TMI Blog2010 (3) TMI 870X X X X Extracts X X X X X X X X Extracts X X X X ..... 96.50 lakhs from Lincoln Parenterals (P.) Ltd. and on that basis calculating interest element at the rate of 12 per cent on notional basis of Rs. 9,51,840 on such rebate and thereby erred in confirming the reduction of Rs. 9,51,840 as interest element from the profits for the purpose of deduction under section 80-IA. 1.2The Ld. CIT(A) has erred in applying provision of section 80-IA(10) for the purpose of confirming the above referred two additions inasmuch as the provision of section 80-IA(10) are not applicable to the facts of the present case since the transaction between the assessee company and that of the other company having a close connection are entered into at arm s length and that the assessee company has not earned more than ordinary profits from the eligible business. 1.3The appellant says and submits that the Ld. Assessing Officer wrongly treated the rebate earned on purchases made from Lincoln Parenterals (P.) Ltd., as interest income and thereby reduced the same from the profits of the business. In fact, the rebate earned on purchases is under the normal business transaction which is already reduced from the purchases and thereby the profits are more to that ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and export of pharmaceutical products. The first ground covered in ground Nos. 1, 1.1, 1.2 and 1.3 relates to reduction in the claim of deduction under section 80-IA by invoking sub-section (10) thereof on the ground that assessee has purchased goods from sister concern namely M/s. Lincoln Parenterals (P.) Ltd., at reduced price as compared to market rates thereby increasing profits in the assessee-company and claim of higher deduction under section 80-IA. Further, the Assessing Officer noted that the assessee-company has made interest-free advances to one of the group company M/s. Lincoln Parenterals (P.) Ltd., in short (IPPL) for a sum of Rs. 2,56,00,000 during financial year 1996-97. It continued even during the period under consideration. The Assessing Officer noted that as per the agreement with LPPL assessee company is enjoying rebate at an average of 20 per cent on purchases depending on the products. From this Assessing Officer inferred that assessee company has deliberately got purchases at reduced rates and thus earned higher profits as against normal profits which may arise to the unit in normal circumstances. Thus, by ignoring the rebate of 20 per cent on an average ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see-company has provided interest free deposit to the LPPL and LPPL is providing discount to assessee-company in lieu of not charging of interest. Thus, there is apparent compensation for not charging of interest on interest free deposits. Of course a case could have been made out in favour of Revenue if assessee would have received interest from LPPL, which would not have been eligible for deduction under section 80-IA as it is not derived from business of industrial undertaking whereas deduction in purchase price would increase eligible profits, but without the comparison of market rates and the rates at which goods were supplied to the assessee-company, such case also cannot be made out. Therefore, we delete the addition made by the authorities below by reducing the claim of deduction under section 80-IA. This ground of the assessee is allowed. 7. Second ground relates to claim of deduction under section 80-IA of Rs. 3,50,476 being interest on deposits with banks from margin money. The Assessing Officer disallowed the claim on the ground that interest income on which deduction under section 80-IA was claimed was not derived from the business of Industrial Undertaking even th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Koshik Telcom Ltd. referred to by Ld. A.R. of the assessee. But when it comes the question of considering such interest income for allowing deduction under section 80-IB of the I.T. Act, 1961, then words used in that section has to be compared with the words used in other sections under Chapter VI-A of the I.T. Act, 1961 and authorities pronounced thereon has to be relied upon. In this regard, we refer to the decision of Hon ble Kerala High Court in the case of K. Ravindranathan Nair v. Dy. CIT [2003] 262 ITR 669 wherein it has been held that deduction under section 80HHC of the I.T. Act, 1961 would not be available on interest income earned on fixed deposits made for obtaining Letters of Credit. Interest from such short term deposits received by the assessee was not the direct result of any export of any goods or merchandise. The F.Ds were made only for the purposes of obtaining Letters of Credit and for getting other benefits. The interest income received on such short-term deposits could be attributed to export business but could not be treated as income derived from the export business. Even where the banks have insisted for making such deposits for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecomes eligible on satisfying sub-section (2) would be entitled to deduction under sub-section (1) only to the extent of profits derived from such industrial undertaking after the specified date. Apart from eligibility, sub-section (1) purports to restrict the quantum of deduction to a specified percentage of the profits. This is the importance of the words "derived from an industrial undertaking" as against "profits attributable to an industrial undertaking". DEPB/Duty drawback are incentives which flow from the schemes framed by the Central Government or from section 75 of the Customs Act, 1962. Incentive profits are not profits derived from eligible business under section 80-IB : they belong to the category of ancillary profits of such undertaking. Profits derived by way of incentives such as DEPB/Duty drawback cannot be credited against the cost of manufacture of goods debited in the profit and loss account and they do not fall within the expression "profit derived from industrial undertaking" under section 80-IB." 10. In view of this and respectfully following above decision we decide the issue against the assessee. This ground of the assessee is accordingly rejected. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss purpose of the assessee then without there being any material on record it cannot be inferred that doctors who are carrying with them their non-doctor spouse has not served the business purpose of the assessee. Distinction made by authorities is artificial and unreasonable and hence not sustainable. Accordingly, the claim of the assessee as allowed. 14. As a result appeal filed by the assessee is partly allowed. ITA.No. 1810/Ahd./2004 15. In this appeal, of the Revenue the first issue is regarding exclusion of Excise Duty and Sales tax from total turnover while calculating deduction under section 80HHC. We have heard the parties. In our considered view the issue is not covered against the revenue by the decision of Hon ble Supreme Court in the case of CIT v. Laxmi Machine Works [2007] 290 ITR 667. As a result this ground of the Revenue is rejected. 16. Ground No. 2 relates to deduction under section 80-IA on interest income received by the assessee from customers and late payment of the sale proceeds. This was held to be income derived from Industrial Undertaking by Ld. CIT(A). The issue is now covered against the Revenue by the decision of Hon ble Gujarat Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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