THE DY. CIT, Circle-5, Ahmedabad V. M/S. PIPALIA CABLES & WIRES PVT .TD., Ahmedabad

ITA 938/AHD/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1959 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 07-03-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 27-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Keywords: Business income; Question of law
• Section: 80HHC; 80IB; 148; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI BHAVNESH SAINI,JM & SHRI A N PAHUJA, ITA NO.938/AHD/2009 (ASSESSMENT YEAR:-2003-04) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-5, AHMEDABAD V/S M/S PIPALIA CABLES & WIRES PVT. LTD., 6, NEPTUNE TOWER, ASHRAM ROAD, AHMEDABAD PAN: AAACP 9156 B [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI C K MISHRA, SR. DR ASSESSEE BY:- SHRI UMAID SINGH BHATI, AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 19- 01-2009 OF THE LD. CIT(APPEALS)-XI, AHMEDABAD, FOR THE ASSESSMENT YEAR (AY) 2003-04, RAISES THE FOLLOWING GROUNDS:- 1. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMEDABA D HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF CLAIM OF DEDUCT ION U/S.80IA OF THE ACT ON THE RECEIPTS OF JOB WORK. 2. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMED ABAD HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO ALLOW OTHER INT EREST INCOME (OTHER THAN IDBI SUVIDHA INTEREST) FOR THE PURPOSE OF CLAI MING DEDUCTION U/S. 80IA OF THE ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E,, THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 4. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMEDABAD MAY BE SET ASIDE AND T HAT OF THE ASSESSING OFFICER BE RESTORED. 2 FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS.34,81,680/- FILED ON 30.6.2003 BY TH E ASSESSEE, MANUFACTURING ALUMINIUM FOILS & POLY FILMS, WAS PR OCESSED ON 19.12.2003 U/S 143(1) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER ITA NO.938/AHD/2009 2 REFERRED TO AS THE ACT] . SUBSEQUENTLY, THE ASSES SING OFFICER[AO IN SHORT] NOTICED THAT DEDUCTION OF RS.14,92,149/- U/ S 80IA CLAIMED BY THE ASSESSEE WAS NOT ADMISSIBLE,THE AUDIT REPORT IN FORM NO. 3CA/CD WAS INCOMPLETE AS GROSS TOTAL INCOME WAS YET TO BE DETERMINED AND THE CHARTERED ACCOUNTANT HAD NOT CER TIFIED THE AMOUNT NOR GIVEN DETAILS FOR DEDUCTION ADMISSIBLE U /S 80IA OF THE ACT. ACCORDINGLY, THE ASSESSMENT WAS REOPENED WITH THE SERVICE OF A NOTICE U/S 148 OF THE ACT ON 24.3.2007.IN RESPONSE , THE ASSESSEE FILED RETURN DECLARING SAME INCOME AS WAS DECLARED IN THE ORIGINAL RETURN. DURING THE COURSE OF REASSESSMENT PROCEEDIN GS, THE AO NOTICED THAT THE ASSESSEE CLAIMED DEDUCTION U/S. 80 IA OF THE ACT, INTER ALIA, ON THE FOLLOWING INCOME: INTEREST ON FDR RS. 66,034/- OTHER INTEREST RS. 115/- MISC. INCOME RS. 18,794/- IDBI SUVIDHA FUND INTEREST RS.5,35,563/- ------------------ RS.6,20,506/- SINCE THE AFORESAID INCOME WAS NOT DERIVED FROM T HE BUSINESS OF THE INDUSTRIAL UNDERTAKING, RELYING UPON THE DECISI ONS IN PANDIAN CHEMICALS LTD. VS. CIT, 262 ITR 278.(SC) OF RANI PALIWAL VS. CIT,268 ITR 220 (P&H) AND MANDEEP ENGINEERING & PACKAGING INDUSTRIES PVT. LTD . VS. CIT,77 ITD 307 (INDORE), HE AO DISALLOWED THE CLAIM FOR DEDUCTION U/S 80IA OF THE ACT ON THE AFORESAID INTEREST & MISCELLANEOUS INCOME,RESULTING IN DISALLOWANCE OF RS. 1,86,150/-. 2.1 MOREOVER, SINCE THE ASSESSEE DID NOT FURNIS H COMPLETE DETAILS IN RESPECT OF THE CONVERSION WORK AND JOB WORK CARRIED OUT BY IT , THE AO DISALLOWED THE CLAIM FOR DEDUCTION U/S 80IB OF THE ACT ON THE JOB WORK RECEIPTS AND CONVERSION CHARGES, RESULTING IN DISALLOWANCE OF RS.5,83,782 /-. 3. ON APPEAL, THE LEARNED CIT(A) ADJUDICATED THE AF ORESAID ISSUES IN THE FOLLOWING TERMS:- ITA NO.938/AHD/2009 3 4.1 IT IS THE SUBMISSION OF THE A.R. THAT THE JOB WORK DONE BY THE APPELLANT IS NOT DIFFERENT FROM ITS OWN BUSINESS AC TIVITY AND THE APPELLANT HAS BEEN DISCLOSING SUBSTANTIAL INCOME FOR THE JOB WORK DONE. THEREFORE, THE A.O. SHOULD NOT HAVE TREATED THE RECEIPTS PERTA INING TO JOB WORK AS DIFFERENT INCOME. 4.2 IT MAY BE SEEN THAT THE RECEIPTS PERTAINING TO JOB WORK ARE VERY MUCH RELATED TO APPELLANT'S OWN BUSINESS ACTIVITY. THEREFORE, THE A.O. IS NOT JUSTIFIED TO DISALLOW DEDUCTION U/S. 80 IA OF T HE I.T. ACT. THEREFORE, HAVING CONSIDERED THE SUBMISSIONS MADE BY THE A.R. AND AFTER PERUSING THE FACTS OF THE CASE, I AM INCLINED TO DIRECT THE A.O. TO ALLOW DEDUCTION U/S. 80-IA OF THE I.T. ACT PERTAINING TO JOB WORK. HENCE , THIS GROUND OF APPEAL IS ALLOWED. 5. THE NEXT GROUND OF APPEAL IS IN RESPECT OF DISAL LOWANCE MADE BY THE A.O. AT RS.1,86,150/- ON THE GROUND THAT THE AP PELLANT HAS WRONGLY CLAIMED 80-IA OF DEDUCTION WITH REGARD TO INTEREST INCOME OF RS.6,20,506/-, THE APPELLANT HAS RECEIVED INTEREST FROM VARIOUS SO URCES. THEREFORE, THE A.O. HAS TREATED THE SAID RECEIPTS NOT PERTAINING T O BUSINESS INCOME. ACCORDINGLY, HE HAS DISALLOWED DEDUCTION U/S. 80-IA OF THE I.T. ACT. 5.1 IT IS SUBMITTED BY THE A.R. THAT THE APPELLANT HAS RECEIVED INTEREST OF FDR AT RS.66,034/-, OTHER INTEREST AT RS.115/-, MIS C. INCOME AT RS.18,794/- AND INTEREST ON IDBI SUVIDA FUND AT RS.5,35,563/-. IT IS THE CONTENTION OF THE A.R. THAT ALL THE ABOVE RECEIPTS ARE RELATED TO THE APPELLANT BUSINESS ONLY. THEREFORE, THE A.O. SHOULD NOT HAVE DENIED TH E ABOVE SAID DEDUCTIONS. 5.2 THE SUBMISSIONS MADE BY THE A.R. HAVE BEEN PERU SED. THE OBSERVATIONS OF THE A.O ARE ALSO TAKEN INTO CONSIDE RATION. AS IT IS SEEN FROM THE ABOVE RECEIPTS, IT APPEARS TO ME THAT INTE REST ON FDR, OTHER INTEREST AND MISC. INCOME ARE VERY MUCH DIRECTLY CO NNECTED TO THE BUSINESS INCOME OF THE APPELLANT. 5.3 THEREFORE, I AM OF THE VIEW THAT THE A.O. IS NO T JUSTIFIED TO DISALLOW THE ABOVE SAID DEDUCTION WITH REGARD TO THESE RECEI PTS. HOWEVER, THE INTEREST RECEIVED FROM IDBI SUVIDA FUNDS APPEARS TO HAVE BEEN INVESTED ONLY FOR THE PURPOSE OF EARNING THE INTEREST. THERE FORE, THE SAME INTEREST RECEIPTS ARE TO BE TREATED AS INCOME FROM OTHER SOU RCES. HENCE, I AM OF THE VIEW THAT THE A.O. HAS RIGHTLY DISALLOWED DEDUC TION U/S. 80IA OF THE I.T. ACT WITH REGARD TO IDBI SUVIDA INTEREST. WITH REGAR D TO OTHER INTEREST INCOME THE A.O. IS DIRECTED TO ALLOW APPELLANTS CL AIM. HENCE, THIS GROUND OF APPEAL IS PARTLY ALLOWED. ITA NO.938/AHD/2009 4 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR MERE LY SUPPORTED THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LD. CIT(A) WHILE RELYING UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN T HE CASE OF DCIT VS. HARJIVANDAS JUTHABHAI ZAVERI [2002] 258 ITR 785 (GUJ). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY, THE AMOUNT ON ACCOUNT OF JO B WORK INCOME WAS DERIVED FROM THE ACTIVITIES OF INDUSTRIAL UNDER TAKING. IN TERMS OF PROVISIONS OF SECTION 80-IA OF THE ACT, ONLY REQUI REMENT FOR ITS APPLICABILITY IS DERIVING OF INCOME FROM BUSINESS REFERRED TO IN TH E SAID PROVISIONS. IT IS NOT THE CASE OF THE REVENUE THAT THE BUSINESS OF THE INDUST RIAL UNDERTAKING OF ASSESSEE DOES NOT FALL UNDER THESE PROVISIONS OF THE ACT. TH E ACTIVITY OF THE ASSESSEE IS LIABLE TO BE REGARDED AS MANUFACTURING ACTIVITY IRR ESPECTIVE OF THE FACT WHETHER THE PRODUCTS MANUFACTURED THEREIN ARE FOR ITS OWN BUSIN ESS OR FOR OTHERS ON JOB WORK BASIS. EVIDENTLY, SEC. 80IA OF THE ACT DOES NOT DI STINGUISH BETWEEN THE ACTIVITY INVOLVING MANUFACTURING ON OWN ACCOUNT OR FOR OTHER S. HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. J.B. KHARWAR & SONS , 163 ITR 394 (GUJ) WHILE HOLDING THIS VIEW, ALLOWED THE CLAIM FOR DEDUCTION U/S 80J OF THE ACT. HONBLE DELHI HIGH COURT IN CIT V. NORTHERN AROMATICS LTD. [2005] 196 CTR (DELH I) 479 ,FOLLOWING THEIR EARLIER DECISION IN NU-LOOK (P) LTD. VS. CIT, 157 ITR 253 (DEL) HELD THAT THE MANUFACTURING ACTIVITY, WHICH RESULTED IN RECEIPT O F SUCH CHARGES, NOT DONE BY THE ASSESSEE FOR ITSELF BUT FOR OTHERS, IS ENTITLED TO DEDUCTION U/S 80IA OF THE ACT. SIMILAR VIEW WERE TAKEN BY THE HONBLE PUNJAB & HAR YANA HIGH COURT IN CIT VS.IMPEL FORGE & ALLIED INDUSTRIES LTD.,183 TAXMAN 38 5.1 WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DCIT VS. HARJIVANDAS JUTHABHAI AND ANOTHER, 258 ITR785(GUJ) WHILE ADJUDICATING AN ISSUE RELATING TO CLAIM FOR DEDUCTION U/S 80I OF THE ACT ON THE AMOUNT OF SCRAP GENERATED DURING THE MANUFACTURING ACTIVITIES HELD AS UNDER: ITA NO.938/AHD/2009 5 SO FAR AS QUESTION NO. 5 IS CONCERNED, LEARNED CO UNSEL, MR. SOPARKAR, DREW OUR ATTENTION TO SECTION 80-I OF THE ACT AND SUBMITTED THAT THIS SECTION IS MEANT FOR DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM INDU STRIAL UNDERTAKINGS. WITH REGARD TO THE QUESTION RAISED BY THE REVENUE THAT THE AMOU NT RECEIVED ON SALE OF JUTE BAGS, BARRELS, ETC., OUGHT TO HAVE BEEN DEDUCTED FR OM THE COST OF THE MATERIAL, MR. SOPARKAR, THE LEARNED ADVOCATE FOR THE ASSESSEE, SU BMITTED THAT IT WOULD NOT MAKE ANY DIFFERENCE IF THE AMOUNT RECEIVED BY THE S ALE OF EMPTY BARREL OR 'BARDAN' (JUTE BAGS) IS DEDUCTED FROM THE COST OF T HE RAW MATERIAL. HE SUBMITTED THAT IF THE COST IS REDUCED BY DEDUCTING THE SUM SO RECEIVED, THE PROFIT WILL INCREASE AND, ULTIMATELY, THE TOTAL WOULD BE THE SA ME. HE SUBMITTED THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE TRIBUN AL HAVE RIGHTLY COME TO THE CONCLUSION THAT THE ITEMS COVERED BY QUESTION NO. 5 ARE COVERED BY SECTION 80-I OF THE ACT INASMUCH AS THE AMOUNT RECEIVED CAN BE S AID TO HAVE BEEN RECEIVED FROM THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE. HE SUBMITTED THAT NO QUESTION OF LAW IS RAISED, MORE PARTICULARLY, WHEN A DIVISION B ENCH OF THIS COURT IN INCOME-TAX APPLICATION NO. 70 OF 1997 (CIT V. NIRMA DETERGENT P. LTD.) HAD CONSIDERED A SIMILAR QUESTION AND HELD THAT 'IT WAS, HOWEVER, FO UND THAT THE ITEMS OF KASAR AND SALE OF EMPTY SODA ASH BARDANS, ARE DIRECTLY CONNEC TED WITH THE MANUFACTURING ACTIVITIES OF THE ASSES SEE AND SHOULD BE ALLOWED'. IT IS REQUIRED TO BE NOTED THAT IF THE ASSESSEE WAS NOT ENGAGED IN INDUSTRIAL ACTIVITI ES, THERE WAS NO QUESTION OF EMPTY BARRELS OR BARDANS. INSTEAD OF MANUFACTURING IF THE ASSESSEE WAS DOING TRADING ACTIVITIES, I.E., DEALING IN RAW MATERIAL, AND IF THE ASSESSEE HAD SOLD THE MATERIAL ON RETAIL BASIS AND EARNED AMOUNT BY SALE OF BARDANS, THEN OBVIOUSLY THIS SECTION WILL NOT APPLY. IN VIEW OF WHAT WE HAVE STATED HEREINABOVE, WE FIND THAT THERE IS NO MERIT IN THE APPEAL, AND THE APPEAL STANDS DISMISSED. 5.2. IN THE LIGHT OF THE VIEW TAKEN IN THE AFORE SAID DECISIONS, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LEARNED CIT(A) IN ALLOWING THE DEDUCTION U/S 80IA OF THE ACT ON THE I NCOME FROM JOB WORK RECEIPTS. THEREFORE, GROUND NO. 1 IN THE APPE AL IS DISMISSED. 6. AS REGARDS DEDUCTION U/S 80IA ON THE INTERES T OF RS.66,034/-ON FDRS AND OTHER INTERST OF RS.115/-, THE AO DISALLOWED THE C LAIM FOR DEDUCTION U/S 80IA OF THE ACT ON THE GROUND THE RECEIPTS BY WAY OF INTER EST ON FIXED DEPOSITS WITH THE BANK AND OTHER INTEREST WERE NOT DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING WHILE THE LD. CIT(A) WITHOUT RECORDING ANY FINDINGS ON THIS ASPECT MERELY DIRECTED TO ALLOW THE CLAIM.. AS REGARDS EX CLUSION OF INTEREST ON FDRS FROM THE ELIGIBLE PROFITS FOR THE PURPOSE OF DEDUCT ION U/S 80IA OF THE ACT, THE LEADING DECISION IS THAT OF THE HON'BLE SUPREME COU RT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. [1997] 227 ITR 172 W HICH HOLDS THAT INTEREST ITA NO.938/AHD/2009 6 EARNED ON DEPOSITS PLACED FOR THE PURPOSES OF OBTAI NING LOANS FOR BUSINESS CANNOT BE TREATED AS BUSINESS INCOME BUT ONLY AS IN COME FROM OTHER SOURCES.. THE DECISION IN TUTICORIN ALKALI CHEMICALS AND FERT ILIZERS LTD. [1997] 227 ITR 172, WHICH WAS RENDERED IN THE CONTEXT OF SECTIONS 56 AN D 57, HAS BEEN FOLLOWED IN CIT V. AUTOKAST LTD. [2001] 248 ITR 110 (SC). LIKEW ISE, IN CIT V. DR. V. P. GOPINATHAN [2001] 248 ITR 449 (SC) INTEREST ON FIXE D DEPOSITS WAS HELD NOT TO QUALIFY FOR SETTING OFF AGAINST INTEREST ON LOANS B ORROWED. THE OTHER DECISIONS ON THE SAME LINES, IN THE CONTEXT OF SECTION 80HHC ARE CIT V. STERLING FOODS [1999] 237 ITR 579 (SC) AND PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 (SC). IN THESE DECISIONS, THE HON'BLE SUPREME COURT REITERAT ED THE NEXUS THEORY AND DECLINED TO TREAT SUCH INTEREST EARNED AS BUSINESS INCOME. THE DECISION OF THE HONBLE MADRAS HIGH COURT IN SOUTH INDIA SHIPPING CORPORATION LTD. V. CIT [1999] 240 ITR 24 WAS ALSO RENDERED IN THE CONTEXT OF TREATING CERTA IN RECEIPTS NOT AS BUSINESS INCOME BUT INCOME FROM OTHER SOURCES FO R THE PURPOSES OF SECTION 56 READ WITH SECTION 57(III) OF THE ACT. GIVEN THE REP EATED AFFIRMATION BY THE HON'BLE SUPREME COURT IN THE VARIOUS CASES, WE ARE OF THE O PINION THAT INTEREST EARNED ON FDRS AND OTHER INTEREST, DOES NOT HAVE AN IMMEDIATE NEXUS WITH THE BUSINESS OF THE INDUSTRIAL UNDERTAKING AND THEREFORE, CAN NOT B E SAID TO BE DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING . 6.1 IN THE CASE OF AHMEDABAD MANUFACTURING AND CALICO PRINTING CO. LTD. VS.CIT,137 ITR 616(GUJ),HONBLE JURISDICTIONAL HIGH COURT HELD WE ARE IN FULL AGREEMENT WITH THE VIEW TAKEN BY TH E BOMBAY HIGH COURT AND TO SOME EXTENT WITH THE VIEW TAKEN BY THE KERALA HIGH COURT. PROFITS AND GAINS CAN BE SAID TO HAVE BEEN ' DERIVED ' FROM AN ACTIVITY C ARRIED ON BY A PERSON ONLY IF THE SAID ACTIVITY IS AN IMMEDIATE AND EFFECTIVE SOURCE OF THE SAID PROFIT OR GAIN. THERE MUST BE A DIRECT NEXUS BETWEEN THE ACTIVITY AND THE EARNING OF THE PROFITS AND GAINS. IN OTHER WORDS, WHAT WE HAVE TO CONSIDER IS THE PROXIMATE SOURCE AND NOT THE SOURCE TO WHICH THE PROFIT OR GAIN MAY IN A REM OTE INDIRECT WAY BE REFERABLE. THE VIEW TO THIS EFFECT OF THE PRIVY COUNCIL IN CIT V. KAMAKHYA NARAYAN SINGH [1948] 16 ITR 325 WAS APPROVED BY THE SUPREME COURT IN MRS. BACHA F. GUZDAR V. CIT [1955] 27 ITR 1 AND FOLLOWED BY THE KERALA HIGH COURT IN COCHIN CO MPANY V. CIT [1978] 114 ITR 822 AND BY THE BOMBAY HIGH COURT IN HINDUSTAN LEVER LT D. V. CIT [1980] 121 ITR 951 . IN OUR OPINION, THE WORD ' DERIVE ' TO BE FOUND I N S. 2(5)(A)(I) OF THE RELEVANT FINANCE ACT WILL HAVE TO BE GIVEN A MEANING CONSISTENT WITH WHAT WAS DECIDED IN THE ABOVE DECISIONS. THE W ORDS 'DERIVED FROM EXPORTS' ITA NO.938/AHD/2009 7 CANNOT BE ACCEPTED AS EQUIVALENT TO ' REFERABLE TO EXPORTS ' OR EVEN INDIRECTLY OR REMOTELY CONNECTED WITH THE EXPORTS BY A NEBULOUS L INK. 6.2 HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF NAHAR EXPORTS VS. CIT,288 ITR 494 UPHELD DISALLOWANCE OF CLAIM FOR DE DUCTION U/S 80IA OF THE ACT ON THE INTEREST INCOME, IN THE LIGHT OF AFORESAID DECISIONS OF THE APEX COURT IN STERLING FOODS [1999] 237 ITR 579 (SC) AND PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 .. 6.3 FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER S. 80IA OF THE ACT, THE ASSESSEE IS NOT ONLY REQUIRED TO ESTABLISH THAT IT WAS BUSINESS PROFIT OF THE INDUSTRIAL UNDERTAKING, BUT ALSO TO ESTABLISH THAT THIS WAS A PROFIT 'DERIVED FROM' THE BUSINESS ACTIVITY OF AN INDUSTRIAL UNDERTAKING, WH ICH MEANS A DIRECT NEXUS BETWEEN THE PROFITS AND INDUSTRIAL UNDERTAKING. THE MERE FACT THAT SUCH INCOME WAS A BUSINESS INCOME WOULD NOT ENTITLE THE ASSESSE E FOR DEDUCTION UNDER S. 80- IB OF THE ACT. AS HELD BY THE HONBLE SUPREME COURT IN CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT [1978] 113 ITR 84 , THE PROFITS OR GAINS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE ACT MUST BE DER IVED FROM THE ACTUAL CONDUCT OF THE BUSINESS, AND UNLESS THE PROFITS OR GAINS AR E DERIVED FROM THE ACTUAL CONDUCT OF THE BUSINESS, IT CANNOT BE STATED THAT T HE INTEREST IS DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. IN OTHER WO RDS, THE INDUSTRIAL UNDERTAKING MUST DIRECTLY YIELD THE PROFIT, AND IT CANNOT BE TH E MEANS TO YIELD THE INCOME. THE FACT THAT THE AMOUNT WAS ASSESSED AS BUSINESS INCOM E ITSELF WOULD NOT BE SUFFICIENT TO HOLD THAT THE INTEREST INCOME WAS DER IVED FROM THE ACTUAL CONDUCT OF THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. IN OTHE R WORDS, IT IS NOT ALL BUSINESS RECEIPTS THAT WOULD QUALIFY FOR THE DEDUCTION AND T HE LEGISLATURE HAS APPARENTLY NOT INTENDED TO GIVE THE BENEFIT OF DEDUCTION TO AL L BUSINESS INCOME. IF THE INTENTION OF THE LEGISLATURE WAS TO GRANT RELIEF TO ALL BUSINESS INCOME, IT COULD HAVE USED THE EXPRESSION, 'PROFITS AND GAINS OF IND USTRIAL UNDERTAKING', THE FACT THAT THE LEGISLATURE HAS USED THE EXPRESSION 'PROFI TS AND GAINS DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING' HAS SOME SIGNI FICANCE AND IT CONNOTES THAT THE IMMEDIATE AND EFFECTIVE SOURCE OF INCOME ELIGIB LE FOR GRANT OF RELIEF UNDER SECTION 80IB OF THE ACT MUST BE THE INDUSTRIAL UNDE RTAKING ITSELF AND NOT ANY OTHER SOURCE. THE MANDATE OF LAW IS THAT UNLESS THE SOURC E OF THE PROFIT IS THE ITA NO.938/AHD/2009 8 UNDERTAKING, THE ASSESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 80IB OF THE ACT. MERE COMMERCIAL CONNECTION BETWEEN THE INC OME AND THE INDUSTRIAL UNDERTAKING WOULD NOT BE SUFFICIENT. THE DERIVATION OF THE INCOME MUST BE DIRECTLY CONNECTED WITH THE BUSINESS IN THE SENSE THAT THE I NCOME IS GENERATED BY THE BUSINESS. IT WOULD NOT BE SUFFICIENT IF IT IS GENER ATED BY THE EXPLOITATION OF A BUSINESS ASSET. 6.4 HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS.GASKETS AND RADIATORS DISTRIBUTORS, 296 ITR 440(GUJ) IN THE CON TEXT OF DEDUCTION U/S 80HHC OF THE ACT IN RESPECT OF INCOME ON ACCOUNT OF INTEREST ON FIXED DEPOSITS HELD IDENTICAL QUESTION CAME TO BE CONSIDERED BY THE HO N'BLE SUPREME COURT IN PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 AND THE QUESTION, WHICH WAS POSED FOR CONSIDERATION BEFORE THE APEX COURT WAS W HETHER THE INTEREST ON DEPOSITS WITH THE TAMIL NADU ELECTRICITY BOARD SHOU LD BE TREATED AS INCOME DERIVED BY THE INDUSTRIAL UNDERTAKING FOR THE PURPO SE OF SECTION 80HH OR NOT, AND THE HON'BLE SUPREME COURT HAS OBSERVED THAT SECTION 80HH OF THE INCOME-TAX ACT GRANTS DEDUCTION IN RESPECT OF PROFITS AND GAIN S 'DERIVED FROM' AN INDUSTRIAL UNDERTAKING AND THE WORDS 'DERIVED FROM' IN SECTION 80HH OF THE INCOME-TAX ACT, 1961, MUST BE UNDERSTOOD AS SOMETHING WHICH HAS A D IRECT OR IMMEDIATE NEXUS WITH THE ASSESSEE'S INDUSTRIAL UNDERTAKING. THE SUP REME COURT HELD THAT INTEREST DERIVED BY THE INDUSTRIAL UNDERTAKING OF THE ASSESS EE ON DEPOSITS MADE WITH THE TAMIL NADU ELECTRICITY BOARD FOR THE SUPPLY OF ELEC TRICITY FOR RUNNING THE INDUSTRIAL UNDERTAKING COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF AND WAS NOT PROFITS OR GAINS DERIVED BY THE UNDERTA KING FOR THE PURPOSE OF THE SAID DEDUCTION UNDER SECTION 80HH. IN G.T.N. TEXTIL ES LTD. V. DY. CIT [2005] 279 ITR 72 , THE KERALA HIGH COURT HELD THAT INTEREST ON BANK DEPOSITS WAS NOT PROFIT DERIVED FROM EXPORT OF GOODS. THE KERALA HIGH COURT HAS FURTHER HELD THAT THE INTEREST EARNED BY THE ASSESSEE ON FIXED DEPOSITS, COMMISSION RECEIVED ON SALE OF MACHINERY, ETC., WERE NOT BUSINESS INCOME AND CO NSEQUENTLY THE ASSESSEE WAS NOT ENTITLED TO COMPUTATION OF ELIGIBLE DEDUCTI ON UNDER SECTION 80HHC OF THE ACT BY INCLUDING THOSE RECEIPTS UNDER BUSINESS INCO ME. THEREFORE, CONSIDERING THE AFORESAID TWO DECISIONS, WE MUST HOLD THAT THE TRIBUNAL AS WELL AS THE COMMISSIONER OF INCOME-TAX (APPEALS), BOTH COMMITTE D AN ERROR IN TREATING THE INTEREST ON DEPOSITS AS 'BUSINESS INCOME' AND GRANT ING THE ASSESSEE THE DEDUCTION UNDER SECTION 80HHC OF THE ACT.. 6.5. IN THE INSTANT CASE, INDISPUTABLY THERE IS NO MATERIAL BEFORE US THAT INTEREST ON FDRS AND OTHER INTEREST WAS DERIVED FROM THE ACTUAL CONDUCT OF THE BUSINESS OF THE INDUSTRIAL UNDERTAKING NOR THERE IS ANY EVIDENCE THAT ANY EXPENDITURE WAS ALSO ACTUALLY INCURRED BY THE ASSES SEE IN EARNING THESE RECEIPTS. ITA NO.938/AHD/2009 9 IN THESE CIRCUMSTANCES AND IN THE LIGHT OF VIEW TAK EN IN THE AFORESAID DECISIONS BY THE HONBLE APEX COURT AND JURISDICTIONAL HIGH COUR T, WE ARE OF THE OPINION THAT THE AO WAS JUSTIFIED IN DENYING DEDUCTION U/S 80IA ON THE AFORESAID INCOME. WE ,THEREFORE ,HAVE NO ALTERNATIVE BUT TO SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND RESTORE THE ORDER OF THE AO, DEN YING DEDUCTION U/S 80IA ON THESE RECEIPTS . THEREFORE, GROUND NO.2 IN THE APPE AL OF THE REVENUE SO FAR AS THESE RECEIPTS ARE CONCERNED, IS ALLOWED. 7. GROUND NOS. 3 & 4 BEING MERE PRAYER ,DO NOT R EQUIRE ANY SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMISSED . 8. NO OTHER PLEA OR ARGUMENT WAS RAISED BEFORE U S. 9. IN THE RESULT ,APPEAL IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE COURT TODAY ON 10-03-2011 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 10-03-2011 COPY OF THE ORDER FORWARDED TO: 1. M/S PIPALIA CABLES & WIRES PVT. LTD., 6, NEPTUNE TOWER, ASHRAM ROAD, AHMEDABAD 2. DCIT, CIRCLE-5, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XI, AHMEDABAD 5. DR, ITAT, AHMEDABAD BENCH-C, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD