TMI Blog2011 (8) TMI 1211X X X X Extracts X X X X X X X X Extracts X X X X ..... hich can be adjudicated on the basis of facts available on record was admitted by the Tribunal. 2.1 The facts in brief are that in the return of income, the assessee had claimed deduction of ₹ 34,64,523/- under section 80IB and ₹ 22,50,893/- under section 80HHC. The claim was subsequently revised during assessment proceedings and finally consequent to the order of CIT(A) dated 10.11.2004, the deduction under section 80 HHC was computed by AO at ₹ 8,05,666/- and under section 80-IB at ₹ 47,72,718/-. Subsequently, the AO noted that the assessee also had other income consisting of interest, rent etc. which were not income derived from business activity but in respect of such income also, deduction under section 80HHC and 80 IB had been allowed which resulted into excess deduction of ₹ 8,05,666/- under section 80 HHC and ₹ 22,36,411/- under section 80IB. AO therefore, after recording reasons to the above effect, re-opened the assessment under section 147. The legal validity of reassessment proceedings has now been challenged before the Tribunal. 2.2 Before us the ld. AR submitted that the assessment in this case had already been completed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise duty and sales tax of ₹ 3,83,91,941/- and ₹ 9,97,484/- respectively to the total turnover of the business. The assessee was in appeal before CIT(A). The Ld. CIT(A) vide his order dt.10.11.2004, directed the AO to exclude the above additions from the total turnover while determining deduction u/s.80HHC. The AO while passing the order u/s.250 worked out the deduction u/s.80HHC at ₹ 8,05,666/- and ₹ 47,72,718/- u/s.80IB. On verification of records, it is noted that while working out deduction u/s.80HHC, 90% of other income was not reduced. Similarly, while working deduction u/s.80IB, other income was not excluded even though other income cannot be said to be derived from manufacturing/export activities. In view of the above, it is seen that the excess deduction u/s.80HHC of ₹ 8,05,666/- and ₹ 22,36,411/- has been allowed to the assessee. As such, I have reason to believe that the income of ₹ 30,42,077/- which is chargeable to tax has escaped assessment for A.Y. 2001-02 as a result of failure on the part of the assessee to disclose fully and truly all material facts for its assessment. As such the assessment needs to be reopened u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion in relation to application of the provisions of Explanation (baa). Therefore, the re-opening of the assessment cannot be said to be based on change of opinion. The ld. AR has also raised a technical objection that the reasons recorded did not contain the date and therefore it is not known whether the reasons were recorded the issue of notice under section 148. We find no merit in such objections because there is no dispute regarding service of notice under section 148 on 22.6.2005. There is also no material to show that there was any manipulation of records. We, therefore, reject the objection raised. 2.7 We have also gone through the various judgments relied upon by the ld. AR and find the same to be distinguishable. In case of Cartini India Ltd. vs. ACIT (supra), the Hon ble Bombay High Court held that once AO considered the material on record and the explanation offered and arrived at the final conclusion that the deduction was allowable, based on the same material, he cannot take a different view and re-open the assessment. Thus, in that case the AO had considered the material as well as explanation offered which is not so in the present case in which applicability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under section 80 HHC and therefore, the deduction allowed in the original assessment amounting to ₹ 8,05,666/- was withdrawn. The assessee had argued that sales tax set off, excise duty refund, sundry balance written back more directly related to manufacturing activity but the same was not accepted. The argument that the rent had been received by the employees at the factory had also been rejected. In appeal the CIT(A) has confirmed the order of the AO and has also held that 90% of gross receipts relating to interest etc. is required to be reduced. Aggrieved by the said decision the assessee is in appeal before the Tribunal. 3.1 Before us, the ld. AR for the assessee reiterated the submissions made before the lower authorities that sale tax set off, excise duty refund and sundry balance directly relate to manufacturing activity and therefore, could not be excluded. It was also submitted that interest and rental income was of the nature of business income and, therefore cannot be considered for reduction under Explanation (baa). The ld. DR supported the orders of authorities below. 3.2 We have perused the records and considered the material carefully. The dispute is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent and other items of income. The deduction under section 80IB is allowable in respect of the profit derived from the business of the undertaking. The Hon'ble Supreme Court in case of Liberty India Limited (supra) have held that only the profit derived from the eligible business of the undertaking can be considered for deduction under section 80 IB and any incidental profit or profit attributable to the business will not be covered. The Hon'ble Supreme Court held that the section did not cover profit from a source beyond the first degree, thus making it clear that any incidental business income or income attributable to business has to be excluded. The rent and interest income is only incidental business income and is not profit from the eligible business of the undertaking and, therefore, deduction under section 80IB cannot be allowed in respect of these items. However, income from sales tax set off, excise duty re-fund, sundry balance written off has arisen from the business operations of the undertaking and, therefore, in our view such income has to be considered for deduction under section 80IB. We, therefore, hold that the deduction under section 80 IB will not be al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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