TMI Blog1997 (11) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter in appeal before the CIT(A) who allowed the claim in so far as income in regard to CCS and engineering services are concerned. The learned CIT(A), however, did not allow the claim in so far as miscellaneous income and interest from bank are concerned. 2. The assessee has come up in appeal before us, contending that the learned CIT(A) was not justified in excluding interest from bank and miscellaneous income from the computation of deduction under s. 80-I of the Act. On the other hand, the Revenue challenged the order of the CIT(A) directing the AO to allow deduction under s. 80-I in respect of receipts comprising of CCS and engineering service fees. 3. Shri O.P. Vaish, learned counsel assisted by Rupesh Jain appeared for the assessee. It is submitted by him that the matter had not been properly appreciated by the Revenue authorities. According to him, there is no income from interest as such which is assessable to tax. While preparing the accounts in terms of the Companies Act, the assessee was required to show debits and credits of interest without making adjustment. As per the P L a/c the outgoing on account of interest included the financial expenses amounting to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the same cannot be excluded being integral part of the same activity. 5. On the other hand Digvijay Kumar, the learned Senior Departmental Representative vehemently supported the order of the CIT(A). According to him each year of assessment is separate and distinct as held by the Hon ble Supreme Court in the case of Joint Family of Udayan Chinubhai vs. CIT (1967) 63 ITR 416 (SC). Therefore, the earlier orders of the AO will not operate as res-judicata in respect of the matter to be decided during this year. In view of the findings given by the AO and the CIT(A), it is submitted that there is no infirmity in the order of the AO in deviating from the earlier orders. 6. With regard to the merit of the case, it is submitted that interest income cannot be said to be profit derived from industrial undertaking. Relying on the decision in the case of CIT vs. Cement Distributors Ltd. (1994) 119 CTR (Del) 496 : (1994) 208 ITR 355 (Del), and the earlier decision of the Hon ble Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. 1978 CTR (SC) 50 : (1978) 113 ITR 84 (SC) and of the Hon ble Bombay High Court in the case of Hindustan Lever Ltd. vs. CIT (1979) 12 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... miscellaneous income, it is seen that the assessee claims the said income to be forming the integral part of the business activities of the industrial undertaking the assessee undertook supply of plant and machinery toIndonesiain co-operation with the US Co. It is claimed that various expenses on account of transportation of equipments and supply of parts and components were shown under the head miscellaneous income though the same form integral part of the project. Since the AO and the CIT(A) did not verify this aspect of the matter, we consider it fair and reasonable to set aside the issue on this point with a direction that the claim should be decided in accordance with law, after giving full opportunity to the assessee to substantiate the claim. 11. While dealing with this issue, we may also consider the appeal of the Revenue regarding the direction of the CIT(A) to allow deduction under s. 80-I in respect of receipts comprising of CCS and engineering service fee. It is the claim of the Revenue that these receipts do not have any direct nexus with the activities of the industrial undertaking and, therefore, the same cannot be considered as profits derived from the industria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under s. 80-I on CCS on the amount of Rs. 9,73,670 holding that CCS was received by the appellant on the exports of goods which were manufactured or produced by the industrial undertaking and, therefore, the CCS had a direct nexus with the manufacturing or production activity of the appellant s industrial undertaking." After hearing both the parties, we are of the view that the findings given by the learned CIT(A) on these points are well-founded and calls for no interference. It is accordingly upheld. In the result, the appeal of the Revenue fails. 12. The next ground is in regard to the disallowance of deduction under s. 80-O of engineering fee of Rs. 10,76,478. As indicated earlier, the assessee is having technical collaboration with Rexnord Inc. USA. TheU.S.company gave assignment to the assessee for preparing drawings and designs and allot engineering work in respect of their clients in other parts of the world. In that process the assessee exports its equipment and secure assignments for site visits and installation of equipments. The assessee, therefore, made a separate charge for provision on technical and professional services by way of preparation of revi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) with regard to technical and engineering services claimed to have been rendered by the assessee. It is submitted that the drawings and designs are in the possession of theUScompany. The assessee has been merely selling these drawings and designs on behalf of the principal and, therefore, it cannot be said that there is provision of technical and engineering services rendered by the assessee in the form of drawings and designs supplied to foreign parties on behalf of the principal. It is also submitted that the learned CIT(A) fully considered these claims and rejected the same on proper grounds, and, therefore, there is no need of interference in this regard. 14. On careful consideration of the rival submissions in the light of the material on record, we are of the view that the case of the assessee has not been considered in the right perspective. As indicated earlier, the assessee had a technical collaboration withUScompany Rexnord Inc., for supply of technical know-how for which the assessee was paying royalty. Over a period of time the assessee had experience in this line and could handle various projects as required by the developing countries. Though the technical know-how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ground No. 1 will be equally applicable for deduction under s. 80HHC of the Act. The AO is directed to consider the claim in the light of our findings in regard to the claim under s. 80-I of the Act. 16. The last ground that remains for our consideration is in regard to the disallowance of claim of liquidated damages amounting to Rs. 19,02,272. The assessee in this case entered into agreement with Birla Jute Ind. Ltd. for supply of equipment. According to the assessee, the terms of the contract provided that in the event of delay in supply of equipment beyond six months of the date of order, the damages would be payable @ 0.5 per cent of the contract price per week of delay subject to a maximum of 5 per cent of the contract price. The contract was claimed to be backed by the assessee s performance bank guarantee for 12.5 per cent of the contract price amounting to Rs. 41,85,000 plus Rs. 15,14,000. According to the assessee, there was an automatic accrual of liquidated damages which the customer had the right to recover from out of the bank guarantees provided to the customers. The assessee, therefore, made a provision for this liquidated damages in the account on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of CIT vs. Laxman Das. 19. On careful consideration of the rival submissions in the light of the material on record, we are of the view that this issue requires further enquiry and ascertainment of the facts. From the order of the AO it is seen that the disallowance was made by him mainly on the ground that there was no claim made by the customer for payment of damages and also that the assessee wrote back the provision in a subsequent year. From the details furnished by the assessee in the paper-book, at p. 34 and p. 35 it is seen that the assessee has been paying and also making provision for liquidated damages for the year ending 31st March, 1990 and 31st March, 1991. It is also seen that the provisions made thereon have been reversed in a number of cases. If in fact the liquidated damages flows automatically out of the agreement, there cannot be any question of reversing the provision made earlier. The assessee has to pay. If however, the same is negotiable and sometimes abandoned by the customer then it will assume the character of contingent liability. From the facts noted by the AO it is seen that there has not been claim for such damages. The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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