Swiss Glass Coat Equipment Ltd., Anand V. The ACIT.,Cent.Circle-1, Baroda

ITSSA 58/AHD/2009

• Counselvise Citation: [2010] 124 COUNSELVISE.COM (IT) 8920 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 04-11-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 13-01-2010
• Assessment Year: 2000-2001
• Appeal Filed On: 18-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHELLEY JINDAL
• Keywords: Business income; Principle of natural justice; Initiation of penalty proceedings
• Section: 80HHC; 153A; 80IB; 56; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI A N PAHUJA, ACCOUNTANT MEMBER IT(SS)A NOS.58, 59 & 60/AHD/2009 (ASST. YEARS:-2000-01, 2001-02 & 2002-03) SWISS GLASS COAT EQUIPMENT LTD., H-106, GIDC, VITTHAL UDYOGNAGAR, ANAND, GUJARAT V/S ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE- 1,AAYAKAR BHAVAN, BARODA PAN: AACCS 6297 G [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI S N SOPARKAR, AR REVENUE BY:- SHRI SHELLEY JINDAL, DR O R D E R A N PAHUJA: THESE THREE APPEALS BY THE ASSESSEE AGAINST THR EE SEPARATE ORDERS DATED 17 TH MARCH, 2009 OF THE LD. CIT(APPEALS)-IV, AHMEDABAD FOR THE ASSESSMENT YEARS 2000-01, 2001-0 2, AND 2002- 03, RAISE THE FOLLOWING COMMON GROUNDS:- 1 LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS IN CO NFIRMING ADDITION OF RS.79,538/- IN THE AY 2000-01,RS.2,83,8 40/- IN THE AY 2001-02 & RS.7,75,395/- IN THE AY 2002-03 MADE BY A O DISALLOWING THE CLAIM OF DEDUCTION UNDER SECTION 80 IB OF THE ACT ON OTHER INCOME AMOUNTING TO RS.2,65,128/- IN THE AY 2 000-01,RS. 9,46,131/- IN THE AY 2001-02 & RS.25,84,649/- IN T HE AY 2002-03 . BY CONFIRMING THIS DISALLOWANCE THE ID. CIT (A) HAS FAILED TO INTERPRET PROVISIONS OF THE NEWLY INTRODUCED SECTION IN ITS P ROPER PERSPECTIVE THAT ONCE THE REGULAR ASSESSMENT HAS ALREADY BEEN F INALIZED, IN ABSENCE OF ANY MATERIAL FOUND AT THE TIME OF SEARCH , THERE IS NO SCOPE OF MAKING ANY ADDITIONS TO ALREADY ASSESSED I NCOME. THE ACTION OF ID. CIT (A) BEING WITHOUT ANY MERITS OR J USTIFICATION REQUIRES TO BE QUASHED. 2 LEARNED CIT (A) HAS FURTHER ERRED IN ADJUDICATING ONLY THE ISSUE OF DISALLOWANCE OF INTEREST EARNED ON FDR CLAIMED AS D EDUCTION U/S 80IB OF THE ACT WHEREAS HAS NOT ADJUDICATED ON OTHE R RECEIPTS DISALLOWED BY AO THAT WERE CLAIMED BY THE APPELLANT AS DEDUCTION U/S 80IB OF THE ACT. LD. CIT (A) OUGHT TO HAVE ADJU DICATED ON EVERY IT(SS)A NOS.58 TO 60/AHD /2009 2 ISSUE RAISED BEFORE HIM BY THE APPELLANT AND OUGHT NOT TO HAVE IGNORED OR OVERLOOKED THE SAME. 3 INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) I S NOT JUSTIFIED. 4 INITIATION OF LEVY OF INTEREST U/S 234A, 2348 & 2 34C OF THE ACT IS NOT JUSTIFIED. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, E DIT, DELETE, MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEAL AT TH E TIME OF OR BEFORE THE HEARING OF THE APPEAL. 2 SUBSEQUENTLY ON 29.10.2010, THE ASSESSEE RAISED T HE FOLLOWING COMMON ADDITIONAL GROUNDS IN THESE THREE APPEALS: THE NOTICE ISSUED UNDER SECTION 153A OF THE ACT IS BAD IN LAW AND VOID AB INITIO IN LIGHT OF THE FACT THAT ONCE THE R EGULAR ASSESSMENT HAD ALREADY BEEN FINALIZED, IN ABSENCE OF ANY INCRIMINA TING MATERIAL FOUND AT THE TIME OF SEARCH IN RESPECT OF ADDITIONS MADE, TH ERE IS NO SCOPE OF MAKING ANY ADDITIONS TO INCOME ALREADY ASSESSED UND ER SCRUTINY ASSESSMENT. THE NOTICE ISSUED IS WITHOUT JURISDICTI ON AND VOID AB INITIO THAT DESERVES TO BE QUASHED. 3 AT THE OUTSET , THE LD. AR ON BEHALF OF THE ASSES SEE DID NOT PRESS THEIR REQUEST FOR ADMISSION OF AFORESAID ADD ITIONAL GROUND AS AFORESAID NOR THE ISSUE OF INTERPRETATION OF NEWLY INTRODUCED SECTION ETC. IN THE LATTER PORTION OF COMMON GROUND NO.1 I N THESE THREE APPEALS. THEREFORE, THESE COMMON GROUNDS ARE DISMIS SED AS SUCH. THE LD. AR, THEREFORE, ARGUED ONLY ON MERIT OF THEI R CLAIM FOR DEDUCTION U/S 80IB OF THE INCOME-TAX ACT,1961[HERE INAFTER REFERRED TO AS THE ACT] ON THE OTHER INCOME IN THE AFORESA ID TWO GROUNDS OF APPEAL. 4. ADVERTING NOW TO THE CLAIM FOR DEDUCTION U/ S 80IB OF THE ACT, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT A SEARCH ACTION U/S 132 OF THE ACT WAS CONDUCTED IN THE PREMISES OF S WISS GLASS COAT GROUP OF CASES, INCLUDING THE ASSESSEE, ON 19-01-20 06,WHEN CERTAIN DOCUMENTS WERE SEIZED. CONSEQUENTLY, A NOTICE U/S 1 53A OF THE ACT IT(SS)A NOS.58 TO 60/AHD /2009 3 WAS ISSUED ON 13-06-2006.IN RESPONSE, THE ASSESSEE, MANUFACTURING GLASS LINED VESSELS, FILED RETURN DECLARING INCOME OF RS.27,31,150/- ON 31-07-2006 FOR THE AY2000-01 . IN THIS CASE, ORI GINAL RETURN WAS FILED ON 30-11-2000 DECLARING THE SAME INCOME. LIKE WISE THE RETURNS WERE FILED FOR THE OTHER TWO YEARS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE CLAIMED DEDUCTION U/S 80IB OF TH E ACT, INTER ALIA, ON THE FOLLOWING OTHER INCOME : NATURE OF INCOME AY 2000-01 (IN RS.) AY 2001-02 (IN RS.) AY 2002-03 (IN RS.) EXCESS PROVISION OF INCOME-TAX 28,773 - - INSURANCE CLAIM ON PRINTER 2,120 1,42,051 16,650 INTEREST ON FDR 2,30,355 1,70,104 1,50,946 MISCELLANEOUS INCOME 3,880 770 400 SALES TAX REFUND - 6,33,206 10,02,781 INSPECTION CHARGES - - 2,40,000 PACKING CHARGES - - 5,29,093 SCRAP - - 6,45,229 TOTAL 2,65,128 9,46,131 25,84,649 4.1 TO A QUERY BY THE AO, THE ASSESSEE EXPLAINED THAT INTEREST ON FDRS, PURCHASED FOR OBTAINING LC/BANK GUARANTEES RE QUIRED FOR THE IT(SS)A NOS.58 TO 60/AHD /2009 4 PURPOSE OF BUSINESS , WAS ELIGIBLE FOR DEDUCTION U/ S 80IB OF THE ACT, IN VIEW OF DECISION OF HONBLE APEX COURT IN KARNAL CO-OPERATIVE SUGAR MILLS VS. CIT,161 CTR241(SC). AS REGARDS INC OME UNDER REMAINING SUB-HEADS, THE ASSESSEE MERELY STATED THA T THE SAID INCOME WAS DERIVED FROM MANUFACTURING ACTIVITY. HOW EVER, THE AO DID NOT ACCEPT SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT NATURE OF ANY INCOME DOES NOT CHANGE BY VIRTUE OF I TS USAGE. ACCORDINGLY, WHILE DISTINGUISHING THE DECISION REL IED UPON ON BEHALF OF THE ASSESSEE, THE AO DENIED THE CLAIM FOR DEDUCT ION U/S 80IB OF THE ACT ON THE AFORESAID INCOME IN THESE THREE ASS ESSMENT YEARS. 5 ON APPEAL, THE LD. CIT(A) HAS DECIDED THE ISSUE IN THE AY 2000-01 AS UNDER:- 2. THE ONLY EFFECTIVE ISSUE RAISED IN THIS APPEAL IS THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING RS.79,538/- INVOKING THE P ROVISIONS OF SECTION 80IB OF THE INCOME-TAX ACT, 1961, BEING 30% OF RS.2,65,1 28/-. THIS DISALLOWANCE WAS MADE ON THE BASIS THAT INCOME OF E XCESS PROVISION FOR IT (RS.28,773/-), INSURANCE CLAIM ON PRINTER (RS.2, 120/-), INTEREST ON FDR (RS.2,30,355/-) AND MISCELLANEOUS INCOME (RS.3,880/ -) DO NOT FORM PART OF MANUFACTURING INCOME ELIGIBLE FOR DEDUCTION U/S 80I B. LEARNED COUNSEL CONTENDED THAT THE ASSESSING OFFICER CANNOT QUESTIO N THE ITEMS ALREADY ALLOWED DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 153A AFTER THE CONDUCT OF SEARCH. LEARNED COUNSEL ALSO RELIED UPON THE JUDGMENT OF CIT V/S. KARNAL COOP.SUGAR MILLS LTD. (243 ITR 2) OF HO N'BLE SUPREME COURT, JUDGMENT OF BHAGWATI PRASAD KEDIA V/S. CIT (248 ITR 562) OF HON'BLE CALCUTTA HIGH COURT AND JUDGMENT OF CIT V/S. VIKARM JOSHI (250 ITR 129) OF HON'BLE BOMBAY HIGH COURT AS WELL AS HON'BLE CAL CUTTA ITAT JUDGMENT IN CASE OF LMJ INTERNATIONAL LTD. V/S. DCIT (119 TTJ 214) IN SUPPORT OF HIS CONTENTIONS. 3. I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF L EARNED COUNSEL AS WELL AS GONE THROUGH THE RECORDS. ON PERUSAL OF ASS ESSMENT ORDER, IT HAS BEEN NOTICED THAT THE ASSESSING OFFICER HAS COMPUTE D DEDUCTION U/S 80-IB ON THE BASIS OF OTHER INCOME COMPRISED OF EXCESS PR OVISION FOR IT (RS.28,773/-), INSURANCE CLAIM ON PRINTER (RS.2,120 /-), INTEREST ON FOR (RS.2,30,355/-) AND MISCELLANEOUS INCOME (RS.3,880/ -) WHICH IS NOT DERIVED FROM MANUFACTURING ACTIVITIES OF THE APPELL ANT WHICH IS ESSENTIAL FOR MAKING THIS INCOME ELIGIBLE FOR DEDUCTION U/S. 80-I B. HOWEVER, THE JUDGMENT OF CIT V/S. KARNAL COOP.SUGAR MILLS LTD. ( 243 ITR 2) OF HON'BLE SUPREME COURT IS REGARDING INTEREST RECEIVED ON MAR GIN MONEY. IT WAS HELD IN THIS CASE THAT INTEREST RECEIVED ON MARGIN MONEY FOR OPENING OF IT(SS)A NOS.58 TO 60/AHD /2009 5 LETTER OF CREDIT FOR PURCHASE OF MACHINERY IS TO BE TREATED AS ABATEMENT OF CAPITAL LOSS NOT TAXABLE AS INCOME FROM OTHER SOURC ES. THIS DECISION WAS RENDERED BY DIVISION BENCH CONSISTING OF TWO JUDGES WHEREAS THE DECISION OF HON'BLE SUPREME COURT IN CASE OF TUTICORINE ALKA LI CHEMICALS & FERTILIZERS LTD. V/S. CIT (227 ITR 172) WAS RENDERE D BY DIVISION BENCH OF THREE JUDGES. HENCE, THIS JUDGMENT WAS NOT OVERRULE D. IT WAS HELD IN CASE, OF TUTICORINE ALKALI CHEMICALS & FERTILIZERS LTD. V /S. CIT (227 ITR 172) THAT INTEREST INCOME EARNED ON MARGIN MONEY IS TAXABLE A S INCOME FROM OTHER SOURCES AS AGAINST CAPITALIZATION OF RECEIPTS OF IN TEREST. IT MAY BE MENTIONED HERE THAT A DECISION OF SUPREME COURT IS ONLY A PRECEDENT AND DOES NOT ACT AS RES-JUDICATA SO THAT WHERE IT IS, I T IS THE DUTY OF ANY SUBORDINATE COURT TO DEAL WITH THE ISSUES BECAUSE T HE DOCTRINE OF PRECEDENT IS LIMITED TO THE DECISION ITSELF AND AS TO WHAT IS NECESSARILY INVOLVED IN IT AS WAS HELD BY HON'BLE SUPREME COURT ITSELF IN CASE OF S. SHANMUGAVEL NADAR V/S. STATE OF TAMIL NADU. IN THE PRESENT CASE, THE APPELLANT IS AT LIBERTY TO USE INTEREST INCOME EARN ED ON FDR INTEREST AS IT LIKES SUCH AS INVESTMENT IN LAND, PROPERTY INVESTME NTS, INVESTMENT IN SECURITIES ETC. IT IS UNDER NO OBLIGATION TO UTILIZ E INTEREST INCOME TO REDUCE LIABILITY TO PAY INTEREST TO CREDITORS SO AS TO RED UCE INTEREST WHICH FORMED PART OF ACTUAL COST OF MACHINERY AS WAS HELD IN CAS E OF CIT V/S. KARNAL COOP. SUGAR MILLS LTD. (243 ITR 2) RELIED UPON BY L EARNED COUNSEL. HENCE, FACTS OF THE PRESENT CASE ARE DIFFERENT FROM THE FACTS OF THE CASE OF CIT V/S. KARNAL COOP. SUGAR MILLS LTD. (243 ITR 2) RELIED UPON BY LEARNED COUNSEL. THEREFORE, RATIO OF THIS JUDGMENT IS NOT A PPLICABLE E FACTS OF THE PRESENT CASE. HENCE, THE DEDUCTION U/S 80-IB IS ALL OWABLE ONLY IN RESPECT OF PROFITS AND GAINS DERIVED BY THE ASSESSEE FROM M ANUFACTURING ACTIVITIES ONLY AND NOT IN RESPECT OF EACH AND EVERY ITEM OF I NCOME ASSESSABLE AS BUSINESS INCOME. ALL BUSINESS INCOME OF AN UNDERTAK ING DOES NOT FALL WITHIN THE AMBIT OF PROFITS DERIVED FROM MANUFACTUR ING ACTIVITIES. HOWEVER, WHERE INCOME ACCRUES FROM AN ACTIVITY WHICH IS INCI DENTAL TO THE MAIN ACTIVITY THEN SUCH INCOME WOULD FALL WITHIN THE EXP RESSION MANUFACTURING ACTIVITIES. KEEPING IN VIEW OF ABOVE FACTS AND CIRC UMSTANCES OF THE CASE, AND RESPECTFULLY RELYING UPON THE CASES (SUPRA), TH E INTEREST INCOME EARNED ON FIXED DEPOSITS IS NOT ELIGIBLE FOR DEDUCTION U/S .80-IB. KEEPING IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, ONLY THO SE PROFITS AND GAINS OF THE BUSINESS ARE ELIGIBLE FOR DEDUCTION U/S 80-1B W HICH HAVE DIRECT AND PROXIMATE RELATIONSHIP WITH THE MANUFACTURING ACTIV ITIES. THE APPELLANT IS EARNING INTEREST ON FIXED DEPOSITS. THE EARNING OF INTEREST HAS NO NEXUS WITH THE MANUFACTURING ACTIVITIES. THE APPELLANT IS UTILIZING THE FDRS FOR OPENING OF LETTER OF CREDIT USED FOR BUSINESS PURPO SES. THEREFORE, THERE IS NO DIRECT NEXUS BETWEEN THE EARNING OF INTEREST AND THE BUSINESS OF THE APPELLANT. THIS VIEW IS SUPPORTED BY THE JUDGMENT I N CASE OF ORISSA STATE WAREHOUSING CORPORATION V/S. C1T (237 ITR 589) WHER EIN IT HAS HELD BY HON'BLE SUPREME COURT THAT INCOME RECEIVED BY ORISS A STATE WAREHOUSING CORPORATION FROM INTEREST ON FIXED DEPO SITS WAS NOT THE INCOME DERIVED FROM THE WAREHOUSES STORAGE ETC. KEE PING IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND RESPE CTFULLY FOLLOWING THE JUDGMENTS (SUPRA), THERE IS NO INFIRMITY IN DISALLO WING THE DEDUCTION U/S. 80- IT(SS)A NOS.58 TO 60/AHD /2009 6 IB. HENCE, NO INTERFERENCE IS CALLED FOR IN THIS CA SE. THE ONLY SINGLE GROUND OF APPEAL IS DISMISSED. 5.1 SIMILAR FINDINGS HAVE BEEN RECORDED BY THE LD. CIT(A) IN THE AYS 2001-02 & 2002-03. 6. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR APPEARING B EFORE US CONCEDED THAT THEIR CLAIM FOR DEDUCTION U/S 80IB OF THE ACT IN RESPECT OF EXCESS PROVISION FOR IT, INTEREST ON FDRS AND MISCELLANEOUS INCOME HAS TO BE DECIDED AGAINST THE ASSESSEE. IN RESPECT OF OTHER RECEIPTS, THE LD. AR RELIED UPON DECISION IN CIT VS. KHEMKA CONTAINER (P) LTD.,275 ITR 559(P&H) IN SUPPO RT OF THEIR CLAIM FOR NETTING OFF IN RESPECT OF AMOUNT RECEIVED FROM INSURANCE C OMPANY AND FURTHER RELIED UPON DECISIONS IN RESPECT CIT VS. ELTEK SGS (P) LT D., 300 ITR 6(DELHI) AS ALSO CIT VS. DHARAM PAL PREM CHAND LTD.,317 ITR 353(DELH I) FOR THEIR CLAIM REGARDING SALES TAX REFUND. IN RESPECT OF CLAIM FOR DEDUCTION ON ACCOUNT OF RECEIPTS FROM SCRAP AND PACKING CHARGES, THE LD. AR RELIED UPON D ECISIONS IN DCIT VS. HARJIVANDAS JUTHABHAI ZAVERI & ANOTHER,258 ITR 785( GUJ) AND CIT VS. BANGALORE CLOTHING CO.,260 ITR 371(BOM.). ON THE OTHER HAND , THE LD. DR WHILE SUPPORTING THE ORDER OF THE LD. CIT(A) RELIED UPON CERTAIN OBS ERVATIONS IN RESPECT OF THE MEANING OF THE WORD DERIVED IN THE DECISION IN C IT VS. KIRAN ENTERPRISES ,327 ITR 520(HP). 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE. AS IS APPARENT FROM THE IMPUGNED ORDERS , THE AO DISALLOWED THE CLAIM FOR DEDUCTION U/S 80IB OF THE ACT ON THE ITE MS OF RECEIPTS INCLUDED IN THE OTHER INCOME ON THE GROUND THE RECEIPTS BY WAY OF INTEREST ON FIXED DEPOSITS WITH THE BANK, INSURANCE , MISCELLANEOUS INCOME ,EXCESS PROVISION FOR IT, SALES TAX REFUND, INSPECTION CHARGES, PACKING CHARGES AND SCR AP WERE NOT DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING WHILE TH E LD. CIT(A) DECIDED THE ISSUE ONLY IN RESPECT OF CLAIM FOR DEDUCTION U/S 80IB OF THE ACT IN RESPECT OF INTEREST ON FDRS WITHOUT RECORDING ANY FINDINGS ON THE CLAIM FO R SUCH DEDUCTION IN RELATION TO OTHER RECEIPTS NOR EVEN EXAMINED THE NATURE OF EAC H OF SUCH RECEIPTS. AS REGARDS IT(SS)A NOS.58 TO 60/AHD /2009 7 EXCLUSION OF INTEREST ON FDRS FROM THE ELIGIBLE PRO FITS FOR THE PURPOSE OF DEDUCTION U/S 80IB OF THE ACT, THE LEADING DECISION IS THAT O F THE HON'BLE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. [19 97], 227 ITR 172 WHICH HOLDS THAT INTEREST EARNED ON DEPOSITS PLACED FOR THE PUR POSES OF OBTAINING LOANS FOR BUSINESS CANNOT BE TREATED AS BUSINESS INCOME BUT O NLY AS INCOME FROM OTHER SOURCES.. THE DECISION IN TUTICORIN ALKALI CHEMICAL S AND FERTILIZERS LTD. [1997] 227 ITR 172 , WHICH WAS RENDERED IN THE CONTEXT OF SECTIONS 56 AND 57, HAS BEEN FOLLOWED IN CIT V. AUTOKAST LTD. [2001] 248 ITR 110 (SC). LIKEWISE, IN CIT V. DR. V. P. GOPINATHAN [2001] 248 ITR 449 (SC) INTEREST ON FIXED DEPOSITS WAS HELD NOT TO QUALIFY FOR SETTING OFF AGAINST INTEREST ON LOAN S BORROWED. 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 REITERATED THE NEXUS THEORY AND DECLINED TO TREAT SUCH INTEREST EARNED AS BUSIN ESS INCOME. THE DECISION OF THE HONBLE MADRAS HIGH COURT IN SOUTH INDIA SHIPPI NG 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. IN CASES WHER E THE ASSESSEE IS REQUIRED TO MANDATORILY KEEP MONIES IN FIXED DEPOSIT IN ORDER T O AVAIL OF CREDIT FACILITY, THE ARGUMENT ON BEHALF OF THE ASSESSEE IS THAT BUT FOR SUCH A STIPULATION BY THE BANK THERE WAS NO NEED FOR THE ASSESSEE TO KEEP THE MONE Y IN FIXED DEPOSIT AND THEREFORE, THE INCOME EARNED FROM SUCH FIXED DEPOSI TS BEARS A DIRECT NEXUS TO THE BUSINESS ACTIVITY ITSELF. GIVEN THE REPEATED AFFIRM ATION BY THE HON'BLE SUPREME COURT IN THE VARIOUS CASES, WE ARE OF THE OPINION T HAT INTEREST EARNED FROM THE BANK, DOES NOT HAVE AN IMMEDIATE NEXUS WITH THE BU SINESS OF THE INDUSTRIAL UNDERTAKING AND THEREFORE, CAN NOT BE SAID TO BE D ERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING . 7.1 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 IT(SS)A NOS.58 TO 60/AHD /2009 8 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' CANNOT BE ACCEPTED AS EQUIVALENT TO ' REFERABLE TO EXPORTS ' OR EVEN INDIRECTLY OR REMOTELY CONNECTED WITH THE EXPORTS BY A NEBULOUS L INK. 7.2 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 .. 7.3 FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER S. 80-IB 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 80IB 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 IT(SS)A NOS.58 TO 60/AHD /2009 9 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 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. 7.4 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 IT(SS)A NOS.58 TO 60/AHD /2009 10 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.. 8. IN THE INSTANT CASE, AS ALREADY POINTED OU T , THE LD. CIT(A) HAVE RECORDED HIS FINDINGS ONLY IN RESPECT OF CLAIM FOR DEDUCTION U/S 80IB OF THE ACT ON THE INTEREST INCOME. WE FIND THAT IN THE APPEALS OF TH E ASSESSEE FOR THE AYS 2003-04 AND 2004-05 IN IT(SS)A NO.61-62/AHD./2009, THE LD. AR DID NOT EVEN PRESS THEIR GROUND IN RESPECT OF CLAIM FOR DEDUCTION U/S 80IB OF THE ACT IN RESPECT OF INCOME ON ACCOUNT OF INTEREST ON FDRS. IN VIEW OF THE FOR EGOING AND IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID JUDICIAL PRONOUNCEMENTS, I NCLUDING THE JUDGMENTS IN CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT [ 1978] 113 ITR 84 (SC), CIT V. COCHIN REFINERIES LTD. [1982] 135 ITR 278 (KER.) AND PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 (SC) AS ALSO OF JURISDICTIONAL HIGH COURT IN THE C ASE OF GASKETS AND RADIATORS DISTRIBUTORS(SUPRA), WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE CONCLUSION OF THE LD. CIT(A) IN RESPECT OF CLA IM FOR DEDUCTION U/S 80IB OF THE ACT IN RELATION TO INCOME ON ACCOUNT OF INTEREST ON FDRS. THUS, THE GROUND RELATING TO CLAIM FOR DEDUCTION U/S 80IB OF THE ACT ON THE INTEREST INCOME IS DISMISSED. 9. AS REGARDS CLAIM FOR DEDUCTION U/S 80IB OF TH E ACT ON ACCOUNT OF EXCESS PROVISION FOR IT AND MISCELLANEOUS INCOME, THE LD. AR ON BEHALF OF THE ASSESSEE DID NOT PRESS THEIR GROUNDS N RELATION TO THESE REC EIPTS. THEREFORE, GROUNDS RELATING TO CLAIM FOR DEDUCTION U/S 80IB OF THE ACT IN RESPECT OF THESE INCOME ARE ALSO DISMISSED. 10. FOR THE CLAIM FOR DEDUCTION U/S 80IB OF THE ACT IN RESPECT OF INSURANCE AMOUNT, SALES TAX REFUND, INSPECTION CHARGES, PACK ING CHARGES AND SCRAP INCOME, AS CONTENDED IN GROUND NO.2 IN THESE APPEAL S, THE LD. CIT(A) HAVE NOT RECORDED ANY FINDINGS AS TO WHETHER OR NOT THESE R ECEIPTS WERE DERIVED FROM THE ACTUAL CONDUCT OF THE BUSINESS OF THE INDUSTRIAL UN DERTAKING AND WHETHER ANY EXPENDITURE WAS ALSO ACTUALLY INCURRED BY THE ASSES SEE IN EARNING THESE RECEIPTS. A MERE GLANCE AT THE OBSERVATIONS OF THE LD. CIT(A) IN THE IMPUGNED ORDER IT(SS)A NOS.58 TO 60/AHD /2009 11 REVEALS THAT THE LD. CIT(A) HAVE NOT PASSED A SPEAK ING ORDER. WE ARE OF THE OPINION THAT THE APPLICATION OF MIND TO THE MATERIA L FACTS AND THE ARGUMENTS SHOULD MANIFEST ITSELF IN THE ORDER. SECTION 250(6) OF THE INCOME TAX ACT MANDATES THAT THE ORDER OF THE CIT(A) WHILE DISPOSI NG OF THE APPEAL SHALL BE IN WRITING AND SHALL STATE THE POINTS FOR DETERMINATIO N, THE DECISION THEREON AND THE REASON FOR THE DECISION. AS IS APPARENT FROM THE I MPUGNED ORDER, IN OUR OPINION, THE ORDER PASSED BY THE LD. CIT(A) IS CRYPTIC AND GROSSLY VIOLATIVE OF ONE OF THE FACETS OF THE RULES OF NATURAL JUSTICE, NAMELY, THA T EVERY JUDICIAL/QUASI-JUDICIAL BODY/AUTHORITY MUST PASS REASONED ORDER, WHICH SHOU LD REFLECT APPLICATION OF MIND BY THE CONCERNED AUTHORITY TO THE ISSUES/POINTS RAI SED BEFORE IT. THE REQUIREMENT OF RECORDING OF REASONS AND COMMUNICATION THEREOF H AS BEEN READ AS AN INTEGRAL PART OF THE CONCEPT OF FAIR PROCEDURE AND SAFEGUARD TO ENSURE OBSERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARITY, CHECKS THE INTR ODUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZES ARBITRARINESS IN THE D ECISION-MAKING PROCESS. WE MAY POINT OUT THAT A DECISION DOES NOT MERELY MEA N THE CONCLUSION. IT EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE CONCLUSION.[MUKHTIAR SINGH VS. STATE OF PUNJAB,(1995)1SCC 760(SC)]. 10.1. IN VIEW OF THE FOREGOING, ESPECIALLY WHEN THE LD. CIT(A) HAVE NOT PASSED A SPEAKING ORDER AND A SIMILAR ISSUE IN RESPECT OF C LAIM FOR DEDUCTION IN RELATION TO SALES TAX REFUND AND INSURANCE AMOUNT HAS BEEN REST ORED TO THE FILE OF THE AO BY THE ITAT IN THEIR DECISION DATED 29.1.2010 IN THE APPEALS OF THE ASSESSEE FOR THE AYS 2003-04 AND 2004-05 IN IT(SS)A NO.61-62/AHD./20 09 ,WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. C IT(A) AND RESTORE THE ISSUE RAISED IN RESPECT OF CLAIM FOR DEDUCTION U/S 80IB OF THE ACT ON THE INCOME ATTRIBUTABLE TO INSURANCE AMOUNT, SALES TAX REFUND , INSPECTION CHARGES, PACKING CHARGES AND SCRAP TO HIS FILE FOR DECIDING THE MATT ER AFRESH IN ACCORDANCE WITH LAW, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES AND KEEPING IN VIEW THE VARIOUS JUDICIAL PRONOUNCEMENTS, INCLUDING THOS E REFERRED TO ABOVE, BRINGING OUT CLEARLY AS TO WHETHER OR NOT EACH OF THESE RECE IPTS WERE DERIVED FROM THE ACTUAL CONDUCT OF THE BUSINESS OF THE INDUSTRIAL UN DERTAKING. NEEDLESS TO SAY THAT WHILE REDECIDING THE APPEAL, THE LEARNED CIT(A) SHA LL PASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MANDATE OF PROVISI ONS OF SEC. 250(6) OF THE ACT. IT(SS)A NOS.58 TO 60/AHD /2009 12 WITH THESE OBSERVATIONS, GROUND NOS. 1 & 2 IN THESE THREE APPEALS ARE DISPOSED OF. 11. GROUND NO. 3 IN THESE APPEALS PERTAINS TO IN ITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. THE LD. AR DI D NOT MAKE ANY SUBMISSIONS ON THIS GROUND. MERE INITIATION OF PENALTY PROCEEDI NGS BEING NOT APPEALABLE, THIS GROUND IS, THEREFORE, DISMISSED 12. GROUND NO.4 IN THESE APPEALS OF THE ASSESSEE RE LATES TO LEVY OF INTEREST U/S 234A,234B AND 234C OF THE ACT. THE LD. AR DID NOT MAKE ANY SUBMISSIONS ON THIS GROUND. THE LEVY OF INTERES T U/S 234A,234B & 234C OF THE ACT BEING MANDATORY [COMMISSIONER OF INCOME TAX .VS ANJUM M. H. GHASWALA AND OTHERS,252 ITR 1(SC), AFFIRMED BY HON' BLE APEX COURT IN THE CASE OF CIT V. HINDUSTAN BULK CARRIERS [2003] 259 ITR 449 (SC) AND IN THE CASE OF CIT V. SANT RAM MANGAT RAM JEWELLERS [2003] 264 ITR 564 (SC) ], THIS GROUND IS DISMISSED. HOWEVER, THE AO SHALL ALLOW CONSEQUENTIA L RELIEF ,IF ANY, WHILE GIVING EFFECT TO OUR AFORESAID DIRECTIONS. 13. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TE RMS OF THE RESIDUARY GROUND IN THESE THREE APPEALS, ACCORDING LY, THE SAID GROUND IS DISMISSED. 14. IN THE RESULT, THESE THREE APPEALS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 4 -11-2010 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 4 -11-2010 MRVALERA IT(SS)A NOS.58 TO 60/AHD /2009 13 COPY OF THE ORDER FORWARDED TO: 1. SWISS GLASS COAT EQUIPMENT LTD., H-106, GIDC, VI TTHAL UDYOGNAGAR, ANAND, GUJARAT 2. ACIT, CENTRAL CIRCLE-1, BARODA 3. CIT CONCERNED 4. CIT(A)-IV, AHMEDABAD 5. DR, ITAT BENCH-C, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD