TMI Blog2019 (8) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... t business. In such circumstances, there can be no dispute to the fact that these receipts have a direct and immediate nexus to the activity of export done by the assessee and in such circumstances, the said income is not deductible from the said profits of business. The Revenue cannot dispute the immediate nexus between the activity of export and the creation of Fixed Deposits to be retained by the bank as additional security towards the loan availed for the export business. Fixed Deposits have been created by the bank themselves by carving out a portion of the export sale proceeds on realisation and retaining them as Fixed Deposits in the name of the assessee to be retained by the bank as additional security for the loan availed by the assessee for their export business. As mentioned earlier, the conversion of a portion of the sale proceeds as Fixed Deposits was done by the bank themselves and not on the volition of the assessee. Therefore, we are fully convinced that the transaction was connected and closely linked with the assessee's business activity. Tribunal erred in dismissing the assessee's appeal. - Tax Case (Appeal) No.2079 of 2008 - - - Dated:- 23- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef under Section 80HHC of the Act in respect of export incentives like DEPB without appreciating the law and facts of the case while the assessee has incurred a loss on its transfer. It was further contended that the Assessing Officer has included quota sales which were wrongly admitted as coming under Section 28(iiia) to 28(iiic) while excluding items under Clause (baa) under Explanation to Section 80HHC. With the above, the Assessing Officer has computed a total turnover, which is not reconcilable with the figures submitted in this regard. 5.Before the CIT(A), it was argued that the Assessing Officer erred in not netting the interest receipts and interest payments especially when both have a nexus with the export activity. The Assessing Officer failed to note that such a netting has been upheld by the Tribunal in Lalsons Enterprises vs. DCIT reported in [2004] 89 ITD 25 (SB) Delhi and explained in DCIT vs. Paramount Trading Corporation reported in [2006] 98 ITD 77 (TM) Delhi. The decisions relied on by the Assessing Officer were distinguished as being inapplicable to the facts of the assessee's case. The assessee placing reliance on the decision in C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra) ought to have been applied by the Tribunal. In support of his contention, the learned counsel placed reliance on the decisions in CIT vs. Bangalore Clothing Co., reported in [2003] 260 ITR 371 (Bom.); CIT And Anr. vs. Motor Industries Co. Ltd., reported in [2011] 331 ITR 79 (Kar.); Aurobindo Pharma Ltd., vs. CIT reported in [2015] 370 ITR 216 (T AP); CIT vs. TTK LIG Ltd., reported in [2018] 409 ITR 390 (Mad.); CIT vs. Abdul Rahman Industries reported in [2007] 293 ITR 475 (Mad.); and Arul Mariammal Textiles Ltd., vs. Assistant Commissioner of Income-tax, Coimbatore reported in [2018] 97 taxmann.com 298 (Mad.). 11.Ms.S.Premalatha, learned Junior Standing Counsel, assisted by Mr.M.Swaminathan, learned Senior Standing for the Revenue sought to sustain the order passed by the Tribunal by placing reliance on the decisions in Rani Paliwal vs. CIT reported in [2004] 136 Taxman 135 (Punj. Har.); CIT vs. Liberty Footwear Co., reported in [2006] 287 ITR 339 (Pun. Har.); and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vity of the assessee. It was pointed out that the Assessing Officer will have to ascertain whether the receipt of interest, commission, labour charges, etc., were a part of operational income. It was further pointed out that the Court cannot lay down any standard test for deciding what would constitute operational income and the Department will have to consider the memorandum of articles of association of company, the nature of the business, the nature of the activity and such other tests. Further, the Department will also have to ascertain as to what is the dominant business of the company and whether receipts like interest, commission, etc., accrue as a part of the main business activity or whether they accrue out of incidental business. In the said case, the Tribunal, on facts, found that the job processing activity done by the assessee was linked to the manufacturing activity and affirmed the finding of the Tribunal holding that 90 per cent of labour charges ought not have been excluded from such business profits while computing deduction under Section 80HHC. 17.In Motor Industries Co. Ltd. (supra), the substantial question of law which was considered was whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was held that the Tribunal was right in holding that exchange fluctuation, provision written back should be treated as income derived out of business for computation of deduction under Section 80HHC. 20.In Abdul Rahman Industries (supra), the substantial question of law, which fell for consideration was whether the assessee was entitled to deduction under Section 80HHC in respect of a sum being unclaimed balances written back in the profit and loss account. The case was decided in favour of the assessee holding that there were credits appearing in the books on the basis of purchase of items from various suppliers and these suppliers were not paid and these unclaimed credit balances were brought to the profit and loss account and had emanated from trading transactions only and the transactions were connected or closely linked with the assessee's business activities and the receipts had arisen only out of ordinary trading transactions and hence were rightly assessed under the head Business and the assessee was entitled to the benefit under Section 80HHC. 21.In Arul Mariammal Textiles Ltd. (supra), it was held that interest on margin mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bearing on the business of the assessee. In any event, the appeal filed by the assessee was dismissed on the ground that there is no substantial question of law arising in the appeal. Therefore, this decision cannot be cited as a precedent by the Revenue. 26.The decision in the case of Rani Paliwal (supra) was followed in Liberty Footwear Co. (supra) and on facts, it was found that in the said case also, there is no contention placed before the Court as to whether the interest income had direct nexus with the business activity of the assessee. 27.In Rane Engine Valves Ltd. (supra), the Court while considering as to whether the deposits made by the assessee with the banks had an immediate nexus with the business of the assessee, found that the facts were not placed before the Court and therefore, opined that the matter requires to be re-adjudicated afresh for which purpose, the matter was remanded to the Assessing Officer to take a fresh look into the matter. 28.As pointed out by us earlier, the facts of the case are vividly clear and the Fixed Deposits have been created by the bank themselves by carving out a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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