TMI Blog2017 (7) TMI 1344X X X X Extracts X X X X X X X X Extracts X X X X ..... against the business expenses and in is eligible to be set off particular the interest expenditure incurred by the assessee on the loan amount borrowed from the bank / financial institutions. Allow this ground of the assessee and hold that the interest income earned by the assessee on security deposits from H P SEB is to be treated as business income of the assessee and the assessee is entitled to set off the same against the business expenditure. Reducing the income from interest from H P SEB, rent received, Misc. receipt etc. from the profits of the unit eligible for deduction u/s 80IC - HELD THAT:- Though the assessee is entitled to netting of such income against business expenditure but the assessee is not entitled to include the said income in the eligible profits of the undertaking in view of the laws laid down by the Hon'ble Supreme Court in the case of 'Pandian Chemicals Ltd Vs. CIT' [ 2003 (4) TMI 3 - SUPREME COURT] Income from rent received - same analogy can be applied and the same is not the income derived by the undertaking and, hence, is not eligible for deduction u/s 80IC Amount towards Misc. Receipts assessee has stated at bar that he doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from fixed deposits. The Ld. DR has not pointed out any case law contrary to the above proposition of law laid by the Hon'ble Jurisdictional High Court. The issue is, thus, squarely covered in favour of the assessee Treating the activity of twisting and texturing of yarn as manufacturing activity for the purpose of deduction u/s 80IC - HELD THAT:- As relying on EMPTEE POLY-YARN P. LTD. [ 2008 (2) TMI 313 - BOMBAY HIGH COURT] there is no infirmity in the order of the CIT (A) in holding that the conversion of yarn into thread by the assessee company amounts to manufacturing activity and, therefore, the income earned form such activity is eligible for deduction u/ s 80IC of the Act. There is no merit in this ground of appeal of the Revenue and the same is accordingly dismissed. Eligibility of the insurance claim u/ s 80IC - HELD THAT:-The purpose of insurance is always to get indemnified against any unforeseen loss. However, the question before us is whether such reimbursement / insurance claim has been paid to the assessee on account of Capital loss or Revenue loss. We accordingly direct the Assessing officer to examine as to whether the insurance claim has been pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound No. 2 the assessee has agitated the action of the lower authorities in treating the interest income from H P SEB amounting to R s. 71,285/- as 'income from other sources' instead of income from business and profession.' 5. The brief facts relating to the issue are that the assessee had earned interest income from the security deposit made with the Electricity Board (H P SEB). The Assessing officer treated the said interest income as 'income from other sources' and did not allow the set off of the same against the interest expenditure incurred by the assessee on the loan amount obtained from the banks for business purposes. The Assessing officer disallowed the claim of the assessee for treating the said income as 'business income' and further to include the said income into the eligible claim for deduction u/ s 801C of the Income-tax Act, 1961 (in short 'the Act'). Assessee assailed the order of the Assessing officer on this issue before CIT (A), but remained unsuccessful. 6. We have heard the rival contentions and perused the records. Admittedly, the said interest income of the assessee from the secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not entitled to include the said income in the eligible profits of the undertaking in view of the laws laid down by the Hon'ble Supreme Court in the case of 'Pandian Chemicals Ltd Vs. CIT' (supra). So far as the income from rent received i.e. R s. 1,93,367/- is concerned, the same analogy can be applied and the same is not the income derived by the undertaking and, hence, is not eligible for deduction u/s 801C of the Act. So far as the amount of R s. 1,590/- towards Misc. Receipts is concerned, the Ld. Counsel for the assessee has stated at bar that he does not press this issue because of smallness of the amount, however, the issue on merit regarding the admissibility of the said receipt towards deduction u/ s 801C be kept open. We, accordingly dismiss this issue of Misc. receipts of R s. 1,590/- holding that the dismissal of the above claim will not have any precedential value. The issue regarding the admissibility of such a claim is kept open to be adjudicated at appropriate time / case. 7. The assessee in this appeal has also taken an additional ground agitating the action of the lower authorities in not treating the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see will be entitled to the netting of the said reimbursement amount against the interest expenditure. 9. In the result, the appeal of the assessee is allowed for statistical purposes. 10. Now coming to the Revenue's appeal in ITA No. 569/Chd/2012 for assessment year 2008-09, the Revenue in its appeal has taken the following grounds of appeal: 1. That the [d. CIT(A) has erred in law and facts in directing the A.O. to consider interest income received by the assessee on delayed payments from customers and suppliers amounting to R s. 19, 77,643/- as 'Business Income' instead of 'Income from Other Sources' as considered by the A.O. 2. That the [d. CIT(A) has erred in law and facts in allowing deduction 801C by holding that process undertaken by the assessee is a manufacturing activity ignoring the facts that conversion of yarn into thread does not amount to manufacturing as it is does not bring into existence a new or distinct product and further ignoring the decision of Hon 'ble Supreme Court in the case of 'CIT vs. Emptee Poly Yarn (P) Ltd'., in Civil Appeal No. 786 of 2010 dated 20.01.2010, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of deduction u/s 801C of the Act. 14. We have heard the rival contentions and have also gone through the records. This issue has been dealt by Ld. CIT (A) in para 12 onwards of his order. The Ld. CIT (A) after considering the various judgments of the higher Courts on this issue and also considering the activity of the assessee has observed that the assessee has been doing the activity of conversion of yarn into thread which leads to creation of entirely a distinct product meant for specific usage and further that the change effected is irreversible. He has also observed that the average price of the raw material i.e. yarn being R s. 230/- per kg cannot be equated with that of the finished product i.e. thread priced at an average price of R s. 575 per kg. He further relied upon the decision of the Hon'ble Bombay High Court in the case of 'CIT vs. Emptee Poly Yarn (P) Ltd' reported in 170-Taxman-332-BOM, wherein the Hon 'ble Bombay High Court has observed as under: From the material considered it would be clear that POY has different physical and chemical properties and when POY chips undergoes the process of texturising and/or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee on account of Capital loss or Revenue loss. We accordingly direct the Assessing officer to examine as to whether the insurance claim has been paid to the assessee in view of the loss on capital assets or in view of loss on business assets. If the same is found to be on account of claim of loss of business assets, assessee will be entitled to set off of the same against the business expenses. We order accordingly. 18. So far as the claim of brokerage / discount received on ocean freight interest is concerned, the Ld. counsel for the assessee has submitted that the issue is squarely covered in favour of the assessee with the decision of the Tribunal in ITA No. 1 147/Chd./2014 vide order dated 6.7.2015 in the case of 'V MT Spinning co. Ltd vs. Addl CIT' 19. We have gone through the said decision in the case of 'V MT Spinning Co. Ltd Vs. Addl CIT' (supra) and find that the issue relating to the treatment of the income received on account of brokerage received on ocean freight has been discussed in the said order, wherein in para I I of the said, the Coordinate Chandigarh Bench of the Tribunal while relying upon the earlier order of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The first ground is relating to the eligibility of rental income for deduction u/ s 801C of the Act. The Ld. Counsel for the assessee stated at bar that he does not press this ground. This ground is accordingly dismissed as not pressed. 23. Another effective ground is relating to the treatment of interest reimbursement under Technology Upgradation Fund Scheme (TUFS) as capital receipt. This issue has already been adjudicated by us while deciding the additional ground of the assessee's appeal for assessment year 2008-09. In view of our findings given above, this issue is restored to the file of the Assessing officer on the same lines and terms as directed above while adjudicating the additional ground of the assessee's appeal for assessment year 2008-09 (supra) 24. Now coming to the Revenue's appeal for assessment year 2009- 10 bearing ITA No. 2/Chd/2014. 25. The Revenue in this appeal has taken the following grounds of appeal: 1. That the [d. CIT(A) has erred in law and facts in directing the A.O. to consider interest income received by the assessee on delayed payments from customers and suppliers amounting to &# ..... 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