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2010 (1) TMI 1175 - ITAT AHMEDABADDeduction u/s 80IA - Interest income earned on margin money deposited with the bank for obtaining Letter of Credits [LCs] - assessee has been purchasing raw-materials and banks required the assessee to make deposits for covering the amount of LCs - AO noted that the assessee has two units; one is General Unit which is entitled to deduction u/s 80IA @ 30% whereas the other Unit called Captive Power Plant [CPP] unit which is entitled to 100% deduction u/s 80IA. AO held that interest income is not entitled to deduction u/s 80IA in view of the decision of the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. vs. CIT[2003 (4) TMI 3 - SUPREME COURT]. HELD THAT:- This issue has been decided by the Tribunal in favour of the assessee in the AY 2001-02 relying on the decision in the case of Karnal Co-operative Sugar Mills Ltd. [1999 (4) TMI 7 - SC ORDER] held that so far as interest received on opening of Letter of Credit is concerned, the same falls within the definition of “profits and gains derived by an undertaking or an enterprise from any business”, as referred to in sub-section (4) of section 80IA and, therefore, entitled to deduction u/s 80IA. Respectfully following the judgment, we decide the issue in favour of the assessee. Accordingly, this ground of the assessee is allowed. Deducting loss incurred in the General Unit against the income derived by CPP Unit - AO reduced the loss incurred in General Unit against the income earned in CPP Unit and thereby reduced the available deduction u/s 80IA in CPP Unit - HELD THAT:- This issue has been decided against the assessee by the Tribunal in AY 2001-02. Relying on the latest decision of Hon'ble Supreme Court in the case of Synco Industries Ltd. [2008 (3) TMI 13 - SUPREME COURT] held that gross total income of the assessee has first got to be determined after adjusting losses etc., and if the gross total income of the assessee is "nil" the assessee would not be entitled to" deductions under Chapter VI-A - This ground of the assessee is rejected. Deduction u/s 80IA - adjustment of electricity price charged by CPP Unit from General Unit - CPP Unit is generating electricity and supplying to General Unit as well as other consumers. CPP Unit charged rate at ₹ 5.40 paise per unit from General Unit whereas the AO restricted the same to ₹ 5.32 paise per unit and accordingly restricted the deduction u/s 80IA - HELD THAT:- In the case of ACIT vs. Jindal Steel & Power Ltd.[2007 (6) TMI 308 - ITAT DELHI] held that the market rate postulated by section 80IA(viii) shall be the price at which the assessee purchases electricity from the Electricity Board. Respectfully following the decision, we hold that the market value for electricity would be the one at which it is supplied by GEB to other assessees inclusive of duty. Therefore, the rates taken by the assessee for the purpose of supplying electricity from CPP Unit to General Unit is upheld. The assessee succeeds on this point. Netting of interest income against the expenditure - assessee has earned interest on deposits made with the banks for opening LCs. It has also incurred an expenditure on loan borrowed for the purpose of business - HELD THAT:- Once interest income earned from fixed deposits kept with the bank in respect of margin money for availing LC facilities would be business income as per our decision for the Assessment Year 2002-03 and thereafter any interest spent on earning such interest income would be reduced. For the purpose of finding out the nexus of interest expenditure with the interest income earned on margin money kept with the bank for availing LC facilities and thereafter doing netting, we restore the matter to the file of the AO. We make it clear that the onus is on the assessee to establish the nexus of interest income earned with the particular Unit and thereafter netting of interest expenditure with the interest income earned in respect to that Unit. AO after making necessary verification allow netting. This ground of assessee is allowed but for statistical purpose.
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