS, CAN BE SAID TO BE THE PROFITS DERIVED BY THE 100% E.O.U FROM EXPORTS, AS CONTEMPLATED IN SECTION 10B(1), AND ON WHICH DEDUCTION THERE-UNDER IS TO BE ALLOWED. ALL T HAT WAS REQUIRED, IF NOT SO, WAS TO DEFINE THE PROFITS OF THE BUSINESS TO MEAN THE PROFITS OF THE ELIGIBLE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IN O THER WORDS, THE WORD DERIVED WOULD CONTINUE 8846/10 & 9186/10-SULPHURMILLS 5 TO CONTROL OR GUIDE THE WORD PROFITS IN THE DEDUC TION PROVISION, BUT THE ACTIVITY FROM WHICH THE SAME ARE DERIVED IS THE ECONOMIC ACTIVITY THAT COMP RISES THE BUSINESS OF THE ELIGIBLE UNDERTAKING, RATHER THAN BEING RESTRICTED STRICTLY TO THE ELIGIBLE UNDERTAKING. AS SUCH, AS LONG AS A RECEIPT IS INTIMATELY AND INEXTRICABLY CONNECT ED WITH THE BUSINESS OF THE UNDERTAKING, IT CANNOT BE EXCLUDED IN RECKONING THE ELIGIBLE PROFIT S U/S. 10B(1). CONSIDERING THE ABOVE,WE DECIDE GROUND NO.2 IN FAVO UR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISS ED AND THE APPEAL OF THE ASSESSEE STAND PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST JANUARY, 2016. 01 ,2016 SD/- SD/- ( /SANDEEP GOSAIN ) ( / RAJENDRA ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER MUMBAI, DATE: 01.01.016 . . . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.