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TMI Blog2012 (5) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that FD interest income is not eligible for exemption under section 10A. 3.2) The Hon'ble CIT(A) has not appreciated the facts of the case and has erred in observing that the appellant has failed to evidence that FDs have been kept as margin money to get LC for export business. 3.3) The FDs interest is to be taxed under the head income from business and allowable deduction under section 10A is also to be allowed thereon. 4.1) The Hon'ble CIT(A) has erred in concluding that 3 units of the appellant viz.EC-1, EC-2 and EC-3 are units of same undertaking. 4.2) The Hon'ble CIT(A) has erred in aggregating the profits and losses of all 3 units for computing profits eligible for 10A deductions. 4.3) On the facts of the case, the 3 units of the appellant are 3 independent and different units/undertakings. The findings of the lower authorities being contrary to the facts are to be ignored. 5.1) The learned DCIT and Hon'ble CIT(A) have erred in (a) calculating deduction under section 10A in the way done; (b) considering and aggregating the total of all 3 units in the denominator as against the export turnover of one unit only in the numerator. 5.2) The deduction under section 10A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that interest on margin money deposits amounting to Rs.5,76,799/- is chargeable to tax under the head "profits and gains of business" and the same qualifies for deduction under section 10A of the Act. The Assessing Officer, while completing the scrutiny assessment, held that the interest on margin money deposits is not related to the business activity of the assessee company and therefore, requires to be taxed under the head "income from other source". Thereby denying the benefit of deduction under section 10A of the Act on the interest income to the extent of Rs.5,76,799/-. 6.2 The view of the Assessing Officer was affirmed by the first appellate authority by placing reliance on the judgement of the Hon'ble Apex Court in the case of CIT v Sterling Foods 237 ITR 55579), Hindustan Lever Ltd. v CIT 239 ITR 297 and Pandian Chemicals Ltd. v CIT 262 ITR 278). The CIT(A) also held that the assessee had failed to show evidence that fixed deposits have been kept as margin money to get LCs for export business. 6.3 Aggrieved, the assessee is in appeal before us. 6.4 The learned counsel for the assessee produced the details of the interest receipt. The total interest that was received for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to refer to two decisions of this Court rendered in ITA No.426/2002 in the case of M/s Hajee Jaffar Shariff v The Income Tax Officer, disposed of on 12.11.2007, wherein it has been held that when money is invested in fixed deposit to get the benefit of letter of credit and not to invest the same to earn any interest, then the said interest amount earned on the deposit has to be treated as the business income and not as income earned from other sources. 7. Similarly, in the case of Satishchandra and Co. v CIT reported in Vol.234 ITR 1998 page 70, it has been held that merely because the assessee has shown any income by way of interest, it would not become income from other sources as it has to be seen as to whether the said interest was earned out of business compulsion and as a business income. When in the said case, the assessee has made deposit in a bank as a condition for obtaining bank guarantee to be given before the Excise Authorities as required under the Excise Rules, the interest income which arose out of such transaction was held to be closely connected with the business of the assessee and hence business income". It was further held by the Hon'ble High Court - "The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e units of the same undertaking and whether the Income Tax authorities are justified in aggregating the profit and loss of all the units for the purpose of deduction under section 10A of the Act. 7.1 Brief facts in relation to the above issue are as follows:- The assessee company is engaged in the business of manufacture and export of electronic components. For the relevant assessment year, return of income was filed on 31.10.2004 declaring a loss of Rs.1,80,83,650/-. According to the assessee, it has three units eligible for deduction under section 10A of the Act. Out of these three units, two units had incurred losses and the third unit had earned profits. The assessee had claimed deduction under section 10A of the Act in respect of the third unit and carried forward the loss of first and second unit. The Assessing Officer had completed the scrutiny assessment and recalculated deduction under section 10A of the Act wherein the profits of the EC-3 unit was reduced by the loss of the first and the second unit, namely, EC-1 and EC-2 unit. The Assessing Officer relied on the judgement of the Hon'ble jurisdictional High Court in the case of CIT v Himatasingike Siede Ltd. The CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated earlier, the assessee before the Income Tax authorities had given only a general description about the computation of deduction under section 10A of the Act, probably for the reason that the assessee was under the impression that the Assessing Officer also recognized that the assessee is operating three different/distinct units. The assessee ought to have focused on the evidence to show that it is having three separate units. The evidence that the assessee is operating three separate units are already on record, however, these evidences were neither highlighted before the CIT(A) nor proper examination has been done by the authorities below. Therefore, the matter is restored to the Assessing Officer, who shall examine whether the assessee is having three separate units or one single/integrated unit. On fresh examination, if the Assessing Officer finds that the assessee is operating three separate/distinct units, the losses of EC-1 and EC-2 units shall not be set off of against the profits of EC-3 unit. In taking the above view, we follow the dictum laid down by the Hon'ble jurisdictional High Court in the case of CIT v M/s Axa Business Services Pvt. Ltd. & Others. The Hon'ble j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cising his option under sub-section (8). As discussed, it is permissible for an assessee to opt in and opt out of section 10A. In the year when the assessee has opted out, the normal provisions of the Act would apply. The profits derived by him from the STP undertaking would suffer tax in the normal course subject to various provisions of the Act including those of Chapter VI-A. If in such a year, the assessee has suffered losses, such losses would be subject to inter source and inter head set off. The balance if any thereafter can be carried forward, for being set off against profits of the subsequent assessment years in the normal course. Unabsorbed depreciation also merits a similar treatment. 31. As the income of 10-A unit has to be excluded at source itself before arriving at the gross total income, the loss of non 10-A unit cannot be set off against the income of 10-A unit u/s 72. The loss incurred by the assessee under the head profits and gains of business or profession has to be set off against the profits and gains if any, of any business or profession carried on by such assessee. Therefore as the profits and gains under section 10-A is not be included in the income of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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