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2022 (7) TMI 1134 - AT - Income TaxDeduction u/s 80-IC - assessee received consideration from sale of Focus Scrip/ License received under “Focus Products Scheme” under the Foreign Trade Policy - AO denied deduction of income received from sale of FPS on the ground that such income is not related to manufacture or sale of the products of the undertaking and is only related to a post manufacturing event, which is not eligible for deduction - HELD THAT:- As applying the ‘purpose test’ laid down by the Hon’ble Supreme Court in various decisions, particularly Sahney Steel [1997 (9) TMI 3 - SUPREME COURT] and Ponni Sugars [2008 (9) TMI 14 - SUPREME COURT] and also the direct judicial precedents referred supra, we hold that Focus Products Incentive in the nature of capital receipt not liable to tax under the provisions of the Income Tax Act, 1961. Duty Draw Back - AO held that the profits of the industrial undertaking included the amount of duty drawback, which is not eligible for deduction under section 80-IC - HELD THAT:- In the instant case by reason of an export promotion scheme, an assessee was entitled to import entitlements which it could thereafter sell. Hence, the same could not be said to be directly from profits and gains by the industrial undertaking but only attributable to such industrial undertaking inasmuch as such import entitlements did not relate to manufacture or sale of the products of the undertaking, but related only to an event which was post-manufacture namely, export. The judgment of Hon’ble Supreme Court in the case of Liberty India [2009 (8) TMI 63 - SUPREME COURT] wherein it was held that subsidy by way of customs duty draw back could not be treated as a profit derived from the industrial undertaking is very specific to the issue of duty draw back. The judgment of the Apex Court in the case of Liberty India (supra) was in relation to the subsidy arising out of customs draw back and duty Entitlement Pass-book Scheme (DEPB) similar to the facts of the instant case. Hence, keeping in view the judgment of the Hon’ble Apex Court, we hereby affirm the order of the ld. CIT(A). Interest on KDR - HELD THAT:- We hold that interest earned out of the fixed deposit made from the surplus funds being not connected to the manufacturing activity and do not form an integral part of the profits derived from industrial unit is not eligible for deduction. Interest is an unearned passive income derived out of non manufacturing activity. Judgment in the case of Pandian Chemicals Ltd. [2003 (4) TMI 3 - SUPREME COURT] held that although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking. The derivation of profits on the deposit made with the Electricity Board could not be said to flow directly from the industrial undertaking itself. Captivating the same analogy of the Hon’ble Apex Court in the case of the assessee, the interest on the fixed deposits kept with the bank though may be required for the purpose of obtaining over draft facility, it can be said that it is a step removed from the business of the industrial undertaking. Hence, we hereby affirm the action of the ld. CIT(A).
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