TMI Blog2006 (6) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 80-IB of the Act and cannot be excluded. Our above view also finds support from the decision of the Hon ble Madras High Court in the case of CIT v. Madras Motors Ltd./M.M. Forgings Ltd. [ 2002 (3) TMI 10 - MADRAS HIGH COURT] . Therefore, the ground of appeal of the Revenue is dismissed. Excluding the excise duty in the total turnover - We find that this issue stands covered by the decision in CIT v. Sudarshan Chemicals Industries Ltd. [ 2000 (8) TMI 73 - BOMBAY HIGH COURT] and the decision in the case of CIT v. Chloride India Ltd.[ 2001 (12) TMI 34 - CALCUTTA HIGH COURT] . It was held that in computing the special deduction u/s 80HHC, in respect of profits from export business, while determining the proportion of export turnover to total turnover, since octroi, sales tax and excise duty are excluded from the export turnover, they should be excluded from the figure of total turnover . Therefore, the ground of appeal of the Revenue is dismissed. Deduction u/s 80HHC - business profits - HELD THAT:- In our considered opinion, the Assessing Officer cannot determine the business profits by reducing the deduction allowable u/s 80-IB as the Explanation ( baa ) does not provide so. Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 80-IB is available with respect to the duty drawback received by the assessee. The Assessing Officer was of the view that duty drawback scheme and import entitlements scheme are alternative schemes and nature of both the schemes is the same being to give boost to the exports. In view of this the decision of the Hon ble Supreme Court covers not only the income arising on account of sale of import entitlements but also the duty drawback income. He accordingly excluded the duty drawback income from the profits derived from the industrial undertaking and allowed deduction under section 80-IB on the balance amount of profits. 5. In appeal it was argued that the scheme of duty drawback was different from the import entitlement scheme. It was stated that duty drawback is granted to an exporter under section 75(1) of the Customs Duty Act, 1962. It is granted to an exporter who has exported goods manufactured out of the raw materials on which it had paid customs duty at the time of import of such raw materials. Thus it was a reimbursement of customs duty levied at the time of import of goods forming part of the finished goods which are subsequently exported by the manufacturer. The reim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 7. The ld. DR submitted that the Hon ble Supreme Court in the case of Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 held that interest derived by the industrial undertaking of the assessee on deposits made with the Electricity Board for the supply of electricity for running the industrial undertaking could not be said to flow directly from the industrial undertaking itself and was not profits or gains derived from the undertaking for the purpose of the special deduction under section 80HH. Similarly, in this case also the duty drawback received by the assessee was not derived from running the industrial undertaking and could not be said to flow directly from the industrial undertaking itself and was not profits or gains derived by the industrial undertaking for the purpose of deduction under section 80-IB. Hence, the order of the ld. CIT(A) should be set aside. 8. The ld. AR of the assessee relied on the order of the CIT(A). 9. We have heard the rival submissions and perused the orders of both the lower authorities and the materials available on record. We find that the Assessing Officer relied on the decision of the Hon ble Supreme Court in CIT v. Sterling Foods [1999] 237 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not as if the assessee had surplus funds which were invested in banks and earned interest. But for the business obligations, it is doubtful whether the assessee would have made the deposits. The margin monies are thus part of business transactions. The interest on the margin monies has also been accepted as business income and has not been assessed under the head Other sources . Since the deposits are thus closely and inextricably linked with the carrying on the business, the interest has to be considered as profits derived by the industrial undertaking. In this connection we must notice that section 80-IA as it stood at the relevant time, referred to profit and gains derived from any business of an industrial undertaking . There is a crucial difference in the phraseology employed in section 80HH, which was considered by the Hon ble Supreme Court in Pandian Chemicals ( supra ). In section 80HH, the reference was to profits and gains derived from an industrial undertaking . Thus it is possible to argue that under section 80-IA, because of the difference in the phraseology, any profits derived from the business of the industrial undertaking is eligible for deduction and not merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss compulsion. Such deposits were given in consideration of providing bank guarantee, organizing finance and providing franchise to set up the industry by the assessee-company. There was a direct and proximate nexus between the interest earned on such deposit and interest paid on the funds borrowed for running of the business of industrial undertaking. Since both the aforesaid decisions of the Tribunal are rendered in the context of deduction under section 80-IA and there being no decision to the contrary pointed out by the ld. DR which is directly on this issue, we respectfully follow the same to hold that the assessee was entitled for deduction under section 80-IA on the interest income of Rs. 4,96,456 earned by it which was inextricably linked to carrying on its business of industrial undertaking. The impugned order of the ld. CIT(A) on this issue is, therefore, reversed and the Assessing Officer is directed to allow the deduction under section 80-IA on the said interest income as claimed by the assessee." 12. Still further, the Hon ble Gujarat High Court in CIT v. India Gelatine Chemicals Ltd. [2005] 194 CTR (Guj.) 492 confirmed the decision of the Ahmedabad Bench of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to increase the income deductible under section 80-IB of the Act. The ratio of the decision of the Hon ble Supreme Court in the case of CIT v. Sterling Foods [1999] 237 ITR 579 is found not applicable in the facts of the present case. In this case before the Hon ble Supreme Court, the assessee was engaged in processing prawns and other seafood. It also earned some import entitlements granted by the Central Government under the Export Promotion Scheme. Such import entitlements could be used by the assessee itself or could also be sold to others. The assessee sold the import entitlements and in respect of such sale proceeds also claimed deduction under section 80HH of the Income-tax Act. Hon ble Supreme Court observed that the industrial undertaking was engaged in processing sea food. In other words, to sale import entitlements was only an incidental activity and not the direct activity of the industrial undertaking. It was just not sufficient that the commercial connection was established between the profits earned and the industrial undertaking. In this view of the matter, it was held that sale consideration therefrom cannot, be held to constitute profit and gains derived from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , since octroi, sales tax and excise duty are excluded from the export turnover, they should be excluded from the figure of "total turnover". Therefore, the ground of appeal of the Revenue is dismissed. 15. We now take up the assessee s appeal. 16. The second ground of appeal relates to taking the business profits as per Explanation ( baa ) to section 80HHC at Rs. 67,20,827 in place of Rs. 1,12,06,430. The brief facts of the case are that the Assessing Officer took the profit for the purpose of computing deduction under section 80HHC as under : Profits under the head business Rs. 1,61,30,730 as per the computation Less : 90% of Duty Drawback Rs. 49,24,300 and Government Grant Rs. 1,12,06,430 Less : Deduction under section 80-IB Rs. 44,85,603 Business Profits for 80HHC Rs. 44,85,603 deduction Rs. 67,20,827 17. In appeal the ld. CIT(A) confirmed the order of the Assessing Officer. 18. The ld. AR of the assessee during the course of the hearing relied on the order of the Bangalore Bench of the Tribunal in Mittal Clothing Co. v. Dy. CIT [2005] 4 SOT 626 . He submitted that the Tribunal held as under: "The object of insertion of section 80-IA(9A), which later became section 80-IA(9), th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deduction is to be allowed under sections 80-IB and 80HHC to the extent of the gross total income of the assessee under this Chapter. Thus it is to be ensured that the total deduction allowed under Chapter VI-A does not exceed the gross total income of the assessee. To this effect is the decision of the Bangalore Bench of the Tribunal in the case of Mittal Clothing Co. ( supra ). In view of the above, we set aside the order of the CIT(A) and the Assessing Officer and direct the Assessing Officer to compute the deduction under section 80HHC on the basis of export profit determined in accordance Explanation ( baa ) of the Act. The ground of appeal of the assessee is, therefore, allowed. 22. The ground No. 1 of the appeal is directed against the order of the CIT(A) in not accepting the assessee s submission that a claim legally allowable can be raised at any time in an appellate proceeding and it is not necessary that the same should be raised before the Assessing Officer during the assessment proceedings only. In view of our decision in ground No. 2 of the appeal of the assessee this ground has become merely academic in nature and hence we are not required to adjudicate the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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