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2005 (2) TMI 428 - ITAT AHMEDABAD-CDeduction u/s 80HHC - Profits Of The Business - excise duty refund from profit of business - liability to pay excise duty - Exclusion of sale of scrap, sundry balance written back and octroi refund - industrial undertaking - interest income earned on temporary investment of share application money HELD THAT:- If the assessee was having bounded warehouse facility, these payments and refunds of excise duty would not have taken place. As and when such excise duty was paid by the assessee as a temporary measure, the amount was debited and similarly, on refund of such excise duty, the same was credited to the books of account. Thus, we found that alleged amount of excise duty either paid or refunded did not affect the business profits of the assessee at all and, therefore, there is no reason for excluding 90 per cent of the excise duty refund from the profits of the business of assessee as per the Expln. (baa) to s. 80HHC. The findings recorded by the CIT(A) to the effect that payment of excise duty has not reduced the business profit of the assessee, therefore, refund of excise duty paid should not be excluded from the business profit, had not been controverted by the Department. We are, therefore, inclined to agree with the learned Authorised Representative, that there is no infirmity in the order of the CIT(A) in directing the AO not to exclude 90 percent of such excise duty refund in terms of Expln. (baa), from the profit of business for computing deduction u/s 80HHC. In the result, appeal of the Revenue is dismissed. Exclusion of sale of scrap, sundry balance written back and octroi refund - We find that the issue is squarely covered by the decision of the jurisdictional High Court in the case of Harjivandas Juthabhai, in favour of the assessee, wherein it was held that the scrap generated during the course of manufacturing was eligible for deduction u/s 80-I [1999 (12) TMI 5 - GUJARAT HIGH COURT]. It was categorically observed by the High Court that it requires to be noted that if the assessee was not engaged in the industrial activity there was no question of generating any scrap and if the assessee was doing trading activity, obviously this section will not apply. In view of the above, we uphold the action of the CIT(A) regarding the inclusion of income of sale of scrap amounting to Rs. 3,02,336, eligible for deduction u/s 80-I, whereas we reverse the action of the CIT(A) with regard to other income of sundry debtors written back and octroi refund, included for computation of deduction u/s 80-I. We direct accordingly. In the result this ground of Revenue's appeal is allowed in part. Interest income earned on temporary investment of share application money - In the instant case, there is no dispute to the fact that such deposit was made in a bank as a statutory requirement for keeping such share application money in separate bank account in a scheduled bank until permission for listing of share on stock exchange is granted. Decision for putting the deposit in bank was not taken as a prudent business decision to earn interest income thereon. Thus, income earned on such deposits was incidental to the public issue which in turn was for expansion of the assessee's project. In view of the peculiar facts and circumstances of the case, the ratio laid down by the Supreme Court in the case of Tuticorin Alkalies & Fertilisers Ltd.[1997 (7) TMI 4 - SUPREME COURT] will not be attracted, wherein surplus money available with the assessee was parked in the bank for earning interest income thereon. More appropriate decision for application in the factual situation of the present case are Bokaro Steels Ltd.[1998 (12) TMI 4 - SUPREME COURT] and Karnal Co-operative Sugar Mills Ltd. [1999 (4) TMI 7 - SC ORDER]. The decision of Tribunal, Jodhpur and Mumbai Benches, cited by the learned AR and discussed hereinabove are directly in favour of the assessee on the very same issue in which interest received on deposit of share application money, which was statutorily required to be deposited in the bank and the interest income earned thereon, Was held to be liable to be set off against the expenses on public issue/expansion project. No contrary decision to this effect was brought to our notice by the learned DR. Respectfully following these decisions of co-ordinate Bench, we are persuaded to agree with the contention of the learned AR that the interest income is to be set off against the cost of public issue and cost of capital assets, and. not to be treated as income from other sources. Thus, respectfully following the decisions of the Tribunal, Jodhpur and Mumbai Benches, we are inclined to reverse the findings of the lower authorities and allow this ground in favour of the assessee. In the result, Revenue's appeal for the AY 1992-93 is dismissed, whereas the cross-appeals of the assessee and the Revenue for the AY 1993-94 are allowed in part, as indicated above.
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