TMI Blog2012 (12) TMI 783X X X X Extracts X X X X X X X X Extracts X X X X ..... re in section 80-HH. As the interest on fixed deposits from bank cannot be held to be Rs.derived from’ eligible undertaking, in our considered opinion, the same cannot qualify for deduction u/s 80-IB. As the interest income in the present circumstances as 'Business income’, it will merit inclusion at the first instance and thereafter 90% of the net interest is to be allowed as per the mandate of the Hon’ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. v. CIT [2012(2) TMI 101 - SUPREME COURT OF INDIA] - direct the AO to reduce 90% of the net interest income after verifying the amount liable to be deducted from the gross interest receipt Deduction u/s 80-IB - Exchange fluctuation gain – Held that:- Assessee was held to be eligible for deduction in respect of foreign exchange gain relying on CIT v. United Riceland Ltd. []. No contrary judgment has been brought to notice - ground of appeal allowed. Deduction u/s 80HHC on processing charges and Scrap sales – Held that:- As decided in CIT v. Dresser Rand India Pvt. Ltd. [2010 (4) TMI 153 - BOMBAY HIGH COURT] following the judgment in the case of K.Ravindranathan Nair [2007 (11) TMI 10 - SUPREME COURT OF INDIA] th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by : Shri Sanjiv M. Shah O R D E R Per R.S.Syal, AM : This group of five appeals comprising of 4 cross appeals by the assessee as well as the Revenue in relation to assessment year 2003-2004 and 2004-2005 and one appeal by the assessee in relation to assessment year 2005-2006 involve certain common issues. We are, therefore, proceeding to dispose them off by this consolidate order for the sake of convenience. Assessment Year 2003-2004 2. The assessee has raised following two effective additional grounds:- (i) The AO while computing the deduction under Section 80-IB erred in excluding Rs.3,26,78,524 being the gross sale proceeds of DEPB sold instead of the net figure Rs.16,04,104 being the difference between the gross sales proceeds and the face value Rs.3,10,74,420. (ii) The AO while computing the deduction under Section 80-IB erred in excluding the gross receipt of Rs.4,64,265 pertaining to processing charges without deducting there from the expenses / costs incurred to earn the same. 3. The learned Counsel for the assessee contended that these additional grounds involve certain legal issues and therefore the same should be admitted. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remains absolutely no scope for contending that the amount of DEPB should be made eligible for deduction u/s 80-IB. The alternative contention raised by the assessee about the restricting the amount of deduction only to the profit element from the sale of DEPB, does not merit acceptance. The ld. AR has chiefly relied on the judgment of the Hon ble Supreme Court in the case of Topman Exports (supra) to bring home the point that only the excess of the sale price of DEPB over its face value should be considered. In that case the question for consideration was whether the profit on transfer of DEPB would fall u/s 28(iiid) or not. The Hon ble Supreme Court has held that the face value of DEPB is chargeable as income u/s 28(iiib) whereas profit on transfer of DEPB is chargeable as income u/s 28(iiid). Nowhere it has been held that the face value of DEPB should be out rightly taken out of the net of taxation. The question before the Hon ble Supreme Court was to quantify the amount which falls u/s 28(iiid) for the purposes of deduction u/s 80HHC. There is hardly any need to accentuate that the provisions of section 80HHC are materially different in form of substance when compared with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness income and not Rs.Income from other sources . On the question of deduction u/s 80-IB, there is a pre-requisite condition that any income to qualify for such deduction must be Rs.derived from the eligible undertaking. In order to fall within the ambit of Rs.derived from it is sine qua non that the relation between the income and the eligible undertaking must be of first degree and not of second degree. Where the income is not derived from the industrial undertaking but is attributable to the industrial undertaking, the same would not qualify for deduction u/s 80-IB notwithstanding the fact that such income falls under the head Profits and gains of business or profession . The Hon ble Supreme Court in the case of Pandian Chemicals Ltd. v. CIT [(2003) 262 ITR 278 (SC)] has dealt with the interest income does not qualify for deduction u/s 80-HH as it cannot be characterized as having been derived from industrial undertaking. In that case also such a plea was raised that the making of deposit with the electricity board from which interest income emanated, was necessary to carry on the business. Rejecting such contention, the Hon ble Supreme Court that since such interest income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aa) from the profits of the business. In other words, only ninety per cent. of the net amount of any receipt of the nature mentioned in clause (1) which is actually included in the profits of the assessee is to be deducted from the profits of the assessee for determining "profits of the business" of the assessee under Explanation (baa) to section 80HHC. In view of this judgment of the Hon ble Supreme court, we direct the Assessing Officer to reduce 90% of the net interest income after verifying the amount liable to be deducted from the gross interest receipt as per the mandate of the judgment, the relevant part of which has been extracted above. 10. Ground no.4 is against not allowing of deduction u/s 80-IB on the exchange fluctuation gain of Rs.1,87,240. The facts of this ground are that the assessee claimed deduction u/s 80-IB in respect of fluctuation gain arising from the exports effected by it. The AO refused to grant deduction on this amount. The learned CIT(A) echoed the assessment order on this point. 11. Having heard the rival submissions and perused the relevant material on record we find that this issue is directly covered in favour of the assessee by the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Dresser Rand India Pvt. Ltd. [323 ITR 429]. Similarly the contention of the assessee was rejected on the grant of deduction u/s 80-IB on the processing charges. The learned Counsel for the assessee contended that the Hon ble Bombay High Court by a subsequent decision in CIT v. Pfizer Ltd. [(2010) 42 DTR (Bom) 32] has distinguished its earlier judgment in the case of Dresser Rand India Pvt. Ltd. (supra) and therefore, the view in favour of the assessee should be followed. 14. We are not inclined to accept the contention raised on behalf of the assessee for allowing deduction u/s 80HHC on the amount of processing charges for the reason that this issue has been directly dealt with by the Hon ble jurisdictional High Court in the case of Dresser Rand India Pvt. Ltd. (supra) in which it has been clearly laid down that the amount of processing charges are not eligible for deduction u/s 80HHC. In reaching this conclusion, the Hon ble jurisdictional High Court relied on the judgment of the Hon ble Supreme Court in the case of CIT v. K.Ravindranathan Nair [(2007) 295 ITR 228 (SC)] in which it has been unequivocally laid down that 90% of processing charges are required to be reduced from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. After considering the rival submissions and perusing the relevant material on record we find that this issue is covered in favour of the assessee by the decision of the Hon ble Supreme Court in the case of Topman Exports v. CIT [(2012) 342 ITR 49 (SC)] wherein it has been held that the assessee cannot be denied deduction u/s 80HHC on DEPB license. Accordingly, these grounds are allowed. 19. Ground nos.10 to 12 are against the confirmation of addition of Rs.13,06,976 made by the AO u/s 145A in respect of Modvat credit. 20. We have heard the rival submissions and perused the relevant material on record. Section 145A was inserted by the Finance (No.2) Act, 1998 with effect from 1.4.1999. It provides that the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head ITA No.1213/Mum/2007 Ors. Profits and gains of business or profession shall be in accordance with the method of accounting regularly employed by the assessee and further adjusted to include the amount of any tax, duty, cess etc. paid or incurred by the assessee to bring the goods to the place of its location as on the date of valuation. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of several grounds raised in the appeal of the assessee for the current year are similar to those for assessment year 2003-2004. In fact, no separate arguments were advanced in respect of the grounds which are similar to those for assessment year 2003-2004. 25. Following the view taken herein above we dismiss ground no.1 being the exclusion of sale proceeds of DEPB license from the profits eligible for deduction u/s 80-IB. It is further held that no netting is permissible. The entire amount of sale proceeds of DEPB is ineligible for deduction under this section. 26. Ground nos. 2 and 3 are about the allowability of interest income earned on fixed deposits amounting to Rs.38,188 u/s 80-IB and 80HHC. Insofar as the deduction u/s 80-IB on such interest is concerned, we dismiss the assessee s ground but as regards its allowability u/s 80HHC, we agree in principle that the amount of interest is liable to be included under the head Rs.Profits and gains of business or profession and as such 90% of such net interest is to be deducted as per Explanation (baa) to section 80HHC. The basis on which amount is liable to be reduced from the gross interest has been restored by us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised by the Revenue is against denial of deduction u/s 80-IB on the amount of processing charges and scrap sales. Following the view taken for assessment year 2003-2004 above we uphold the impugned order to this extent. 32. In the result, the appeal of the assessee is partly allowed and that of the Revenue is partly allowed for statistical purposes. Assessment Year 2005-2006 33. First ground of the assessee s appeal is against the denial of deduction u/s 80-IB on the sale proceeds of DEPB license amounting to Rs.1,20,50,440. The ld. AR has also contended for the netting off of sale proceeds of DEPB with the face value of DEPB. This ground is similar to the one which we have decided for assessment year 2003-2004 above. The contention of the assessee has been rejected on both the issues. Resultantly it is held that the assessee is not entitled to deduction u/s 80IB on the amount of DEPB and further there is no question of netting for the purposes of making disallowance. We dismiss this ground of appeal. 34. Ground no.2.1 and 2.2 are against the allowing of deduction u/s 80-IB on processing charges. Following the view taken for assessment year 2003-2004, we accept the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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