ACIT, Circle, Parwanoo V. Shivom Cotspin Limited, Sirmour

ITA 957/CHANDI/2019

• Counselvise Citation: [2020] 109 COUNSELVISE.COM (IT) 7641 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2020
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 27-06-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Earning of tax free income; Question of law; Tax effect; Rule 8D
• Section: 14A; 80IA; 80IC; 80IC; 13; 22; 20

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, B,CHANDIGARH , ! '# $ % & '# , () BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.560/CHD/2019 / ASSESSMENT YEAR : 2015-16 SHIVAM COTSPIN LIMITED, VILLAGE KHERI, KALA AMB, TRILOKPUR ROAD, SIRMOUR HIMACHAL PRADESH THE DCIT, CIRCLE, PARWANOO ./PAN NO: AAJS9111L / APPELLANT /RESPONDENT ./ ITA NO. 957/CHD/2019 / ASSESSMENT YEAR : 2015-16 THE ACIT, CIRCLE, PARWANOO SHIVAM COTSPIN LIMITED, VILLAGE KHERI, KALA AMB, TRILOKPUR ROAD, SIRMOUR HIMACHAL PRADESH ./PAN NO: AAJS9111L / APPELLANT /RESPONDENT ./ ITA NO.46/CHD/2020 / ASSESSMENT YEAR : 2012-13 THE DCIT, CIRCLE, PARWANOO SHIVAM COTSPIN LIMITED, VILLAGE KHERI, KALA AMB, TRILOKPUR ROAD, SIRMOUR HIMACHAL PRADESH ./PAN NO: AAJS9111L / APPELLANT /RESPONDENT ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 2 ./ ITA NO. 47/CHD/2020 / ASSESSMENT YEAR : 2013-14 THE DCIT, CIRCLE PARWANOO SHIVAM COTSPIN LIMITED, VILLAGE KHERI, KALA AMB, TRILOKPUR ROAD, SIRMOUR HIMACHAL PRADESH ./PAN NO: AAJS9111L / APPELLANT /RESPONDENT HEARING THROUGH VIDEO CONFERENCING ! /ASSESSEE BY : SHRI ROHIT GOEL, CA ' ! / REVENUE BY : DR. DAYA INDER SINGH SIDHU, ADDL . CIT # $ % /DATE OF HEARING : 29.09.2020 &'() % / DATE OF PRONOUNCEMENT : 28.12.2020 (* / ORDER PERANNAPURNAGUPTA, AM: THE CAPTIONED APPEALS RELATE TO THE SAME ASSESSEE A ND HAVE BEEN FILED AGAINST ORDERS PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)(IN SHORT REFERRED TO AS CIT(A), UNDER SEC TION 250(6) OF THE INCOME TAX ACT,1961(HEREINAFTER REFERRED TO AS ACT )FOR ASSESSMENT YEARS(A.Y) 2012-13 , 2013-14&2015-16. WHILE THE REV ENUE HAS FILED APPEAL AGAINST CONSOLIDATED ORDER OF THE CIT(A) FOR A.Y 2012-13 & 2013-14 DT.16-10-2019,CROSS APPEALS HAVE BEEN FILE D BY THE ASSESSEEAND THE REVENUE AGAINST ORDER OF CIT(A)FOR A.Y 2015- 16 DT.28-03-2019. ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 3 2. AT THE OUTSET IT WAS PLEADED THAT THE APPEALS FO R A.Y 2012-13 AND 2013-14BE TAKEN UP FIRST FOR HEARING TOGETHER SINCE IDENTICAL ISSUE WAS RAISED IN THEM, RELATING TO THE CLAIM OF DEDUCTION U/S 80IC OF THE ACT.THE APPEALS OF THE REVENUE FOR THE SAID TWO YEA RS WERE ACCORDINGLY FIRST TAKEN UP FOR HEARING. 3. ITA NO.46 & 47/CHD/2020 A.Y 2012-13 & 2013-14 RESPECTIVELY(REVENUES APPEALS) OUR ATTENTION WAS DRAWN TO THE IDENTICALLY WORDED G ROUNDS RAISED BY THE REVENUE FOR BOTH THE YEARS, WHICH, FOR THE SAKE OF CONVENIENCE, WE ARE REPRODUCING THOSE RAISED IN ITA NO. 46/CHD/2020 RELATING TO A.Y 2012-13 AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE BY HOLDING THAT THE ASSESSEE HAS CARRIED OUT SUBSTANTIAL EXPANSION IN AY 2012-13 WITHIN THE MEANING OF SECTION-80IC, WHEREAS, THE ACTUAL INVESTMENT MADE IN PLANT & MACHINERY BY THE ASSESSEE WAS LESS THAN THE VALUE OF 50% OF THE EXISTING VALUE OF PLANT & MACHINERY (BEFORE TAKING DEPRECIATION IN ANY YEAR) AS ON 1ST DAY OF THE RELEVANT FINANCIAL YEAR 2011-12 AND THEREFORE, THE ASSESSEE DID NOT FULFILL THE PRIMARY REQUIREMENT OF SUBSTANTIAL EXPANSION AS PER DEFINED IN CLAUSE-(IX) OF SUB-SECTION-8 OF SECTION-80IC OF THE INCOME-TAX ACT, 1961. 2. ON FACT AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE HAD PLANT & MACHINERY WORTH RS.31,14,03,477/- (AFTER TAKING DEPRECIATION) ON ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 4 THE FIRST DAY OF FY 2011-12 AND ACCUMULATED DEPRECIATION ON THE SAME DATE [ON THE FIRST DAY OF FY 2011-12] WAS RS.19,96,67,972/- AND THAT THEREFORE, THE ASSESSEE WAS REQUIRED TO MAKE AN INVESTMENT OF AT LEAST OF 50% OF THE VALUE EXISTING PLANT & MACHINERY WHICH WORKED OUT TO RS.25,55,35,725/- [50% OF RS.51,10,71,449/- (RS.31,14,03,477/- + RS.19,96,67,972/-)], WHEREAS, THE AMOUNT OF ADDITION MADE IN PLANT & MACHINERY DURING FY 2011-12 WAS RS.5,85,76,223/- (RS.5,64,01,223/- + RS.21,75,000/-] ONLY AGAINST THE REQUIREMENT OF INVESTMENT OF RS.25,55,35,725/- IN PLANT & MACHINERY. 3. IT IS PRAYED THAT THE ORDER OF THE LD.CIT(A) BE SET - ASIDE AND THAT THE AO RESTORED 4. THE APPELLANT CRAVES LEAVE TO ADD ANY OTHER GROUND OF APPEAL WHICH MAY ARISE AT THE TIME OF HEARING. REFERRING TO THE ABOVE,IT WAS POINTED OUT THAT THE SOLITARY ISSUE IN THE APPEALS RELATED TO INTERPRETATION OF THE MEANING OF THE TERM SUBSTANTIAL EXPANSION PROVIDED FOR IN SECTION 80IC OF THE ACT ,FOR THE PURPOSES OF CLAIMINGDEDUCTION @ 100% OF PROFITS ON ACCOUNT OF THE SAME . MORE SPECIFICALLY, INTERPRETING THE REQUIREMENT OFADDITI ON TO PLANT AND MACHINERY EXCEEDING 50% OF ITS BOOK VALUE PROVIDED FOR IN THE DEFINITION OF SUBSTANTIAL EXPANSION, WHETHER IT IS TO BE DONE ENTIRELY IN THE YEAR IN WHICH EXPANSION IS CLAIMED TO BE DON E OR COULD BE SPREAD OVER YEARS. ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 5 4. TAKING US THROUGH THE FACTS OF THE CASE, IT WAS POINTED OUT THAT THIS WAS THE SECOND ROUND BEFORE US. THAT IN THE FI RST ROUND THE ASSESSEES CLAIM OF DEDUCTION OF 100% OF ITS PROFITS FROM BUSI NESS, U/S 80IC OF THE ACT,IN THE IMPUGNED SIXTH AND SEVENTH YEAR SINCE CO MMENCEMENT OF BUSINESS, BEING A.Y 2012-13 & 2013-14,CLAIMED ON AC COUNT OF SUBSTANTIAL EXPANSION UNDERTAKEN , AFTER HAVING AVA ILED 100% DEDUCTION FOR THE INITIAL FIVE YEARS, HAD BEENRESTRICTED TO 3 0% OF THE PROFITS BY THE AO ,WHICH WAS UPHELD RIGHT UPTO THE ITAT. THAT AGAI NST THE ORDER OF THE ITAT,THE ASSESSEE WENT IN APPEAL TO THE HONBLE HIG H COURT. THAT THE HONBLE HIGHCOURTS ORDER, DATED 19-03-2018,ALLOWING THE ASSESSES APPEAL,UPHELD IN PRINCIPLE THE ENTITLEMENT TO 100% DEDUCTION OF PROFITS ON UNDERTAKING SUBSTANTIAL EXPANSION BUT AT THE S AME TIMEDIRECTED THE ASSESSING OFFICER TO DECIDE THE ISSUE OF CLAIM ON T HE BASIS OF SUBSTANTIAL EXPANSION. THAT THEREAFTER THE ASSESSING OFFICER PROCEEDED TO GIVE EFFECT TO THE ORDER OF THE HON'BLE HIGH COURT AND WHILE DOING SO NOTED THAT THE ASSESSEE COMPANY HAD CARRIED OUT SUBSTANTIAL EXPANS ION OVER A PERIOD OF TWO YEARS, I.E FINANCIAL YEARS 2010-11 & 2011-12 RE LATING TO A.Y 2011- 12 AND 2012-13 RESPECTIVELY,AND CLAIMED DEDUCTION @ 100% PROFITS FROM A.Y 2012-13 ONWARDS.REFERRING TO THE DEFINITIO N OFSUBSTANTIAL EXPANSION GIVEN IN CLAUSE (IX) OF SUB SECTION (8) O F SECTION 80IC OF THE ACT, THE AO INTERPRETED THE SAME TO THE EFFECT THAT THE ADDITION TO PLANT AND MACHINERY EXCEEDING 50% IS TO BE CARRIED OUT E NTIRELY IN THE YEAR ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 6 IN WHICH SUBSTANTIAL EXPANSION IS CLAIMED TO HAVE B EEN UNDERTAKEN, I.E IN ONE YEAR ITSELF .THE AO HELD THATTHERE WAS NO CO NCEPT OF ADDITION TO PLANT AND MACHINERY DONE IN TWO YEARS TO BE CONSIDE RED IN A CUMULATIVE MANNER. ACCORDINGLY HE HELD THAT NO SUBSTANTIAL EX PANSION HAD BEEN UNDERTAKEN IN A.Y 2012-13, ONE OF THE IMPUGNED YEAR S BEFORE US, AND DISALLOWED THE CLAIM OF THE ASSESSEE FOR 100% DEDU CTION OF PROFITS. FOR THE SAME REASON THEASSESSES CLAIM OF 100% DEDUCTION FOR THE SUBSEQUENT YEAR I.E A.Y 2013-14 WAS ALSO DENIED. THE RELEVANT FINDINGS OF THE ASSESSING OFFICER WHILE DISALLOWING THE CLAIM IN A .Y 2012-13 ARE AS UNDER:- IT IS OBVIOUS FROM THE DEFINITION OF SUBSTANTIAL EX PANSION GIVEN, THERE SHOULD BE INCREASE IN PLANT & MACHINER Y BY THE VALUE OF 50% OF THE EXISTING VALUE OF PLANT & MACHI NERY (BEFORE TAKING DEPRECIATION IN ANY YEAR) AS ON IST DAY OF THE SAME FINANCIAL YEAR. IN THIS REGARD, PARA-3 OF ASSE SSEE'S REPLY ITSELF SAYS THAT YOU HAVE MADE MORE THAN 50% OF ORI GINAL INVESTMENT IN THE YEAR OF SUBSTANTIAL EXPANSION WIT HOUT CALCULATING THE VALUE OF PLANT & MACHINERY IN THE S AME YEAR, BUT IN THE INITIAL YEAR OF FORMATION OF UNIT. FURTH ER, IN FORM NO. 10CCB, YOU HAVE STATED THE SAME FACTS THAT YOU HAVE MADE SUBSTANTIAL EXPANSION BYMAKING INVESTMENT OF RS. 94 5.89 LACS IN PLANT & MACHINERY WHICH IS MORE THAN 50% OF VALU E OF PLANT & MACHINERY CALCULATED IN FEBRUARY 2007, WHIL E SUBSTANTIAL EXPANSION WAS CARRIED OUT IN THE FY. 20 11-12. HENCE, YOU CASE IS FURTHER EXAMINED FROM THE ASSESS MENT RECORD (ESPECIALLY THE DEPRECIATION CHART FORMING P ART THE DULY AUDITED BALANCE SHEET AS ON 31.03.2012) AND IT IS G ATHERED THAT IN THE YEAR OF SUBSTANTIAL EXPANSION, YOU HAD PLANT & MACHINERY WORTH RS. 31,14,03,477/- (AFTER TAKING DE PRECIATION) ON THE FIRST DAY OF FY. 2011-12 AND ACCUMULATED DEP RECIATION ON THE SAME DATE (ON THE FIRST DAY OF FY. 2011-12] WAS RS. 19,96,67,972/-. THUS, YOU WERE REQUIRED TO MAKE INV ESTMENT AT ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 7 LEAST OF 50% OF THE VALUE EXISTING PLANT & MACHINER Y WHICH IN YOU CASE WORKS TO RS. 25,55,35,725/- [50% OF RS. 51,10,71,449/-(31,14,03,477/- +19,96,67,972/-)]. FU RTHER, AS PER THE SAME DEPRECIATION CHART FORMING PART THE DU LY AUDITED BALANCE SHEET AS ON 31.03.2012, THE AMOUNT OF ADDIT ION MADE IN PLANT & MACHINERY DURING FY. 2011-12 IS RS. 5,85 ,76,223/- (RS. 5,64,01,223/- + RS. 21,75,000/-] ONLY. IT IS T HEREFORE CLEAR THAT YOU HAVE MADE INVESTMENT OF RS. 5,85,76,223/- ONLY AGAINST THE REQUIREMENT OF INVESTMENT OF RS. 25,55, 35,725/- IN PLANT & MACHINERY AND THEREFORE YOU DO NOT FULFILL THE BASIC REQUIREMENT OF MAKING ADDITION OF AT LEAST 50% OF T HE EXISTING VALUE OF PLANT & MACHINERY (BEFORE TAKING DEPRECIAT ION IN ANY YEAR) AS ON 1 ST DAY OF THE SAME FINANCIAL YEAR. THUS, IT IS CLEAR THAT THE ASSESSEE DOES NOT FULFIL L THE REQUISITE CONDITIONS OF SUBSTANTIAL EXPANSION, AS IT HAD NOT MADE THE REQUISITE OF INVESTMENT AND, THEREFORE, THE ASSESSE E IS NOT ENTITLED TO BENEFIT OF DEDUCTION U/S 801C @ 100%, A S PER THE DIRECTION OF THE HON'BLE HIGH COURT. HENCE IT IS HE LD THAT THE ASSESSEE IS ENTITLED TO CLAIM OF DEDUCTION U/S 80IC @ 30% ONLY. 5. THE MATTER WAS CARRIED BEFORE THE LD. CIT(A) WH O ALLOWED THE ASSESSES CLAIM, HOLDING THAT AHARMONIOUSREADING OF THE STATUTE LAID OUT THATTO ALLOW THE BENEFIT OF ENHANCED RATE OF DEDUCT ION FROM THE YEAR OF CARRYING OUT THE SUBSTANTIAL EXPANSION ,THE ONLY RE QUIREMENT WAS TO MEET THE OBJECTIVE OF THE SUBSTANTIAL EXPANSION IN THE SAID YEAR. THE RELEVANT FINDINGS OF THE LD. CIT(A) AT PARA 5.2.5 OFHIS ORDE R IS AS UNDER:- 5.2.5 I HAVE PERUSED THE FACTS OF THE CASE, THE AC TION OF THE A.O. AND THE SUBMISSIONS OF THE APPELLANT. I FIND MERITS IN THE CONTENTION OF THE APPELLANT. THE HUGE INCREASE IN THE BLOCK OF PLANT AND MACHINERY FROM 21.69 CRORES AS ON 01.04.2010 TO 36.56 CRORES AS ON 31.03.2012 CANNOT BE DENIED. THE APPELLANT MADE SUBSTANTIAL AD VANCES FOR BOOKING THE PLANT AND MACHINERY IN A.Y. 2011-12 WHI CH WERE RECEIVED IN A.Y. 2012-13. A HARMONIOUS READING OF THE STATUT E CLEARLY LAYS DOWN ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 8 THAT THE OBJECTIVE OF SUBSTANTIAL EXPANSION NEEDS T O BE MET TO ALLOW THE BENEFIT OF ENHANCED RATE OF DEDUCTION U/S 80IC OF T HE ACT FROM THE YEAR OF CARRYING OUT OF SUBSTANTIAL EXPANSION. IN THIS C ONTEXT, THE CASE LAW RELIED ON BY THE APPELLANT HAS SUFFICIENT PERSUASIV E VALUE. MOREOVER A SIMILAR ISSUE HAVE ALSO BEEN DECIDED IN THE CASE OF JOONKTOLLEE TEA & INDUSTRIES V DCIT,CIRCLE-4 KOLKATA IN ITA NOS. 110 & 401/KOL/2010. 6. BEFORE US, THE LD. DR HAS RELIED ON THE ORDER OF THE ASSESSING OFFICER CONTENDING THAT AS PER THE DEFINITION OF SU BSTANTIALEXPANSION PROVIDED IN SECTION 80IC(8) SUB SECTION (IX), SUBS TANTIAL EXPANSION MEANS INCREASE IN INVESTMENT IN PLANT AND MACHINER Y BY AT LEAST 50% OF THE BOOK VALUE OF THE PLANT AND MACHINERY AS ON THE FIRST DAY OF THE PREVIOUS YEAR IN WHICH THE SUBSTANTIAL EXPANSION IS UNDERTAKEN. WHILE IN THE PRESENT CASE, THE INCREASE IN INVESTMENT BY 50% TOOK PLACE IN TWO YEARS AND, THEREFORE, THE ASSESSING OFFICER HAD RIG HTLY HELD THAT NO SUBSTANTIAL EXPANSION HAD BEEN UNDERTAKEN BY THE AS SESSEE IN THE IMPUGNED ASSESSMENT YEAR 2012-13 SO AS TO ENTITLE I T TO100% DEDUCTION OF ITS PROFITS IN THE YEAR AND THE SUCCEEDING YEAR. 7. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, RELIED ON THE ORDER OF THE CIT(A). 8. WE HAVE HEARD BOTH THE PARTIES. THE SHORT POINT BEFORE US IS WHETHER FOR THE PURPOSES OF CLAIMING DEDUCTION @ 10 0% OF PROFITS U/S 80IC OF THE ACT ON ACCOUNT OF SUBSTANTIAL EXPANSION , THE INVESTMENT IN ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 9 PLANT AND MACHINERY EXCEEDING 50% OF BOOK VALUE,IN TERMS OF THE DEFINITION OF SUBSTANTIAL EXPANSION IN THE SAID SE CTION, IS TO BE CONSIDERED OF THE YEAR IN WHICH EXPANSION IS CLAIM ED TO BE ACHIEVED OR CAN BE CUMULATIVELY CONSIDERED FROM EARLIER YEARS S INCE WHEN EXPANSION IS UNDERTAKEN. THE UNDISPUTED FACTS IN THE PRESENT CASE RELATING TO ADDITION TO PLANT AND MACHINERY ARE THAT THE GROSS BLOCK AS ON 31-03-2010 WAS RS.21,69,13,432 AND ON 31-03-2012 WAS 36,56,29,700, THE ADDITION OF RS.15.089CRORES, EXCEEDING 50% OF THE BOOK VALUE AS ON 31-03-2010, BEING MADE IN TWO YEARS,A.Y 2011-12 OF RS.9.449 CR ORES AND IN A.Y 2012-13 OF RS.5.64 CRORES.THE ASSESSEE HAS CLAIMED TO HAVE COMPLETED SUBSTANTIAL EXPANSION IN A.Y 2012-13AND ACCORDINGLY CLAIMED DEDUCTION @ 100% OF THE PROFITS FOR A.Y 2012-13 & 2 013-14,THE IMPUGNED YEARS BEFORE US. 9. THE LD.CIT(A) HAS ALLOWED THE CLAIM,WHICH THE AO HAD DISALLOWED FOR THE REASON THAT THERE IS NO CONCEPT OF ADDITIONS BEING CONSIDERED CUMULATIVELY OF TWO YEARS ,FOR THE SAID PURPOSE . 10. WE HAVE GONE THROUGH THE ORDER OF THE LD. CIT(A ).WE DO NOT FIND ANY INFIRMITY IN THE SAME. THE LD.CIT(A),WE HOLD, H AS RIGHTLY HELD THATA HARMONIOUS READING OF SECTION 80IC LAYS DOW N THAT TO BE ELIGIBLE FOR ENHANCED RATE OF DEDUCTION U/S 80IC FROM THE YE AR OF CARRYING OUT ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 10 SUBSTANTIAL EXPANSION,ONLY THE OBJECTIVE OF SUBSTAN TIAL EXPANSION IS TO BE MET IN THAT YEAR.THIS IS CLEARLY EVIDENT ON READ ING SECTION 80IC(1),(2),(3) ALONGWITH (8)(V) &( IX). FOR CLARIT Y WE ARE REPRODUCING THE SAID SUB SECTIONS HEREUNDER: SPECIAL PROVISIONS IN RESPECT OF CERTAIN UNDERTAKI NGS OR ENTERPRISES IN CERTAIN SPECIAL CATEGORY STATES. 80-IC. (1)WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INC LUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (2), T HERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF TH IS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSES SEE, A DEDUCTION FROM SUCH PROFITS AND GAINS, AS SPECIFIED IN SUB-SECTION (3). (2) THIS SECTION APPLIES TO ANY UNDERTAKING OR ENTE RPRISE, (A) WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PRO DUCE ANY ARTICLE OR THING, NOT BEING ANY ARTICLE OR THING SP ECIFIED IN THE THIRTEENTH SCHEDULE, OR WHICH MANUFACTURES OR PRODU CES ANY ARTICLE OR THING, NOT BEING ANY ARTICLE OR THING SP ECIFIED IN THE THIRTEENTH SCHEDULE AND UNDERTAKES SUBSTANTIAL EXPA NSION DURING THE PERIOD BEGINNING (I) ON THE 23RD DAY OF DECEMBER, 2002 AND ENDING BEFORE THE 1ST DAY OF APRIL, 2007, IN ANY EXPORT PROCESSING ZONE OR INTEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GROWTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TECHNOLOGY PARK OR INDUSTRIAL AREA OR THEME PARK, A S NOTIFIED BY THE BOARD IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY THE CENTRAL GOVERNMENT IN TH IS REGARD, IN THE STATE OF SIKKIM; OR (II) ON THE 7TH DAY OF JANUARY, 2003 AND ENDING B EFORE THE 1ST DAY OF APRIL, 2012, IN ANY EXPORT PROCESSIN G ZONE OR INTEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GROWTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TECHNOLOGY PARK OR INDU STRIAL AREA OR THEME PARK, AS NOTIFIED BY THE BOARD IN ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 11 ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY T HE CENTRAL GOVERNMENT IN THIS REGARD, IN THE STATE OF HIMACHAL PRADESH OR THE STATE OF UTTARANCHAL; OR (III) ON THE 24TH DAY OF DECEMBER, 1997 AND ENDING BEFORE THE 1ST DAY OF APRIL, 2007, IN ANY EXPORT PROCESSING ZONE OR INTEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GROWTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TECHNOLOGY PARK OR INDUSTRIAL AREA OR THEME PARK, A S NOTIFIED BY THE BOARD IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY THE CENTRAL GOVERNMENT IN TH IS REGARD, IN ANY OF THE NORTH-EASTERN STATES; (B) WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PRO DUCE ANY ARTICLE OR THING, SPECIFIED IN THE FOURTEENTH SCHED ULE OR COMMENCES ANY OPERATION SPECIFIED IN THAT SCHEDULE, OR WHICH MANUFACTURES OR PRODUCES ANY ARTICLE OR THING, SPEC IFIED IN THE FOURTEENTH SCHEDULE OR COMMENCES ANY OPERATION SPEC IFIED IN THAT SCHEDULE AND UNDERTAKES SUBSTANTIAL EXPANSION DURING THE PERIOD BEGINNING (I) ON THE 23RD DAY OF DECEMBER, 2002 AND ENDING BEFORE THE 1ST DAY OF APRIL, 2007, IN THE STATE OF SIKKIM; OR (II) ON THE 7TH DAY OF JANUARY, 2003 AND ENDING BEF ORE THE 1ST DAY OF APRIL, 2012, IN THE STATE OF HIMACHAL PRADES H OR THE STATE OF UTTARANCHAL; OR (III) ON THE 24TH DAY OF DECEMBER, 1997 AND ENDING BEFORE THE 1ST DAY OF APRIL, 2007, IN ANY OF THE NORTH-EASTERN STATES. (3) THE DEDUCTION REFERRED TO IN SUB-SECTION (1) SH ALL BE (I) IN THE CASE OF ANY UNDERTAKING OR ENTERPRISE REFERRED TO IN SUB-CLAUSES (I) AND (III) OF CLAUSE (A) OR SU B-CLAUSES (I) AND (III) OF CLAUSE (B), OF SUB-SECTION (2), ON E HUNDRED PER CENT OF SUCH PROFITS AND GAINS FOR TEN ASSESSME NT YEARS COMMENCING WITH THE INITIAL ASSESSMENT YEAR; (II) IN THE CASE OF ANY UNDERTAKING OR ENTERPRISE REFERRED TO IN SUB-CLAUSE (II) OF CLAUSE (A) OR SUB-CLAUSE ( II) OF CLAUSE (B), OF SUB-SECTION (2), ONE HUNDRED PER CEN T OF ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 12 SUCH PROFITS AND GAINS FOR FIVE ASSESSMENT YEARS COMMENCING WITH THE INITIAL ASSESSMENT YEAR AND THEREAFTER, TWENTY-FIVE PER CENT (OR THIRTY PER CEN T WHERE THE ASSESSEE IS A COMPANY) OF THE PROFITS AND GAINS . . . . (8) FOR THE PURPOSES OF THIS SECTION, . (V) 'INITIAL ASSESSMENT YEAR' MEANS THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAK ING OR THE ENTERPRISE BEGINS TO MANUFACTURE OR PRODUCE ART ICLES OR THINGS, OR COMMENCES OPERATION OR COMPLETES SUBSTAN TIAL EXPANSION; (IX) 'SUBSTANTIAL EXPANSION' MEANS INCREASE IN THE INVESTMENT IN THE PLANT AND MACHINERY BY AT LEAST FIFTY PER CE NT OF THE BOOK VALUE OF PLANT AND MACHINERY (BEFORE TAKING DEPRECIATION IN ANY YEAR), AS ON THE FIRST DAY OF T HE PREVIOUS YEAR IN WHICH THE SUBSTANTIAL EXPANSION IS UNDERTAKEN ; AS IS EVIDENT FROM A BARE READING,SECTION 80IC (1) ALLOWS DEDUCTION OF PROFITS EARNED BY UNDERTAKINGS /ENTERPRISES SPECIFI ED IN SUBSECTION (2), AT RATES AND FOR PERIOD SPECIFIED IN SUB SECTION (3 ).SUB SECTION (2) SPECIFIES ELIGIBILITY CRITERIA FOR UNDERTAKINGS BA SED ON THEIR LOCATION AND SPECIFIC TIME PERIOD WITHIN WHICH THEY BEGIN M ANUFACTURING OR UNDERTAKE SUBSTANTIAL EXPANSION.THE PERIOD FOR AVA ILING DEDUCTION SPECIFIED IN SUB SECTION (3) COMMENCES FROM THE IN ITIAL ASSESSMENT YEAR WHICH TERM HAS BEEN DEFINED IN SUB SECTION (8 ) SUB CLAUSE (V) AS MEANING THE YEAR IN WHICH MANUFACTURE OR PRODUCTION IS COMMENCED OR ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 13 IN RELATION TO SUBSTANTIAL EXPANSION, THE YEAR IN WHICH EXPANSION IS COMPLETED.SUBSTANTIAL EXPANSION IN TURN IS DEFINED IN SUB CLAUSE (IX) OF THE SAME TO MEAN INCREASEIN INVESTMENTBY 50% OR MOR E OF BOOK VALUE OF PLANT AND MACHINERY OF THE PREVIOUS YEAR IN WHICH E XPANSION IS UNDERTAKEN. IT IS RELEVANT TO POINT OUT A GLARING DISTINCTIONV IS A VIS THE ACT OF SUBSTANTIAL EXPANSION, IN THE AFORESAID TWODEFINITI ONS. WHILE THE DEFINITION OF INITIAL ASSESSMENT YEAR REFERS TO THE ACT OF COMPLETION OF SUBSTANTIAL EXPANSION,THE DEFINITION OF SUBSTANTIAL EXPANSION CONTEMPLATES ADDITIONAL INVESTMENT IN PLANT AND MA CHINERY TO THE EXTENT OF 50% OR MORE OF THE BOOK VALUE AS ON THE FIRST D AY OF THE PREVIOUS YEAR IN WHICH EXPANSION IS UNDERTAKEN (EMPHASIS PROVIDED BY US). THE DEFINITION OF SUBSTANTIAL EXPANSION DOES NOT USE TH E TERM COMPLETED BUT UNDERTAKEN WHICH IN CONTRADISTINCTION TO COM PLETED MEANS COMMENCED OR BEGUN.THEREFORE, CLEARLY THE DEFINITIO N OF SUBSTANTIAL EXPANSION AND THAT OF INITIAL ASSESSMENT YEAR PERCE IVE DIFFERENT STAGE OF SUBSTANTIAL EXPANSION WITH ONE REFERRING TO COMMENC EMENT WHILE THE OTHER TO COMPLETION OF EXPANSION .READING THE TWO D EFINITIONS TOGETHER, THERE IS NO IOTA OF DOUBT THAT EVEN THE LEGISLATURE CONTEMPLATED THAT THE SUBSTANTIAL EXPANSION CAN INVOLVE MORE THAN ONE YEA R, AND THEREFORE, IT HAS SPECIFIED THE COMPARISON OF INVESTMENT IN TH E PLANT & MACHINERY WITH THEYEAR IN WHICH THE SUBSTANTIALEXPANSION IS B EGUN,WHILE THEBENEFIT OF ENHANCED DEDUCTION IS ALLOWED ONLY ONCE SUBSTANT IAL EXPANSION IS ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 14 COMPLETED. THUS READING SUB SECTION (3) ALONGWITH T HE DEFINITION OF THE TERMS INITIAL ASSESSMENT YEAR USED THEREIN AND TH AT OF SUBSTANTIAL EXPANSION USED IN THE DEFINITION OF THE TERM INIT IAL ASSESSMENT YEAR ,WHAT IS LITERALLY DERIVED THEREFORE IS THAT WITH RESPECT TO SUBSTANTIAL EXPANSION UNDERTAKEN THE DEDUCTION IS TO BE ALLOWED FROM THE YEAR IN WHICH THE EXPANSION IS COMPLETED(DEFINITION OF INIT IAL ASSESSMENT YEAR)WHICH EXPANSION IS TO BE CONSIDERED IN TERMS O F INVESTMENT EXCEEDING SPECIFIED LIMIT IN PLANT AND MACHINERY AS COMPARED TO THAT FROM THE FIRST DATE OF THE YEAR IN WHICH EXPANSION IS COMMENCED.THUS SUBSTANTIAL EXPANSION CAN COMMENCE IN PRECEDING YEA RS BUT DEDUCTION WILL BE PROVIDED ONLY ON COMPLETION OF THE SAME. THIS INTERPRETATION IS IN CONSONANCE WITH THE PHRAS E USED IN SUB SECTION (2) OF THE SECTION WHICH SPELLS OUT ONE OF THE ELIG IBILITY CRITERIAS FOR CLAIMING DEDUCTION AS UNDERTAKING SUBSTANTIAL EXPA NSION DURING PERIOD BEGINNING ,MEANING THEREBY THAT THE ELIGIBILITY CRITERIA OF UNDERTAKING SUBSTANTIAL EXPANSION, SET OUT IN THE S ECTION,ALLOWS THE SAME TO BE DONE OVER A SPECIFIED PERIOD AND IN NO WAY RE STRICTS IT TO A YEAR. THE ITAT KOLKATA BENCH HAS ALSO INTERPRETED THIS SU BSECTION LIKEWISE IN THE DECISION RELIED UPON BY THE LD.CIT(A) IN TH E CASE OF JOONKTOLLEE TEA & INDUSTRIES (SUPRA) , UNDOUBTEDLY THE HARMONIOUS READING OF THE PROVISION S OF SECTION 80IC OF THE ACT LAY DOWN,AS RIGHTLY HELD BY THE LD. CIT(A) ,THAT FOR CLAIMING DEDUCTION ON ACCOUNT OF SUBSTANTIAL EXPANS ION WHAT IS ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 15 IMPERATIVE IS MEETING THE OBJECTIVE OF SUBSTANTIAL EXPANSION ,I.E OF HAVING INVESTED IN PLANT AND MACHINERY ,WHICH MAY HAVE BEEN UNDERTAKEN OVER A PERIOD OF MORE THAN A YEAR. WE, THEREFORE, DO NOT SEE ANY REASON TO DIFFER WITH THE THE LD. CIT(A) THAT IN THE FACTS OF THE PRESENT CASE WHERE ADDITION TO PLANT AND MACHINERY EXCEEDING 50% OF BOOK VALUE WAS DONE IN T WO YEARS ,THE ASSESSEE CAN BE SAID TO HAVE UNDERTAKEN SUBSTANTIAL EXPANSION MAKING IT ELIGIBLE FOR CLAIMING DEDUCTION @100% OF PROFITS FR OM THE YEAR OF COMPLETION OF SUBSTANTIAL EXPANSION ,BEING A.Y 2012 -13 AND ALSO IN THE SUCCEEDING YEAR I.E A.Y 2013-14. 11. THE APPEALS OF THE REVENUE FOR BOTH THE YEARS A RE ACCORDINGLY DISMISSED. 12. WE SHALL NOW TAKE UP THE CROSSAPPEALS FOR A.Y 2015-16 .TAKING UP THE FIRST APPEAL OF THE ASSESSEE IN ITA NO. 560 /CHD/2019, THE ASSESSEE WE NOTE HAS RAISED THE FOLLOWINGEFFECTIVE GROUNDS:- ITA NO. 560/CHD/2019A.Y 2015-16 1. THAT LEARNED CIT(A) HAS ERRED IN LAW AND FACTS I N CONFIRMING THE ACTIONS OF THE DCIT IN NOT ALLOWING DEDUCTION U/S 80IC ONRS. 67,00,112/- BEING AMOUNT OF INSURANC E CLAIM RECEIVED ON ACCOUNT OF STOCK LOST BY FIRE. (TAX EFFECT=RS.21,73,851/-) 2.1 THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTIONS OF THE DCIT IN MAKING ADD ITIONS OF RS. 15,73,942/- ON ACCOUNT OF DISALLOWANCE OF DEDUC TION U/S ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 16 80-IC ON INTEREST INCOME, DUTY DRAWBACK AND MISCELL ANEOUS RECEIPTS IGNORING THE FACT THAT ASSESSEE HAD ONLY C LAIMED DEDUCTION TO THE EXTENT OF 30% OF SUCH AMOUNT. (TAX EFFECT=RS. 3,57,466/-) 2.2 THAT LEARNED CIT(A) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE ACTION OF THE DCIT IN NOT ALLOWING D EDUCTION U/S 80IC ON ACCOUNT OF INTEREST RECEIVED AMOUNTING RS. 6,12,516/-ASSESSED AS BUSINESS INCOME IGNORING INTE REST PAID DURING THE YEAR FOR THE BUSINESS PURPOSE. (TAX EFFECT=RS. 1,98,731/-) 3. THAT THE AUTHORITIES BELOW HAVE ERRED IN NOT CO MPUTING DISALLOWANCE U/S 14A AS PER THE PROVISIONS OF LAW W HICH WOULD HAVE AMOUNTED TO RS. NIL SINCE INADVERTENT ERROR WA S MADE AT THE TIME OF FILING OF ITR BY THE ASSESSEE. (TAX EFFECT=RS. 7,60,133/-) 4. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTIONS OF THE DCIT IN MAKING DIS ALLOWANCE U/S 36(1)(III) ON ACCOUNT OF INTEREST FREE ADVANCES TO RAMA COTSPIN PRIVATE LIMITED. (TAX EFFECT=RS. 2,10,420/-) 13. THE ASSESSEEHAS ALSO RAISED AN ADDITIONAL GROUN D BEFORE US AND MOVED AN APPLICATION FOR ADMISSION OF THE SAME DATE D 7.9.2020. THE ADDITIONAL GROUND SOUGHT TO BE ADMITTED IS REPRODUC ED AS UNDER:- THAT AUTHORITIES BELOW HAVE ERRED IN FACTS AND IN LAW IN NOT ALLOWING 100% DEDUCTION U/S 80IC OF THE ELIGIBLE PROFITS OF THE BUSINESS AND RESTRICTING THE DEDUCTION TO 30% OF THE PROFITS. 14. THELD. COUNSEL FOR THE ASSESSEE VIDE ITS ADDITI ONAL GROUND HAS SOUGHT TO CLAIM DEDUCTION U/S 80IC @ 100% OF ITS PR OFITS AS OPPOSED TO ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 17 30% CLAIMED BY IT, ONACCOUNT OF SUBSTANTIAL EXPANSI ON BEING UNDERTAKEN IN ASSESSMENT YEAR 2012-13 AND THE IMPUGNED YEAR BE ING THE 9 TH YEAR FROM THEINITIAL YEAR WHEN THE ASSESSEE HAD COMMENC ED OPERATION. THE LD. COUNSEL FOR THE ASSESSEE HAS POINTED OUT THAT I T HAD CLAIMED 30% DEDUCTION ON THE BASIS OF THE DECISION OF THE ITAT CHANDIGARH BENCH IN THE CASE OF HYCRONELECTRONICSLTD WHICH STATED THAT A NEW ENTITY CARRYING OUT SUBSTANTIAL EXPANSION WAS NOT ENTITLED TO THEB ENEFIT OF 100% DEDUCTION ON ACCOUNT OF SUBSTANTIAL EXPANSION. THE LD. COUNSEL HAS POINTEDOUT THAT THIS MATTER HAD TRAVELLEDUPTO THE H IGH COURT IN A.Y 2012-13 AND THAT THE HIGH COURT HAD HELD THAT EV EN NEWUNDERTAKINGS WERE ENTITLED TO DEDUCTION @ 100% ON ACCOUNT OF S UBSTANTIAL EXPANSION. THE LD. COUNSEL FOR THE ASSESSEE CONTEND ED THAT IT WAS A GENUINECLAIM OF THE ASSESSEE IN ACCORDANCE WITHLAW AND, THEREFORE, THE ASSESSEE HAD SOUGHT TO RAISE THISGROUND BEFORE US. IT WAS CONTENDED THAT IT WAS A LEGAL GROUND AND THE SAME OUGHT TO BE ADMI TTED BY THE ITAT. 15. THE LD. DR DID NOT OBJECT TO THE SAME. 16. IN VIEW OF THE ABOVE, SINCE THE CLAIM RAISED BY THE ASSESSEE IN ITSADDITIONAL GROUND IS A LEGAL CLAIM OF ITS ENTITL EMENT OF DEDUCTION U/S 80IC OF THE ACT @ 100% AS OPPOSED TO 30% CLAIMED BY IT, THE ADDITIONAL GROUND IS ADMITTED FOR ADJUDICATION. THE ORDER WAS PRONOUNCED IN THE OPEN COURT. ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 18 FURTHER, SINCE ADMITTEDLY THE HON'BLE HIGH COURT H AS IN THE CASE OF THE ASSESSEE ITSELF APPROVED THE PROPOSITION OF LAW THAT EVEN NEW UNDERTAKINGS ARE ENTITLED TO DEDUCTION OF PROFITS @ 100% ON ACCOUNT OF SUBSTANTIAL EXPANSION UNDERTAKEN,WHICHPROPOSITION O F LAW HAS BEEN CONFIRMED BY THE HON'BLE SUPREME COURT ALSO IN THE CASE OF AARHAMSOFTRONICS VIDE ORDER DATED 20.2.2019, AND WE HAVE HELD THAT THE ASSESSEE HAS COMPLETED SUBSTANTIAL EXPANSION IN A.Y 2012-13 IN THE REVENUES APPEAL DEALT WITH ABOVE, AND THIS BEING TH E FOURTH YEAR SINCE COMPLETION OF EXPANSION, WE HOLD THAT THE ASSESSEE IS ELIGIBLE TO DEDUCTION U/S 80IC @ 100% PROFITS EARNED IN THE IMP UGNED YEAR. THE ADDITIONAL GROUND RAISEDBYTHE ASSESSEE IS ACCORDING LY ALLOWED. 17. TAKING UP NOW GROUND NO.1, RAISED BY THE ASSESS EE, IT WAS POINTED OUT THAT THE SAID GROUND RELATED TO DISALLOWANCE OF CLAIM OF DEDUCTION U/S 80IC OF THE ACT ON INSURANCE CLAIM RECEIVED BY THE ASSESSEE DURING THE YEAR AMOUNTING TO RS. 67,00,112/-.IT WAS POINTE D OUT THAT THE SAID CLAIM HAD BEEN DENIED BY HOLDING THAT THE IMPUGNED RECEIPT HAD NO DIRECT NEXUS WITH THE BUSINESS ACTIVITY OF THE ASSE SSEE AND, THEREFORE, WAS NOT ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. FURTHER, OUR ATTENTION WAS DRAWN TO THE ORDER OF THE LD. CIT(A) WHO HAD UP HELD THE SAME HOLDING THAT THE RECEIPT WAS DIRECTLY RELATED TO TH E RUNNING AND MAINTENANCE OF PLANT ENGAGED IN GENERATION OF ELECT RICITY. THAT THE MONEY RECEIVED WAS ACTUALLY ON ACCOUNT OF LOSS OF PRODUCTION AND THERE ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 19 WASNO NEXUS OF THE SAME WITH THE MANUFACTURING ACTI VITY OF THE ASSESSEE. OUR ATTENTION WAS DRAWN TO THE FINDINGS O F THE LD. CIT(A) AT PARA 5.23.4 AND 5.2.5 TO THEORDER WHICH ARE AS UNDE R:- 5.2.4 HOWEVER, WITH RESPECT TO CLAIM OF DEDUCTION U/S 80IC ON THE INSURANCE RECEIPTS OF RS.6700112/- THE CONTENTION OF THE APPELLANT CANNOT BE ACCEPTED. THE APPELLANT CLAIMED THAT THE INSURANCE CLAIM HAS BEEN RECEIVED AGAINST THE DAMAGES CAUSED TO THE CIRCUIT BREAKERS OF THE MACHINERIES OF THE PLANT TH E REPAIR EXPENDITURE ON WHICH HAD ALREADY BEEN DEBITED TO THE P&L A/C AND ACCORDINGLY THE CLAIM OF SECTION 80 IC HAS BEEN REDUCED WITH THAT AMOUNT. HE ARGUED THAT THE NATURE OF CLAIM IS DIRECTLY LINKED AND INEXTRICABLY DERIVED FROM THE MAIN BUSINESS I.E. FO R PUTTING THE ASSETS OF THE GENERATING STATION BACK T O WORKING CONDITION. HENCE THE RECEIPT IS DIRECTLY RELATED WITH THE RUNNING AND MAINTENANCE OF THE PLANT ENGAGED IN GENERATION OF ELECTRICITY. ACCORDINGLY, THE INSURANCE RECEIPTS FOR REPAIR IS RIGHTLY CLAIMED BY THE COMPANY U/S 80 IC AND NEEDS TO BE ALLOWED. 5.2.5 I HAVE PERUSED THE FACTS OF THE CASE, THE ACT ION OF THE A.O. AND THE SUBMISSIONS OF THE APPELLANT. T HIS CONTENTION OF THE APPELLANT CANNOT BE ACCEPTED. THE ISSUE IS SQUARELY COVERED BY THE DECISION REPORTED AT [2013] 40 TAXMANN.COM 399 (MADRAS) IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. GANGOTHRI TEXTILES LTD. WHEREIN THE FOLLOWING QUESTION OF LAW WAS RAISED BEFORE THE HIGI COURT: 8 'WHETHER THE INSURANCE MONEY RECEIVED ON LOSS OF PRODUCTION IS ENTITLED FOR DEDUCTION UNDER SECTION 80IA THE HIGH COURT WHILE ALLOWING THE APPEAL OF THE REVENUE HELD THAT IN THE ABSENCE OF ANY NEXUS SHOWN ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 20 BETWEEN THE COMPENSATION RECEIVED AND THE BUSINESS ACTIVITIES OF THE INDUSTRIAL UNDERTAKING, THE COMPENSATION COULD NOT BE HELD AS DERIVED FROM THE UNDERTAKING FOR THE PURPOSE OF INCLUSION UNDER SECTION 80-IA OF THE ACT. EVEN OTHERWISE, THE ISSUE IS SQUARELY COVERED BY THE DECISIONS OF THE APEX COURT RELIED ON BY THE A.O. IN HIS ORDER. THESE RECEIPTS EMANATE OUT OF THE CONTRACT BETWEEN THE APPELLANT AND THE INSURANCE COMPANY AND CANNOT BE HELD TO HAVE A FIRST DEGREE NEXUS WITH THE MANUFACTURING ACTIVITIES. THIS CONTENTION OF THE APPELLANT IS ACCORDINGLY REJECTED AND APPEAL OF THE ASSESSEE ON THIS ISSUE IS DISMISSED. ACCORDINGLY, GROUND NO. 2 OF THE ASSESSEE IS PARTLY ALLOWED. 18. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT TH AT THE FACTS HAVE BEEN INCORRECTLY APPRECIATED BY THE LD. CIT(A).THAT THE INSURANCE CLAIM HAD BEEN RECEIVED NOT ON ACCOUNT OF DAMAGE OF ANY P LANT AND MACHINERY BUT ON ACCOUNT OF LOSS OF STOCK ONACCOUNT OF FIRE. IT WAS POINTED OUT THAT A MAJOR FIRE HAD BROKEN OUT IN THE FACTORY PREMISES RESULTING IN DAMAGE OF COTTON ANDOTHER BYE PRODUCTS DURING THE YEAR.THA T THE ACTUAL DAMAGE CAME TO RS. 84,07,925/- AGAINST WHICHTHE CLAIM OF R S. 67,00,112/- HAD BEEN RECEIVED FROM THE INSURANCE COMPANY ONLY AND T HERE WAS NO ELEMENT OF INCOME IN THE NATURE OF RECEIPT AND THE SAID RECEIPT WAS ONLY IN THE NATURE OF COMPENSATION FOR LOSSINCURRED IN T HE BUSINESS ACTIVITYOF THE ASSESSEE. THAT ALL THE RELEVANTDOCUMENTSREFLECT ING THE AFORESAID FACTSBEING COPY OF ACCOUNTOF STOCK DAMAGE BY FIRE, COPY OF LOSS ON ACCOUNT OF FIRE IN STOCK REGISTER, COPY OF FIR FOR LOSS ON FIRE, COPY OF INSURANCE CLAIM LETTER ISSUED BY THE ORIENTAL INSUR ANCE COMPANY AND ALL ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 21 REPLIES FILED BEFORE THE DCIT AND EVEN BEFORE CIT(A ) WERE FILEDBEFORE US. THE LD. COUNSEL, THEREFORE, CONTENDED THAT THE LD. CIT (A) HAD WRONGLY UPHELD THE DISALLOWANCE ON THE GROUND THAT IT INVOLVED INSURANCE CLAIM VIS-A-VIS LOSS OF PRODUCTION. 19. THE LD. DR, ON THE OTHER HAND, HAS RELIED ON TH E ORDER OF THE LD. CIT(A). 20. WE HAVE HEARD BOTH THE PARTIES.WE FIND MERIT I N THE CLAIM OF THE ASSESSEE. WE HAVE NOTED THAT TIME AND AGAIN THE ASS ESSEE HAD CLAIMED BOTH BEFORE THE ASSESSING OFFICER AND LD. CIT(A) TH AT IT HAD BEEN COMPENSATED BY INSURANCE COMPANY FOR LOSS IN STOCK ON ACCOUNT OF FIRE. THE NECESSARY EVIDENCE TO THIS FACT, WE HAVE NOTED WERE ALSO FILED BY THE ASSESSEE BUT THE LD. CIT(A) INCORRECTLY APPRECIATE D THE FACTS OF THE CASE, NOTING IT AS COMPENSATION FOR LOSS ON ACCOUNT OF DAMAGE TO MACHINERY.CONSIDERING THE FACT THAT THE ASSESSEE HA D BEEN COMPENSATED FOR LOSS OF STOCK AND COMPENSATION BY ITS INHERENT NATURE HAS NO ELEMENT OF PROFIT IN IT, THERE IS NO QUESTION OF REDUCING T HE AMOUNT OF COMPENSATION FROM THE PROFITS OF THE ASSESSEE FOR T HE PURPOSE OF DEDUCTION U/S 80IC OF THE ACT. THE CLAIM OF THE ASS ESSEE, THEREFORE, OF INCLUSION OF INSURANCE CLAIM RECEIVED, AMOUNTING TO RS. 67 LACS, IN THE COMPUTATION OF PROFITS FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 80IC OF THE ACT IS, THEREFORE, ALLOWED. GROUND OF APPEAL NO.1 IS, ACCORDINGLY ALLOWED. ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 22 21. IN GROUND NO. 2.1 OF THE APPEAL, THE ASSESSEE H AS CHALLENGED THE ACTION OF THE LD. CIT(A) IN UPHOLDING THE DISALLOWA NCE OF DEDUCTION U/S 80IC ON INTEREST INCOME, DUTY DRAW BACK AND MISC. R ECEIPTS TO THE EXTENT OF 100%OF THE SAID RECEIPTS AS AGAINST THE ASSESSEE S CLAIM OF DEDUCTION U/S 80IC @ 30%. 22. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE CON TENDED THAT SINCE IT IS ELIGIBLE TO CLAIM DEDUCTION @ 100% OF ITS PROFIT S U/S 80IC OF THE ACT AS PER THE DECISION OF THE HON'BLE HIGH COURT IN IT S OWN CASE, RE- AFFIRMED BY THE DECISION OF THE HON'BLE SUPREME C OURT IN THE CASE OF AARHAMSOFTRONICS (SUPRA) , THIS GROUND OF APPEAL B ECOMES INFRUCTUOUS. 23. IN VIEW OF THE ABOVE, AND MOREOVER SINCE WE HAV E HELD THE ASSESSEE ELIGIBLE TO DEDUCTION OF PROFITS @ 100% WH ILE ADJUDICATING THE ADDITIONAL GROUND RAISED BY IT AT PARA 13 ABOVE, G ROUND NO.2.1 OF THE APPEAL IS DISMISSED AS INFRUCTUOUS. 24. IN GROUND OF APPEAL NO.2.2, THE ASSESSEE HAS C HALLENGED THE DISALLOWANCE OF DEDUCTION U/S 80IC OF THE ACT ONACC OUNT OF INTEREST RECEIVEDAMOUNTING TO RS. 6,12,516/-. ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 23 25. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE POI NTED OUT THAT THE SAME WAS DENIED BY HOLDING THAT THE SAID INCOME COU LDNOT SAID TO BE DERIVED FROM THE BUSINESS ACTIVITY OF THE ASSESSEE. BEFORE US, LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE DETAI LS OF THE INTEREST INCOME EARNED IS REPRODUCED AT PAGE 104 OF ITS WRIT TEN SUBMISSIONSWHICH ARE AS UNDER:- INTEREST ON BANK FDR FOR PURCHASE OF FLC RS. 4,10, 106 FOR IMPORT OF MACHINERY INTEREST ON HPSEB SECURITY DEPOSIT RS. 1,80,000//- INTEREST FROM SUNDRY CUSTOMERS ON RS. 22,410/- DELAYED PAYMENT 26. LD.COUNSELFOR THE ASSESSEE CONTENDED THAT IT ON LY PLEA WAS THAT NETTING BE ALLOWED OF INTERESTEXPENDITURE AGAINST THE INTEREST INCOME EARNED AND DISALLOWANCE BE RESTRICTED ONLY TO THE N ET INCOME. RELIANCE IN THIS RESPECT WAS PLACED ON THE DECISION OF THE H ON'BLE APEX COURT IN THE CASE OF ACG ASSOCIATED CAPSULES (P) LTD VS CIT 343 ITR 89 (SC) AND THE DECISION OF THE ITAT CHANDIGARH BENCH IN TH E CASE OF PADMAWATI STEEL IN ITA NO. 587/CHD/2014 AND THE DEC ISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF HM STEELS LTD (2015) (8) TMI 516. 27. THE LD. DR ON THE OTHER HAND, RELIED ON THEORDE RS OF THE LD. CIT(A). ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 24 28. WE HAVE HEARD BOTH THE PARTIES AND FIND MERIT I N THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. CLEARLY, THE ENTI RE GROSS INTEREST INCOME CANNOT DISALLOWED FOR THE PURPOSE OF CALCULA TING PROFITSELIGIBLE OF DEDUCTION U/S 80IC OF THE ACT AND IT IS ONLY THE NET INTEREST INCOME AFTER CONSIDERINGTHE INTERESTEXPENDITURE INCURRED F OR THE PURPOSE OF EARNING OF SAID INCOME WHICH ARE TO BE DISALLOWED. WE ACCORDINGLYACCEPT THIS PLEA OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DETERMINE THE NET INCOME AFTER REDUCING THEREFROM INTEREST EXPENDITURE INCURRED FOR THE PURPOSE OF EA RNING THE SAME AND REDUCE THIS NET INCOME FROM THE PROFITSELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. 29. GROUND NO.2.2, THEREFORE, STANDS PARTLYALLOWED. 30. GROUND NO.3 OF THE APPEAL RELATES TO THE DISALL OWANCE OF EXPENDITUREU/S 14A OF THE ACT.THE LD. COUNSEL FOR T HE ASSESSEE POINTED OUT THAT AT THE TIME OF FILING OF THE RETURN, THE A SSESSEE SUOMOTU DISALLOWED INTEREST OF RS. 20,75,709/- U/S 14A ON I NVESTMENT OF RS. 95 LACS IN PARTAP FABRIC PVT. LTD AND RS. 2.90 CRORES IN PARTAPSPINTEX LTD. THE ASSESSING OFFICER, HOWEVER, WORKED OUT THE DISA LLOWANCE U/S 14A TO RS. 23,42,834/- BY DETERMINING THE SAME AS PER RULE 8D OF THE INCOME TAX RULES, 1962. ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 25 31. BEFORE THE LD. CIT(A), THE ASSESSEE ARGUED THAT THERE WAS A CALCULATION MISTAKE. THE CIT(A) ON CONSIDERING THE SAME, DIRECTEDTHE ASSESSING OFFICER TOREWORK THE DISALLOWANCE AFTER V ERIFICATION OF THE FACTUAL MISTAKE POINTED OUT BY THE ASSESSEE. 32. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE CON TENDED THAT, IN FACT, AS PER LAW,NO DISALLOWANCE U/S 14A WAS WARRANTED IN THE CASE OF THE ASSESSEE, FIRSTLY BECAUSE NO EXEMPT INCOME IN THE F ORM OF DIVIDEND HAD BEENEARNED FROM THEIMPUGNED INVESTMENTS MADE BY THE ASSESSEE AND FURTHER BECAUSE THERE WAS SUFFICIENT OWN FUNDS AVAI LABLEWITH THE ASSESSEE FOR MAKING THE INVESTMENT CALLING FOR NO D ISALLOWANCE OF INTEREST. OUR ATTENTION IN THIS REGARD WAS DRAWN TO THE FINANCIAL STATEMENT OF THE ASSESSEE PLACEDBEFORE US AT PAPER BOOKPAGES 5 TO 58.DRAWING OUR ATTENTION TO NOTE NO. 20 &21 AT PAGE 19 OF THE PAPER BOOK, BEING DETAILS OF REVENUE FROM THE OPERATION A NDOTHER INCOME RESPECTIVELY REFLECTED IN THE PROFIT AND LOSS ACCOU NT, IT WAS POINTED OUT THAT NO DIVIDEND INCOME WAS REFLECTED IN THE SAME. FURTHER, OUR ATTENTION WAS DRAWN TO THE FACT THAT WHILE THE OWN FUNDS OF T HE ASSESSEE AMOUNTING TO RS. 21.95 CRORES IN THE FORM OF SHARE CAPITAL BEING RS. 8.1 CRORES AND RESERVES AND SURPLUSAMOUNTING TO RS. 13.85 CRORES, THE INVESTMENT IN SHARES AMOUNTED TO RS. 3.85 CRORES ON LY. OUR ATTENTION IN THIS REGARD WAS DRAWN TO THENOTE NO.1 & 2 OF THE FI NANCIAL STATEMENT AT PAGE NO.11 & 12 OF THE PAPER BOOK REFLECTING THE S HARE CAPITAL AND ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 26 RESERVE AND SURPLUS AND TONOTE NO.11 AT PAGE 16 OF THE PAPER BOOK REFLECTING THE NON-CURRENT INVESTMENTS MADE BY THE ASSESSEE IN SHARES AMOUNTING TO RS. 3.85 CRORES. THE LD. COUNSEL FOR T HE ASSESSEE CONTENDED THAT IN VIEW OF THE SAME, NO DISALLOWANCE U/S 14A OF THE ACT WAS WARRANTED. 33. THE LD. DR ON THE OTHER HAND, HAS CONTENDED THA T THE ASSESSEE HAD NEVER RAISED THESE GROUNDS BEFORE THE LOWER AUTHORI TIES AND THE FACTUAL CONTENTION OF THE ASSESSEE NEEDEDVERIFICATION. HE, THEREFORE, PLEADED THAT THE ISSUE BE RESTORED BACK TO THE FILE OF THE CIT(A). 34. HAVING HEARD BOTH THE PARTIES, WE AGREE WITH T HE LD. DR THAT THIS PLEA OF NO DISALLOWANCE BEING MADE U/S 14A HAS BEEN RAISEDBEFORE US FOR THE FIRST TIME AND IN THIS REGARD THE ASSESS EE HAS MADE CERTAINFACTUAL AVERMENTS BEFORE US REGARDING NO EXE MPT INCOME BEING EARNED AND ITS OWN FUNDS BEING MORE THAN THE INVEST MENTS MADE. SINCETHE FACTUALCLAIMS NEED VERIFICATION, WE CONSI DER IT FIT TO RESTORE THIS ISSUE BACK TO THE FILE OF THE AO TO VERIFYTHE FACTUALCLAIM OF THE ASSESSEE AND THEREAFTER DECIDE THE ISSUE IN ACCORDA NCE WITH LAW. 35. GROUND NO.3 OF THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 27 36. GROUND NO.4 RELATES TO DISALLOWANCE OF INTERES T U/S 36(1)(III) OF THE ACT ON ACCOUNT OF INTEREST FREE ADVANCES GIVENB Y THE ASSESSEE TO ONE M/S RAMA COTSPINPRIVATE LTD. 37. THE LD. CIT(A) UPHELD THE DISALLOWANCE HOLDING THAT THE ADVANCES WERE NOT MADE FOR BUSINESS PURPOSES BUT AT THE SAME TIME HELD THAT THE INSTEAD OF DISALLOWANCE INTEREST @ 12% AS DONE BY T HE AO, THE AVERAGE COST SHOULD BE TAKEN FOR THE PURPOSE OF COMPUTING T HE DISALLOWANCE. 38. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE CON TENDED THAT IT HAD SUFFICIENT OWN FUNDSAMOUNTING TORS. 21.95 CORES IN THE FORM OF SHARE CAPITAL OF RS. 8.1 CORES AND RESERVESRS. 13.85 CROR ES, THEREFORE, IT WAS TO BE PRESUMED THAT THE OWN FUNDS WEREUSED FOR MA KING THE IMPUGNED ADVANCE OF RS. 78,56,792/-. IN THIS REGARD THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF CIT VS RELIANCE INDUSTRIES LTD (2019) 410 ITR 46 6(SC). 39. THE LD. DR, ON THE OTHER HAND, HAS RELIED ON TH E ORDER OF THE CIT(A). 40. HAVING HEARD BOTH THE PARTIES, WE FIND MERIT IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. UNDOUBTEDLY,THE A DVANCES MADE WERE MINISCULE AS COMPARED TO THE OWN FUNDS AVAILABLE WI TH THE ASSESSEE AND, THEREFORE, IT COULD BE SAFELY PRESUMED THAT THE SAM E HAD BEEN MADE OUT OF THE OWN FUNDS AVAILABLE WITH THE ASSESSEE, CALLI NG FOR NO DISALLOWANCE ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 28 OF INTEREST U/S 36(1)(III) OF THE ACT. RELIANCE PLA CED BY THE LD. COUNSEL FOR THE ASSESSEE ON THE DECISION OF THE HON'BLE APE X COURT IN THE CASE OF RELIANCE INDUSTRIES LTD (SUPRA) IS APT WHEREIN THE HON'BLE SUPREME COURT HAS HELD AS UNDER;- 'THE HIGH COURT HAS NOTED THE FINDING OF THE TRIBUNAL THAT THE INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE WERE SUFFICIENT TO MEET ITS INVESTMENT. HENCE, IT COULD BE PRESUMED THAT THE INVESTMENTS WERE MADE FROM THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE.' 41. IN VIEW OF THE SAME, WE DELETE THE DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT. GROUND NO.4 OF THE APPEAL IS ACCORDINGLY ALLOWED. THE APPEAL OF THE ASSESSEE ACCORDINGLY STANDS PARTL Y ALLOWED. 42. WE SHALL NOW TAKE UP THE APPEAL OF THE REVENUE IN ITA NO. 957/CHD/2019 . 43. GROUND NO.1 RAISED BY THE REVENUE IS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION U/S 80-I C ON THE INCOME FROM SALE OF BY PRODUCT AND OTHER SALES WHICH WAS NOT DERIVED FROM THE MANUFACTURING ACTIVITY AS PER OBSERVATION OF THE AO. 44. IN THE ABOVE GROUNDS, THE REVENUE HAS CHALLENGE D THE ORDER OF THE LD. CIT(A) IN ALLOWING DEDUCTION U/S 80IC OF THE A CT ON INCOME FROM SALE OF BY-PRODUCT AND OTHER SALES, WHICH HAD BEEN DISALLOWED BY THE ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 29 ASSESSING OFFICER HOLDING THAT THEYCOULD NOT BE SAI D TO BE DERIVED FROM THE MANUFACTURING ACTIVITY. THE RELEVANT FINDINGS O F THE LD. CIT(A) IN THIS REGARD IS AT PARAS 5.2.1 TO 5.2.3, WHICH ARE AS UNDER:- 5.2.1 I HAVE PERUSED THE FACTS OF THE CASE, THE ACTION OF THE A.O. AND THE SUBMISSION OF THE APPELLANT. WITH RESPECT TO THE RECEIPTS ON ACCOUNT OF SR. NO. 1 AND 2 ON ACCOUNT OF BY PRODUCT AND HARD WASTE, THE SAME IS AKIN TO SCRAP HAVING RESIDUARY VALUE AND IS BEING GENERATED FROM THE PROCESS OF MANUFACTURING. TO DECIDE THE ISSUE WHETHER THE SALE OF SCRAP IS ELIGIBLE FOR DEDUCTION U/S 80IC OR NOT, IT IS MATERIAL TO SEE AS TO HOW THE SCRAP IS BEING GENERATED. IN CASE THE SCRAP IS GENERATED OUT OF TH E MANUFACTURING ACTIVITY, THE SAME IS TO BE TAKEN AS DERIVED FROM INDUSTRIAL UNDERTAKING AND WILL BE ELIGIBLE FOR DEDUCTION U/S 80IC. IN CASE, THE SCRAP IS NOT GENERATED OUT OF THE MANUFACTURING ACTIVITY, TH E DEDUCTION U/S 80IC IS INELIGIBLE. THE ORDER OF THE AO DOES NOT STATE AS TO HOW THE SCRAP IS NOT GENERATED FROM THE MANUFACTURING ACTIVITY. NO DETAILS OR MENTION OF THE SALE BILLS OR ANY FACTUAL INFORMATIO N HAS BEEN BROUGHT OUT IN THE ORDER TO SUBSTANTIATE T HE DISALLOWANCE OF THE SCRAP FOR CLAIM OF DEDUCTION U/ S 80IC. THE A.O IS FIRST REQUIRED TO GIVE A FINDING T HAT THE SCRAP GENERATED IS NOT DERIVED FROM MANUFACTURING ACTIVITY BEFORE DISALLOWING DEDUCTION U/S 80IC. 5.2.2 IN THIS CASE, THE APPELLANT HAS CLEARLY BROUG HT OUT THE NATURE OF SCRAP BEING GENERATED AND THE LINKAGES TO THE MANUFACTURING ACTIVITY. 5.2.3 THE ISSUE UNDER APPEAL HAS BEEN CONSIDERED AND DECIDED BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN 17 TAXMANN.COM 253 IN THE CASE OF COMMISSIONER OF INCOME TAX - 1VS. M/S. MICRO TURNERS FOR A.Y. 2006-07. WHILE DISALLOWING THE ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 30 APPEAL OF THE REVENUE ON THISISSUE, THE HON'BLEHIGH COURT HAS HELD AS UNDER:- IN THE PRESENT CASE, THE ASSESSEE IS ENGAGED IN THE MANUFACTURING OF AUTOMOBILE SHAFTS' ACCESSORIES. IN SUCH PROCESS, SCRAP IS GENERATED. SUCH SCRAP HAS DIRECT LINK WITH THE MANUFACTURING PROCESS, I.E., MANUFACTURING OF SHAFTS IS BOUND TO BE GENERATED.THEREFORE, IN VIEW OF THE JUDGMENT OF THE MADRAS HIGH COURT, WITH WHICH WE RESPECTFULLY AGREE, NO SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDERATION. 6. LEARNED COUNSEL FOR THE REVENUE RELIED UPON ANOTHER JUDGMENT OF MADRAS HIGH COURT IN PANDIAN CHEMICALS LTD. V. CIT [2002] 254 ITR 562 [2003]128 TAXMAN 126 (MAD.). BUT IN THE SAID JUDGMENT, A FINDING WAS RECORDED THAT THERE IS NO DETAIL IN RESPECT OF SCRAPS, GUNNY BAGS FOR WHICH ASSESSEE HAS CLAIMED DEDUCTION. THE JUDGMENT IN FENNER INDIA'S CASE (SUPRA) IS APPLICABLE TO THE FACTS OF THE PRESENT CASE AND NOT THE ONE IN PANDIAN CHEMICALS' CASE. IN VIEW THEREOF, NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION OF THIS COURT. 7. CONSEQUENTLY, THE PRESENT APPEAL IS DISMISSED. THE APPELLANT HAS ALSO PLACED ON RECORD COPY OF LEDGER ACCOUNT WHICH CLEARLY SHOWS THAT THE APPELLANT HAS SOLD BY PRODUCTS FROM COMBERMOIL, PSF WASTE, BLOWER ROOM WASTE ETC. WHICH IS DIRECTLY RELATED TO THE MANUFACTURING PROCESS OF THE APPELLANT. ACCORDINGLY, CONSIDERING THE JUDGMENT REFERRED SUPRA AND THE VARIOUS JUDGMENTS RELIED ON BY THE APPELLANT AND ALSO CONSIDERING THE FACTS OF ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 31 THE CASE, THE CONTENTION OF THE APPELLANT FOR CLAIM OF DEDUCTION U/S 80IC ON SALE OF SCRAP IS ALLOWED. 45. ON GOING THROUGH THE ABOVE, WE FIND THAT THE LD . CIT(A) HAS GIVEN A CATEGORICAL FINDING OF FACT THAT THE SCRAP IN TH E PRESENT CASE HAS BEEN GENERATED OUT OF THE MANUFACTURING ACTIVITY OF THE ASSESSEE. THE SAID FACT HAS NOT BEEN CONTROVERTEDBY THE REVENUE BEFORE US. FURTHER, THE LD. CIT(A) HAS HELD THE SCRAP GENERATED FROM MANUFACTU RING ACTIVITY HAS A DIRECT LINK WITH THE MANUFACTURING PROCESS, RELYING UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS MICRO TUNERS (SUPRA) . THE LD. DR HAS NOT BEEN ABLE TO D ISTINGUISH THE AFORESAID DECISION BEFORE US. 46. IN VIEW OF THE FACTUAL FINDINGS OF THE LD. CIT( A) AND POSITION OF LAW AS LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT AS ABOVE, WE DONOT FIND ANY INFIRMITYIN THE ORDER OF THE CIT(A) HOLDING THAT THE SCRAP GENERATED FROM THE MANUFACTURING CAN BE SAID TO BE DERIVED FROM MANUFACTURING ACTIVITY AND, THUS, ELIGIBLE FOR DED UCTION U/S 80IC OF THE ACT. GROUND NO.1 OF THE APPEAL RAISED BY THE REVENUE IS, THEREFORE, DISMISSED. 47. GROUND NO.2 OF THE APPEAL READS AS UNDER:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE PART OF ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 32 ADDITION MADE BY THE A.O. U/S 36(L)(III) BY DIRECTING TO RECALCULATE AVERAGE COST DEBT. 48. THE REVENUE IN THE AFORESAID GROUND HAS CHALLEN GED THE ORDER OF THE LD. CIT(A) IN DIRECTING THE ASSESSING OFFICER T O RECALCULATE THE DISALLOWANCE OF INTEREST U/S 36(1)(III) ON AVERAGE COSTBASIS INSTEAD OF RATE OF 12% APPLIED BYTHE ASSESSING OFFICER. 49. THIS ISSUE HAS BEEN DEALT WITH BY US IN THE ASS ESSEES APPEAL ALSO IN GROUND NO.4, WHEREIN, WE HAVE ENTIRELY DELETED T HE DISALLOWANCE OF INTEREST U/S 36(1)(III) AT PARA39 OF OUR ORDER ABOV E. THE GROUND RAISEDBYTHE REVENUE, THEREFORE, BECOMES INFRUCTUOUS AND IS, ACCORDING DISMISSED. 50. GROUND NO.3 OF THE APPEAL READS AS UNDER:- 3.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS ERRED IN ALLOWING INTEREST INCOME U/ S 80-IC ON THE INCOME NOT DERIVED FROM THE MANUFACTURING ACTIVITY AS PER OBSERVATION OF THE AO . 51. INTHISREGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT, INFACT, THE LD. CIT(A) HAS NOT ALLOWED DEDUCTION O N THE INTEREST INCOME EARNED AND THE ASSESSEE HAS RAISED GROUND NO. 2.2 I N ITS APPEAL PLEADING FOR NETTING OF INTEREST FOR THE PURPOSE OF DISALLOW ANCE OF CLAIM U/S 80IC OF THE ACT. ITA NOS.560 & 957-C-2019 & 46 & 47-C-2020 SHIVAMCOTSPIN LTD, SIRMOUR 33 52. CONSIDERING THE SAME, SINCE WE HAVE ALREADY RES TORED THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER, WHEREIN WE HAVE DIRECTED THE ASSESSING OFFICER TO ALLOW NETTING AT PARA28 OF OU R ORDER ABOVE, THE DISALLOWANCE IS TO BE RESTRICTED TO THE NET AMOUNT OF INTEREST ALONE. THIS GROUND OF APPEAL IS ALSO, THEREFORE, RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO BE DECIDED ALONG WITH GROUND N O.2.2 OF THE ASSESSEES APPEAL. IN THE RESULT, THIS APPEAL OF THE REVENUE STANDS P ARTLY ALLOWED. 53. IN THE RESULT THE CAPTIONED APPEALS ARE DISPOSE D OFF AS UNDER:- ITA NOS. 47 & 47/CHD/2020 REVENUES APPEALS DISMI SSED. ITA NO. 560/CHD/2019 ASSESSEES APPEAL STANDS PAR TLY ALLOWED. ITA NO. 957/CHD/2019- REVENUE APPEAL STANDS PARTLY ALLOWED. ORDER PRONOUNCED ON 28.12.2020. SD/- SD/- ( ) ( $ % & '# ) (SANJAY GARG) ( ANNAPURNA GUPTA) / JUDICIAL MEMBER () / ACCOUNTANT MEMBER DATED : 28.12.2020 .. '+ ,-.- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. # / / CIT 4. # / ( )/ THE CIT(A) 5. -01 2 , %2 , 34516 / DR, ITAT, CHANDIGARH 6. 157$ / GUARD FILE '+ # / BY ORDER, 8' / ASSISTANT REGISTRAR