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2007 (10) TMI 313 - AT - Income TaxDisallowance u/s 80HHC - Profits Derived From Exports - Deduction u/s 80-IB - ''Dyeing and Printing'' - Manufacturing Process Or Not - Partnership firm engaged in the business of manufacture of readymade garments in its industrial undertaking - Separate industrial undertaking - Other unit of the appellant firm undertook two distinct activities - not newly established undertaking - Failed to meet the conditions specified in section 80-IB(2)(iv). Disallowance u/s 80HHC - Profits Derived From Exports - interest earned on FDRs - HELD THAT:- We find that the judgments cited by the ld DR clearly hold that interest earned on FDRs is totally unconnected with the export business of the assessee and simply by way of utilization for the surplus money of the assessee and has to be considered as income from other sources only. Therefore, the Tribunal in the case of Jayantila Bhimraj Jain held that interest income on ordinary FDRs has rightly been treated as income from other sources. To that extent, we uphold the orders of the lower authorities and the grounds taken by the assessee on this issue are rejected. As regards the third category, i.e., non-inclusion of interest on income-tax refund within the profits and gains of business and treatment of the same as income from other sources is concerned, we do not find any merit in the ground raised by the assessee in this regard. Interest earned on income-tax refund can, in no way, be considered to be earned during the ordinary course of business of the assessee and, hence, there cannot be any question of treating the same as the business income of the assessee. Accordingly, we reject the ground raised by the assessee on this issue for the AY 2002-03. Lastly, as regards the treatment of DEPB credits amount as income from other sources for the AY 2004-05 is concerned, after hearing both the sides, we are of the considered opinion that DEPB credit arises directly out of the business operations of the assessee. Hence, the said credit amount has necessarily got to be considered as business of the assessee. We order accordingly. Deduction u/s 80-IB - ''Dyeing and Printing'' - Manufacturing Process Or Not - Partnership firm engaged in the business of manufacture of readymade garments in its industrial undertaking - Separate industrial undertaking - Other unit of the appellant firm undertook two distinct activities - not newly established undertaking - Assessee failed to meet the conditions specified in section 80-IB(2)(iv) - HELD THAT:- We are of the considered opinion that job work got done under own supervision of the assessee can be considered to be a part of the manufacturing process of the assessee and in this view of the matter, dyeing and printing although got done as job work, can qualify as manufacturing process. In view of the legal position, it can be said that act of the AO in splitting the entire manufacturing process into two sets of activities i.e. from procurement of cloth to dyeing and printing and from dyeing and printing to fabrication and dividing the aggregate profit of the undertaking into the two aforesaid segments is unwarranted and not permissible. On the contrary, for the purpose of s. 80-IB, all the steps followed by the undertaking including even the job work of dyeing and printing is one complete and integrated manufacturing activity, the profit out of which qualifies for deduction u/s 80-IB. Our attention has also been drawn to the copies of yearly returns filed by the assessee firm with the Commr. Provident Fund and also copies of half-yearly returns filed with ESI Department for the different years under consideration. A perusal of the same clearly convinces one that the number of regular employees working with the assessee did actually exceed 20 during each of the years under consideration. Such persons were over and above the contract labours of the assessee firm and were employed in different capacities as cutting masters, fashion co-ordinators, production managers, tailors, stitching-machine operators, button operators, thread cutters, merchandises, checkers, etc. Hence, we find that even without going into the controversy of whether job workers should be included within the total roll of workers of the assessee firm. Otherwise also, the assessee met the requirements of s. 80-IB(2)(iv) relating to the number of workers employed by the assessee and would, thus, be duly entitled to the deduction u/s 80-IB of the Act. Thus, in view of the factual and legal positions, it is being held that so far the grounds taken by the assessee regarding eligibility of deduction u/s 80-IB of the Act in respect of the profits and gains of the Jaipur undertaking of the assessee is concerned, the assessee's appellate grounds have got to be allowed. The AO's action in considering a separate unit of the assessee at Jogeshwari, Mumbai, does not have any factual basis and, further, there is also no basis for the attempt on the part of the AO in trying to bifurcate the composite activities of manufacturing at the Jaipur unit into separate activities relating to dyeing and printing and the rest of the activities differently. Thus, the orders of the lower authorities in this regard are being reversed and it is directed that deduction u/s 80-IB be allowed duly on the entire profits and gains of the Jaipur industrial undertaking of the assessee. This appellate ground is common to all the years from asst. yrs. 2001-02 to 2004-05. We hold that 'duty drawback' is to be considered as derived from the industrial undertaking of the assessee and would, thus, have to be considered for the purpose of allowance of deduction u/s 80-IB. Receipts from foreign exchange fluctuation is concerned, it has already been discussed above that the same forms an integral part of the export proceeds and would, thus, have to be considered as derived from the industrial undertaking. We order accordingly and direct that foreign exchange fluctuation be taken into consideration for allowing deduction u/s 80-IB. Profit on transfer of the Duty Entitlement Pass Book (DEPB) Scheme - HELD THAT:- We are of the view that DEPB Scheme is more akin to the scheme of allowing drawback amount on duty already paid by the assessee on import of raw materials, etc. than conferring import entitlement benefit on exports done by the assessee. In that way, treatment meted in the case of 'duty drawback' should be exercised in this case. Thus, the profits arising under the DEPB Scheme should be considered to be derived from the industrial undertaking and the assessee should be allowed deduction under s. 80-IB on such profits. We order accordingly. In the result, the appeals filed by the assessee for all the AY 2000-01, 2001-02, 2002-03, 2003-04 and 2004-05 are partly allowed and the appeal filed by the Department for the AY 2001-02 is dismissed.
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