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TMI Blog2025 (5) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... ad not allocated expenses under Fuel & Gas, sitting fees, audit fees, commission to non-executive Directors and provision for Excise between the eligible and non-eligible units. The Ld. Assessing Officer also detected an allegedly improper allocation of expenses under the heads Misc. Expenses, employee expenses and electricity expenses. It is seen from the Ld. Assessing Officer's order (page 5) that the assessee had admitted to not bifurcating the said expenses exactly between the eligible and non-eligible units. Thereafter, it is seen from the Ld. Assessing Officer's order that the assessee had attempted a bifurcation of sorts (pages 6 - 9 of Ld. Assessing Officer's order) which did not find favour with the ld. Assessing Officer. Secondly, on the issue of deduction claimed in respect of indirect income of the assessee, it has been recorded that non-operating expenses of Rs. 25,39,952/- and Export incentive receipt of Rs. 2,43,75,193/- (pages 14 and 15 of Ld. Assessing Officer's order), were not 'derived' from the industrial undertaking eligible for relief u/s. 80IC of the Act. Thereafter, the ld. Assessing Officer disallowed Rs. 80,74,544/- from the relief available to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and non-eligible units when detailed explanation was provided by assessee. The specific power, electricity charges, fuel & gases of each unit are separate and in support of that bills were also provided. The assessee company has rightly claimed the deduction and also rightly segregated the expenses according to eligible and non-eligible units. The assessee has consistently followed such method of allocation over the years and the same has never been disputed before. Further, all the expenses cannot be segregated according to the turnover ratio only, some are directly linked and some proportionated according to the ratios. The Ld. CIT(A)-NFAC has not pointed out any defect in the documents provided during the appeal proceedings. Hence, addition made by AO and confirmed by Ld. CIT(A)-NFAC is wrong and needs to be deleted. 3. That the Ld. CIT (A) - NFAC erred in upholding the disallowance of Rs. 80,74,544/- made by the Ld. AO on account of deduction claimed u/s 80lC of the I. Tax Act by treating the 30% of the receipts from export incentives & other income not to be part of eligible profit. The Ld. CIT (A) - NFAC failed to take cognizance that the said issue is already covered by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven though the challenge was on orders u/s. 263 of the Act in all these three cases. 2.3. The Ld. DR, on the other hand, relied on the orders of authorities below and on the case laws of the Hon'ble Apex Court relied on by both the ld. Assessing Officer as well as the Ld. CIT(A). 3. We have carefully considered the submissions of Ld. AR/DR and have also gone through the documents before us, including the paper book filed by the assessee. 3.1. Regarding Ground No. 2, we find that on 18.12.2019 the assessee had submitted considerable details in an attempt to segregate the expenses between the eligible unit and non-eligible units. However, a cursory glance a the voluminous details filed in the paper book (pages 89 to 100) do not reveal a clear picture of the bifurcation of expenses between the 4 units, including the Sitarganj Unit. It is felt that while some expenses like audit fees, Directors' remuneration etc. would have to be allocated on a pro-rata basis, but other expenses like electricity charges or employee expenses would be readily allocatable to various units. Accordingly, we set aside the order of Ld. CIT(A) on this specific point and remand the matter pertaining to Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us.: 4.2. Thus, the critical finding here is that the Ld. Assessing Officer, in that case, had followed a legal view point which was not really unsustainable in law as was demonstrated in the body of that order. This finding itself follows a discussion in which some classical authorities on the subject of 'derived from' as compared to 'attributable to' have been sought to be distinguished merely to show that a different view, to that of the Pr. CIT seized of proceedings u/s. 263 of the act, was 'plausible' [see last line at page 11 para 2 of ITA No. 559/Kol/2018 (supra)]. In fact, the detailed finding in this order of ITAT [ITA No. 559/Kol/2018] is intended to convey that the requisite details were duly called for by the ld. Assessing Officer in that case and the assessee had duly replied thereon. The conclusion drawn was that, the Ld. Assessing Officer was convinced by the assessee's submissions and had thereafter not deemed it fit to disturb the computation of relief u/s. 80IC of the Act. It is seen that after this detailed discussion on an alternative interpretation of what is allowable u/s. 80IC of the Act, the Hon'ble ITAT concluded that the Ld. Assessing Officer's order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally arise from the property held under Trust [J.K Trust v. CIT 23 ITR 143 (Bom)]. As per the Hon'ble Bombay High Court in the case of Hindustan Lever Ltd. v. CIT [1980] 121 ITR 951, the word 'derived' as far as Income Tax law is concerned, has been given a narrow meaning, indeed a strict meaning. The meaning has been understood in the restricted sense of a direct derivation and not understood in the broad sense as equivalent to be derived directly or indirectly. In other words, only the proximate source has to be considered and not the source to which it may ultimately be referable. There are some important decisions delivered by the Apex Court on sections 80-I and 80-E of the Act. Amongst the decisions of the Apex Court the decision in the case of Cambay Electric Supply Industrial Co. Ltd. 113 ITR 84 (SC) is the most important one, as it has been followed in several of the subsequent decisions. The relevant decisions of the Supreme Court need to be discussed for deciding the issue at hand:- (i) The case of Cambay Electric Supply Industrial Co. Ltd. 113 ITR 84 (SC) - The relevant part of the head note, is reproduced below : "The Legislature has deliberately used the expressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Raja Bahadur Kamakhya Narayan Singh [1948] 16 ITR 325 (PC), considered the scope of that word. It was held that interest on rent of agricultural land was not an agricultural income as it was not revenue derived from the land.' "We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlement can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Government whereunder the export entitlements become available. There must be, for the application of the words 'derived from', a direct nexus between the profits and gains and the industrial undertaking. In the instant case, the nexus is not direct but only incidental. The industrial undertaking exports processed sea food. By reason of such export, the Export Promotion Scheme applies. Thereunder, the assessee is entitled to import entitlements, which it can sell. The sale consideration therefrom cannot, in our view, be held to constitute a profit and gain derived from the assessee's industrial undertaking." (iii) The case of Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC)- In this case the relevant fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business under section 80-IB. Therefore, one needs to read sections 80-I, 80-IA and 80-IB as having a common scheme. On perusal of sub-section (5) of section 80-IA, it may be noticed that it provides for manner of computation of profits of an eligible business. Accordingly, such profits are to be computed as if such eligible business is the only source of income of the assessee. Therefore, the devices adopted to reduce or inflate the profits of eligible business have got to be rejected in view of the overriding provisions of sub-section (5) of section 80- IA, which are also required to be read into section 80-IB. Sections 80-I, 80- IA and 80-IB have a common scheme and if so read, it is clear that the said sections provide for incentives in the form of deduction(s) which are linked to profits and not to investments. On analysis of sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-section (2), would be entitled to deduction under sub-section (1) only to the extent of profits derived from such industrial undertaking after specified date(s). Hence, apart from eligibility, sub-section 1 purports to restrict the quantum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of the statutory/policy provisions in the Customs Act/Scheme(s) framed by the Government of India. In the circumstances, the profits derived by way of such incentives do not fall within the expression "profits derived from industrial undertaking" in section 80-IB." [Para 18] "The duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of section 80-I/80-IA/80- IB." [Para 24] (v) The relatively recent case of Saraf Exports reported in 453 ITR 625 (SC)[dated 10-04-2023]- Some relevant extracts from this case law are as under: "Section 80-IB provides for deductions in respect of profits and gains from certain industrial undertakings. Therefore, as such for claiming deductions under section 80-IB, it must be on the 'profits and gains derived from industrial undertakings' mentioned in section 80-IB. An identical question came to be considered by this Court and, more particularly, with respect to the profit from DEPB and Duty Drawback Schemes, in the case of Liberty India v. CIT [2009] 317 ITR 218 (SC)." [Para 7.2] "After taking into consideration the DEPB and Duty Drawback Schemes, ultimately, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al connection with the industrial undertaking for it to be held as 'derived from' the industrial undertaking, but it should be the result of only those activities which were undertaken by the assessee in the course of actual conduct of the business of the industrial undertaking; (d) if the activity of the assessee which has yielded the receipt was not an activity undertaken for the actual conduct of the business of the industrial undertaking, but was merely an incidental activity, i.e., the activity was a step removed from the actual conduct of the business of the industrial undertaking, then such receipt cannot be held as 'derived from' the industrial undertaking but has to be held as an 'incidental receipt' as the rule of first degree connection with the source would be violated. 4.4. At this point we may take a moment to advert to the facts surrounding this controversy. On pages 14 and 15 of the Ld. AO's order the items of income, in question, have been mentioned as under: (i) Interest income (Rs 14,74,823) (ii) Sundry balances written off (Rs 75,031) (iii) Insurance claim received (Rs 1,97,861) (iv) Rent received (Rs 7,92,437) (v) Export incentive receipt (Rs 2,43,75 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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