TMI Blog1998 (10) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... lowable under section 32AB. The Assessing Officer did not accept the claim of the assessee and allowed deductions under sections 80HHA and 80-I relating to the two assessment years respectively with reference to the profits computed after deducting the relief admissible under section 32AB. On appeal, the CIT(Appeals) confirmed the action of the Assessing Officer. 3. Dr. Sunil Pathak, the learned counsel for the assessee submitted that the action of the authorities below is not justified in view of the judgment of the Orissa High Court in the case of CIT v. Tarun Udyog [1991] 191 ITR 688 (Ori.) and CIT v. H. M. T. Ltd. [1993] 199 ITR 235 / [1992] 65 Taxman 292 (Kar.). 4. Shri Hari Krishan, the learned departmental representative, submitted that the issue stands squarely covered against the assessee by the judgment of the Bombay High Court in the case of Antifriction Bearings Corpn. Ltd. v. CIT [1990] 186 ITR 181. 5. We have considered the rival submissions and perused the facts on record. Though the case of the assessee stands squarely covered by the judgment of the Orissa High Court in the case of Tarun Udyog (supra) and Karnataka High Court in the case of H. M. T. Ltd. (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections 80HHA and 80-I in respect of interest on loans to sister companies, interest on BEST deposits of Rs. 1,105 (Assessment year 1991-92) and other income of Rs. 5,636 (Assessment year 1991-92), lease rent of Rs. 32,000 (Assessment year 1992-93), dividend income of Rs. 1,28.962 (Assessment year 1992-93) and hence did not press the claim under sections 80HHA and 80-I in respect of these items. But he vehemently argued that the assessee was entitled for deductions under sections 80HHA and 80-I in respect of interest on bank deposits for all the four assessment years under appeal. He submitted that the interest received on deposits made with the bank for availing of the various credit facilities qualify for the above deductions under sections 80HHA and 80-I. According to the learned counsel, the assessee company in the course of its day-to-day business requires various credit facilities from the bankers. These facilities are granted in the form of cash credit facility, overdraft facility, bank guarantees and credit against Letter of Credit. For granting such facilities, the Central Bank of India insisted upon the assessee company for depositing an amount of Rs. 80 lakhs with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has to make payments of excise duty/wages etc. from this bank. In order to enable the assessee to enjoy such withdrawal facility, the bankers insisted upon deposit of Rs. 3,00,000 with them. A confirmation to this effect was filed before us which again being additional evidence, the learned counsel submitted, may be admitted. In support of his contentions, he relied upon the decision of the Income-tax Appellate Tribunal, Pune Bench, in the case of Dy. CIT v. Jagdish Electronics (P.) Ltd. [1998] 66 ITD 542. 9. The learned departmental representative objected to the filing of additional evidence and strongly supported the orders of the authorities below. 10. We have considered the rival submissions and perused the facts on record. A perusal of the certificates filed from the two banks with which the assessee-company deals in, it is evident that interest was received on deposits made with the banks for availing of the various credit facilities, These facilities are granted in the form of cash credit facilities, over-draft facilities, bank guarantees and credit against Letter of Credit. It is also clear that for granting such facilities, the banks insisted upon the assessee comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tmental representative to the admission of the additional evidence by way of letters from the banks, we do not find any merit in such objection. The evidence filed before us goes to the root of the matter and the same deserves to be admitted, in the interest of natural justice. In this, we are supported by the judgment of the jurisdictional High Court in the case of Veiji Deoraj Co. (supra). Accordingly, for the limited purpose of verification of the authenticity of the evidence filed before us and then to adjudicate upon the issue in the light of observations made by us (supra), we restore this issue to the file of the Assessing Officer. Needless to say that while adjudicating upon the issue in the light of our above observations, the Assessing Officer will grant an opportunity of hearing to the assessee. 12. The next common grievance projected in the assessment years 1989-90 and 1990-91 is that the CIT(Appeals) is not justified in upholding the Assessing Officer's action of reducing the relief admissible under section 80HHA from the profits and gains of the undertaking for the purpose of computing the deduction admissible under section 80-I. The assessee-company had claimed d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book which indicates that for certain years such amount recovered from the customers are lesser than the actual expenditure incurred by the assessee-company from carriage outward and in this background, he submitted that deductions under sections 80HHA and 80-I be allowed on the above basis as these are derived from the industrial undertaking. Shri Hari Krishan, the learned departmental representative relied upon the orders of the authorities below. 16. We find considerable force in the arguments of the learned counsel. The excess carriage receipts have direct nexus to the manufacturing activity of the assessee-company and accordingly these receipts are in the nature of trading receipts derived from industrial undertaking. We accordingly reverse the findings of the authorities below and direct the Assessing Officer to allow deductions under sections 80HHA and 80-I on the excess carriage receipts for both the assessment years under appeal before us. This ground accordingly succeeds. 17. The next common grievance in the assessment years 1989-90 and 1991-92 relates to the disallowance of sales promotion expenses. In the assessment year 1989-90, the assessee incurred a sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the assessee submitted that the assessee-company does not have any other industrial unit nor any other business activity. The deduction under section 32AB was claimed by the assessee-company by depositing the amount required with IDBI as per the provisions of section 32AB. According to the learned counsel, the assessee-company's deposit with IDBI was very much linked to the business activity because the deposit so made was to be utilised for the purpose of acquiring new plant and machinery. The learned counsel submitted that it was from this angle that the assessee-company considered that such deposit would be very much in the interest of its business as it would reduce the burden of taxation and equally help in acquiring machinery for its undertaking. 21. Shri Hari Krishan, the learned departmental representative, strongly supported the orders of the authorities below. He placed reliance inter alia on the recent Supreme Court decision in the case of Vellore Electric Corpn. Ltd. v. CIT [1997] 227 ITR 557 / 93 Taxman 401, wherein it has been held that income resulting from an activity would not be the income derived from priority industry, unless the activity resulting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after taking this view, the Hon'ble Bench decided that interest on deposits made for the purposes of availing of L/C credit facility did qualify for the deduction. Referring to the arguments of the learned departmental representative that although one of the interests in the case of Jagdish Electronics (P.) Ltd. (supra) was interest on IDBI deposits, the learned counsel submitted that there was no evidence to indicate that such deposit was made under the provisions of section 32AB. No argument was advanced to that effect by the learned counsel in that case. If that is so, the facts in that case are entirely different from the facts of this case and hence, ratio of Jagdish Electronics (P.) Ltd. (supra) was not applicable to the facts of this case. 23. We have considered the rival submissions and perused the facts on record. The main thrust of the arguments of the learned counsel of the assessee is that investment in IDBI deposits was made out of the profits and gains of industrial unit and hence, there was a direct nexus between the earning of the interest on deposits and the manufacturing activity of the industrial undertaking. In our opinion, the fact that deposits were made out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In that case, the Hon'ble Apex Court was dealing with the expression "attributable to" which is wider than the expression "derived from". In that case, it was held that if the assessee was obliged to invest the money in the securities in order to comply with the conditions of licence, then the income from such activity had a direct nexus with the business of priority industry. So, in our view, investment in the course of business of manufacture or production must not be by way of a choice but out of necessity or compulsion in order to carry on the said business. In the present case, the assessee had invested the money by way of deposits with IDBI in order to avail the deduction under section 32AB. This investment was by way of a choice and not out of necessity. The assessee had the option to claim the deduction. Otherwise the assessee could carry on business of manufacture or production without claiming the deduction and making the investments in IDBI deposits. So, in our considered opinion, it cannot be said that there was a direct nexus between the activity of manufacture or production and the deposits made with IDBI to avail the deduction under section 32AB. Accordingly, we hold ..... X X X X Extracts X X X X X X X X Extracts X X X X
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