TMI Blog2010 (9) TMI 906X X X X Extracts X X X X X X X X Extracts X X X X ..... e interest received on margin deposits amounting to Rs.2,09,709/- as income eligible for deduction under section 10B. The assessee received the aforesaid interest from margin monies deposited with the banks. According to the assessee the deposits having been made in the course of the assessee s business, the interest therefrom was eligible for the exemption under section 10B. This section made special provisions for newly established 100% export oriented undertakings. According to sub-section (1), a deduction of such profits and gains as are derived by such an undertaking from the export of articles was to be given from the total income of the assessee. The Assessing Officer took the view that the interest income cannot be said to be derived from the export. He accordingly excluded the same while allowing the deduction. On appeal, the CIT(A) found that the margin monies were kept essentially for borrowing from the banks for the purpose of the business. He accordingly held that the interest on the deposits had a direct nexus with the business of the assessee. He, therefore, held that the interest must be treated as business income eligible for the deduction under section 10B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertaking and, therefore, it should be taken as having been derived from the export of articles. He sought to distinguish the judgment of the Supreme Court in the case of K Ravindranathan Nair (supra) on the ground that it was a judgment rendered in the context of section 80HHC, which contained a specific provision in Explanation (baa) to exclude 90% of the interest income even if such interest income is assessed as business income. It was pointed out that there is no similar provision in section 10B nor was there any provision similar to sub-section (4) of section 10B in section 80-IB which was the subject matter of consideration by the Supreme Court in the case of Liberty India (supra). 5. We have carefully considered the facts and the rival contentions. There is no dispute that the interest was received from margin monies kept as deposits with the banks for the purpose of borrowing monies for the business. The assessee s business is in the export of jewellery and in the first page of the assessment order it has been stated by the Assessing Officer that the assessee is a 100% export oriented undertaking within the meaning of section 10B. If that is the factual position, the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly source of income of the assessee. This is not similar to the statutory formula prescribed in sub-section (4) of section 10B. It cannot also be stated that the assessee was adopting a device to inflate the profits of the export oriented undertaking by including the interest income therein because even the Assessing Officer did not dispute that the interest income forms part of the business profits. Once such a conclusion is reached, sub-section (4) of section 10B takes over. For these reasons we uphold the decision of the CIT(A) and dismiss the first ground taken by the Revenue. 7. The second ground is that the CIT(A) erred in directing the Assessing Officer to recompute the deduction under section 10B without including the sale of raw materials amounting to Rs.1,64,90,240/- in the total turnover of the undertaking. 8. From Schedule L to the accounts of the assessee, the Assessing Officer noticed that the assessee has reduced Rs.1,64,90,240/- from materials consumed, as sale of raw materials. The Assessing Officer took the view that the assessee has reduced the manufacturing cost by the consideration received on the sale of raw materials. According to him the sale of raw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submissions of the assessee. He further held that the assessee being a 100% EOU, it could not have sold the raw material in the open market, which confirms that what is shown as sale of raw material was nothing but return of raw materials purchased. He accordingly held that the return of raw materials purchased should be adjusted against purchases and cannot be considered as independent sale. He accordingly held that what was shown as sale of raw materials cannot be included in the total turnover of the assessee, which is the denominator in the formula prescribed by sub-section (4) of section 10B. 11. The Revenue contests the aforesaid decision of the CIT(A) and strong reliance is placed on the accounting treatment given by the assessee and disclosed in Schedule L to the Profit and Loss Account. On the other hand, the learned counsel for the assessee reiterated the assessee s submissions made before the Assessing Officer which were rejected by him but accepted by the CIT(A). He also submitted that if necessary the Assessing Officer may be directed to verify whether the import of diamonds which were found unfit later were returned to the same supplier so that there will be n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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