Income Tax Appellate Tribunal - Ahmedabad
Kiri Dyes & Chemicals (P) Ltd.,, ... vs Assessee on 30 November, 2004
IN THE INCOME_TAX APPELLATE TRIBUNAL "B" BENCH, AHMEDABAD
BEFORE SHRI H.L.KARWA,JM AND SHRI A.N.PAHUJA,AM
ITA No.389/Ahd/2005
(Assessment Year : 2001-02)
M/s Kiri Dyes & Chemicals Pvt. Vs. ITO Ward- 4(2)
Ltd.,53, Manek Baug Society, Ahmedabad.
Ambawadi, Ahmedabad.
[PAN: AAACK9025C]
(Appellant) (Respondent)
Appellant by : Shri S.N.Soparkar and
Shri M.K.Kaji,ARs
Respondent by : Smt. Neeta Shah, DR
आदे श)/ORDER
(आदे AN PAHUJA: This appeal by the assessee against an order dated 30/11/2004 of the ld. CIT(A)-VIII, Ahmedabad, raises the following grounds:
1. "Learned CIT(A) has erred in law and on facts in confirming the action of A.O. in disallowing Rs.26,256/- being the amount of Employees Contribution relating to ESI & PF by invoking provisions of S.2(24)(x) r.w.s. 36(1)(va) of the Act.
2. The learned CIT(A) has erred in law and on facts in confirming the action of A.O. in denying deduction under Section 80IB of the Act on DEPB income amounting to Rs.2,60,16,401/- and DEPB difference of Rs.18,81,687/- on the ground that the same is not derived from the industrial undertaking out of its manufacturing activities.
3. The learned CIT(A) has erred in law and on facts in confirming the action of A.O. in denying deduction under Section 80IB of on bank interest of Rs.1,05,488/- on the ground that the same is not derived from the industrial undertaking out of its manufacturing activities.
4. The learned CIT(A) has erred in law and on facts in confirming the action of A.O. in denying deduction under Section 80IB of the Act on Sales Tax set off amounting to Rs.54,097/- on the ground that the same is not derived from the industrial undertaking out of its manufacturing activities.
5. Learned CIT(A) has erred in law and on facts in holding that sale proceeds of DEPB license amounting to Rs.2,60,16,401/- and DEPB difference of Rs.18,81,687/- are covered by S.28(iiib) and consequently deduction u/s 80HHC of the Act is available only to the extent of 90% of the said DEPB license. Ld. CIT(A) failed to appreciate that the said sale proceeds of the DEPB license are covered by 2 ITA No.389/Ahd/2005 S.28(iv) of the Act and therefore deduction u/s 80HHC of the Act ought to have been allowed fully on the same.
6. Learned CIT(A) has erred in law and on facts in confirming the action of A.O. in reducing profits of the business on account of the flowing items:
Sr.No. Item Amount Rs.
1 Bank Interest Rs.1,05,488/-
2 Rent & Interest Rs.3,032/-
3 Sales Tax Set Off Rs.54,97/-
4 Vatav/Kasar Rs.2,59,656/-
5 Discount Income Rs.1,57,578/-
6 Rate Difference Rs.1,45,627/-
While calculating deduction u/s 80HHC of the Act on the erroneous ground that these items are not derived from the export business of the appellant.
Alternatively and without prejudice, only the net income under these heads can be reduced from the profits of the business.
7. The Learned CIT(A) has erred in law and on facts in confirming the action of Assessing Officer holding that while calculating the deduction under Sec. 80HHC of the Act, if the result of trading and manufacturing export is loss, no deduction u/s 80HHC of the Act on incentives can be granted.
8. The Learned CIT(A) has erred in law and on facts in not appreciating that S.80IB of the Act is an independent section and deduction claimed therein does not affect the right to claim deduction under any other section. The Learned CIT(A) ought to have allowed deduction u/s 80HHC as well as S.80IB of the Act on the gross total income.
9. The Learned CIT(A) has erred in law and on facts in confirming the levy of interest under section 234B and 234C of the Act.
10. Initiation of penalty proceedings are not justified."
2. Facts, in brief, as per relevant orders are that return declaring nil income filed on 30.10.2001 by the assessee, manufacturing and exporting dyes/chemicals, after being processed on 29.8.2002 u/s 143(1) of the Income-tax Act,1961[hereinafter referred to as the 'Act'], was selected for scrutiny with the issue of notice u/s 143(2) of the Act on 30.10.2002.During the course of assessment proceedings, the 3 ITA No.389/Ahd/2005 Assessing Officer[AO in short] noticed that the assessee did not deposit employees' contribution towards PF-Rs.23,606/- and towards ESI-Rs.2,950/- within the time stipulated under the relevant enactments. Accordingly, the AO added these amounts u/s 2(24)(x) read with sec.36(1)(va) of the Act.
3. On appeal, the ld. CIT(A) upheld the addition of the aforesaid amount of Rs.26,256/-
4. The assessee is now in appeal against the aforesaid finding of the ld. CIT(A). At the outset, both the parties agreed that the issue is squarely covered by the decision in the case of CIT v. P.M.Electronics Ltd., 220 ITR 635 (Delhi) and the Ahmedabad Benches have been following the said decision..
5. We have heard both the sides and have gone through the facts of the case. We find that Hon'ble Delhi High Court in their aforesaid decision in the case of P.M.Electronics Ltd.(supra), following the decision of Hon'ble Apex Court in the case of Vinay Cement Ltd.(supra), allowed the claim of the assessee for deduction of the employees' contribution towards PF. In the light of the said decision, we have no hesitation in holding that the employees' contribution towards PF/ESI having been made by the assessee within the due date of filing of return u/s 139(1) of the Act for the assessment year under consideration, there is no ground for disallowing the same. Therefore, ground no.1 in the appeal is allowed.
6. Ground no.2 in the appeal relates to deduction u/s 80IB of the Act on the DEPB income of Rs. 2,60,16,401/- and DEPB difference of Rs. 18,81,687/-. During the course of assessment proceedings, the AO noticed that the assesseee in their Profit and Loss Account accounted for DEPB income of Rs.2,60,16,401/- and the DEPB related to the trading activity - Rs.14.19 lacs. According to the AO, DEPB receipts were not at all income directly derived from the industrial activity of the undertaking of the assessee while the assessee itself withdrew their claim for deduction u/s 80IB on the portion of DEPB attributable to trading in their submissions. Therefore,, relying upon the decision in the case of CIT vs. Sterling 4 ITA No.389/Ahd/2005 Foods,237 ITR 579(SC), the AO concluded that DEPB incentives having been granted by the Government for the promotion of exports, deduction u/s 80IB of the Act is not admissible on these incentives.
8. On appeal, the ld. CIT(A) upheld the disallowance of claim for deduction u/s 80IB of the Act on the DEPB income.
9. The assessee is now in appeal against the aforesaid findings of the ld. CIT(A). Before us, both the parties agreed that the issue is squarely covered by the decision dated 31.8.2009 of the Hon'ble Apex Court in the case of M/s Liberty India Vs. CIT in a civil appeal arising out of SLP no. 5827 of 2007.
10. We have heard both the parties and gone through the facts of the case. On a similar issue as to whether the profit from Duty Entitlement Passbook Scheme (DEPB) and Duty Drawback Scheme are "derived from the business of the Industrial Undertaking" and consequently eligible for deduction u/s 80-IB, the Hon'ble Apex Court observed that the Act broadly provides for two types of tax incentives, namely, investment linked incentives and profit linked incentives. Chapter VI-A essentially belongs to the category of "profit linked incentives" while ss. 80-IA/80-IB refer to profits derived from eligible business, it is not the ownership of that business which attracts the incentives but the generation of profits (operational profits) and each of the eligible business in sub-sections (3) to (11A) constitutes a stand-alone item in the matter of computation of profits. It was further held that Ss. 80-IB/80-IA are a Code by themselves as they contain both substantive as well as procedural provisions. S. 80-IB allows deduction of profits and gains derived from the eligible business. The words "derived from" is narrower in connotation as compared to the words "attributable to". By using the expression "derived from", Parliament intended to cover sources not beyond the first degree; Though the object behind DEPB etc is to neutralize the incidence of customs duty payment on the import content of export product DEPB credit/duty drawback receipt do not come within the first degree source as the said incentives flow from Incentive Schemes enacted by the Government or from s. 75 of the Customs Act. Such incentives profits are not profits 5 ITA No.389/Ahd/2005 derived from the eligible business u/s 80-IB. They are 'ancillary profits' of such undertakings and even as per AS-2 and the ICAI Guidance Note, duty drawback, DEPB benefits, rebates etc. cannot be credited against the cost of manufacture of goods but have to be shown as an independent source of income beyond the first degree nexus between profits and the industrial undertaking. The Hon'ble Apex Court concluded that "16. DEPB is an incentive. It is given under Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEPB is to neutralize the incidence of customs duty payment on the import content of export product. This neutralization is provided for by credit tocustoms duty against export product. Under DEPB, an exporter may apply for credit as percentage of FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by DGFT for import of raw materials, components etc.. DEPB credit under the Scheme has to be calculated by taking into account the deemed import content of the export product as per basic customs duty and special additional duty payable on such deemed imports. Therefore, in our view, DEPB/Duty Drawback are incentives which flow from the Schemes framed by Central Government or from Section 75 of the Customs Act,1962, hence, incentives profits are not profits derived from the eligible business under Section 80-IB. They belong to the category of ancillaryprofits of such Undertakings.
17. The next question is - what is duty drawback? Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944 empower Government of India to provide for repayment of customs and excise duty paid by an assessee. The refund is of the average amount of duty paid on materials of any particular class or description of goods used in the manufacture of export goods of specified class. The Rules do not envisage a refund of an amount arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cum-manufacturer. Sub- section (2) of Section 75 of the Customs Act requires the amount of drawback to be determined on a consideration of all the circumstances prevalent in a particular trade and also based on the facts situation relevant in respect of each of various classes of goods imported. Basically, the source of duty drawback receipt lies in Section 75 of the Customs Act and Section 37 of theCentral Excise Act.
18. Analysing the concept of remission of duty drawback and DEPB, we are satisfied that the remission of duty is on account of the statutory/policy provisions in the Customs Act/Scheme(s) framed by the Government of India. In the circumstances, we hold that profits derived by way of such incentives do not fall within the expression "profits derived from industrial undertaking" in Section 80-IB.
19. Since reliance was placed on behalf of the assessee(s) on AS-2 we need to analyse the said Standard.
6 ITA No.389/Ahd/200520. AS-2 deals with Valuation of Inventories. Inventories are assets held for sale in the course of business; in the production for such sale or in form of materials or supplies to be consumed in the production.
21. "Inventory" should be valued at the lower of cost and net realizable value (NRV). The cost of "inventory" should comprise all costs of purchase, costs of conversion and other costs including costs incurred in bringing the "inventory" to their present location and condition.
22. The cost of purchase includes duties and taxes (other than those subsequently recoverable by the enterprise from taxing authorities), freight inwards and other expenditure directly attributable to the acquisition. Hence trade discounts, rebate, duty drawback, and such similar items are deducted in determining the costs of purchase. Therefore, duty drawback, rebate etc.should not be treated as adjustment (credited) to cost of purchase or manufacture of goods. They should be treated as separate items of revenue or income and accounted for accordingly (see: page 44 of Indian Accounting Standards & GAAP by Dolphy D'souza). Therefore, for the purposes of AS-2, Cenvat credits should not be included in the cost of purchase of inventories. Even Institute of Chartered Accountants of India (ICAI) has issued Guidance Note on Accounting Treatment for Cenvat/Modvat under which the inputs consumed and the inventory of inputs should be valued on the basis of purchase cost net of specified duty on inputs (i.e. duty recoverable from the Department at later stage) arising on account of rebates, duty drawback, DEPB benefit etc. Profit generation could be on account of cost cutting, cost rationalization, business restructuring, tax planning on sundry balances being written back, liquidation of current assets etc. Therefore, we are of the view that duty drawback, DEPB benefits, rebates etc. cannot be credited against the cost of manufacture of goods debited in the Profit & Loss account for purposes of Sections 80-IA/80-IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking.
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24. In the circumstances, we hold that Duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of Sections 80I/80-IA/80-IB of the 1961 Act."
10.1. In the light of aforesaid decision of the Hon'ble Apex Court, we hold that DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of Sections 80-IB of the Act. Therefore, we have no option but to dismiss ground no.2 of the appeal
11. Ground nos. 3 & 4 relate to deduction u/s 80IB of the Act on the interest received from the bank to the extent of Rs.1,05,488/-and sales tax set off of Rs.54,097/-. The AO concluded that the interest received from the bank cannot be 7 ITA No.389/Ahd/2005 treated as income which form part of eligible profit for the purpose of computation of deduction u/s 80IB of the Act, relying ,inter alia,. on the decision in the case of Pandian Chemicals vs. CIT 262 ITR 278(SC) wherein it was held that interest on deposit is not derived from business undertaking. Likewise clam for deduction on sales tax set off of Rs. 54,070/- was also disallowed.
12. On appeal, the ld. CIT(A) upheld the action of the AO, following the Apex Court decisions referred to by the AO.
13. The assessee is in appeal against the aforesaid findings of the ld. CIT(A).
14. We have heard both the parties and gone through the facts of the case. As regards claim for deduction u/s 80IB of the Act in respect of bank interest on fixed deposits kept for obtaining guarantees or for furnishing waranties, the leading decision is that of the Hon'ble Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd. [1997] 227 ITR 172 which holds that interest earned on deposits placed for the purposes of obtaining loans for business cannot be treated as business income but only as income from other sources. It was further held that the assessee cannot claim adjustment of expenditure against interest assessable under section 56. Section 57 of the Act sets out in its clauses (i) to (iii) the expenditures which are allowable as deduction from income assessable under section 56. It is not the case of the assessee that the interest payable by it on term loans is allowable as deduction under section 57 of the Act.. The decision in Tuticorin Alkali Chemicals and Fertilizers Ltd. [1997] 227 ITR 172, which was rendered in the context of sections 56 and 57, has been followed in CIT v. Autokast Ltd. [2001] 248 ITR 110 (SC). Likewise, in CIT v. Dr. V. P. Gopinathan [2001] 248 ITR 449 (SC) interest on fixed deposits was held not to qualify for setting off against interest on loans borrowed. The other decisions on the same lines, in the context of section 80HHC are CIT v. Sterling Foods [1999] 237 ITR 579 (SC) and Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC). In these decisions, the Hon'ble Supreme Court reiterated the nexus theory and declined to treat such interest earned as business income. The decision of the Madras High Court in South India Shipping Corporation 8 ITA No.389/Ahd/2005 Ltd. v. CIT [1999] 240 ITR 24 was also rendered in the context of treating certain receipts not as business income but income from other sources for the purposes of section 56 read with section 57(iii) of the Act. In cases where the exporter is required to mandatorily keep monies in fixed deposit in order to avail of credit facility for the export business, the argument on behalf of the assessees is that but for such a stipulation by the bank there was no need for the exporter to keep the money in fixed deposit and therefore, the income earned from such fixed deposits bears a direct nexus to the business activity itself. Given the repeated affirmation by the Hon'ble Supreme Court in the various cases, we are of the opinion that interest earned from he bank, does not have an immediate nexus with the export business of the assessee and therefore, can not be said derived from the business of industrial undertaking .
14.1 Before the AO , the assessee claimed that interest from bank was derived from the business of industrial undertaking . However, the AO and the ld. CIT(A) , relied upon certain decisions of Hon'ble Supreme Court and declined to allow deduction u/s 80IB of the Act . There is no material before us suggesting that interest received from the bank was derived from the business of industrial undertaking. Regarding the claim for netting off of the interest, the ld. AR relied upon decision of Hon'ble Delhi High Court in CIT Vs. Shriram Honda Power Equipment Ltd.,289 ITR 475(Delhi) in the context of determining business profits for the purpose of sec. 80HHC of the Act. In the said decision, Hon'ble High Court laid down that
i) AO has to first "compute" the profits of the business under the head "Profits and gains of business or profession." In other words, he will have to compute business profits, in terms of the Act, by applying the provisions of sections 28 to 44 thereof.
(ii) In arriving at profits of the business by the above method, the Assessing Officer will exclude all such incomes which partake of the character of "income from other sources" which in any event are treated under sections 56 and 57 of the Act and are therefore not to be reckoned for the purposes of section 80HHC. The Assessing Officer will apply the law as explained in the judgments of the Kerala High Court referred to above which have been affirmed by the Hon'ble Supreme Court.
(iii) Where surplus funds are parked with the bank and interest is earned thereon it can only be categorised as income from other sources. This receipt merits separate treatment under section 56 of the Act which is outside the ring of profits and gains from business and profession. It goes entirely out of the reckoning for the purposes of section 80HHC.
9 ITA No.389/Ahd/2005(iv) Interest earned on fixed deposits for the purposes of availing of credit facilities from the bank, does not have an immediate nexus with the export business and therefore has to necessarily be treated as income from other sources and not business income.
(v) Once business income has been determined by applying accounting standards as well as the provisions contained in the Act, the assessee would be permitted to, in terms of section 37 of the Act, claim as deduction, expenditure laid out for the purposes of earning such business income.
(vi) In the second stage, the Assessing Officer will deduct from the profits of the business computed under the head "Profits and gains of business or profession" the following sums in order to arrive at the "profits of the business" for the purposes of section 80HHC(3):
.................................................................................................." In the case of CIT v. Sterling Foods [1999] 237 ITR 579 , the assessee engaged in processing prawns and other sea food, which was exported, earned some income from the import entitlements granted by the Central Government under the Export Promotion Scheme. The assessee was entitled to use the import entitlements itself or sell the same to others. The assessee claimed relief under section 80HH in respect of the sale proceeds of the import entitlements. The Tribunal held that the relief could not be granted. The Hon'ble apex court reversing the decision of the High Court while interpreting the words 'derived from' held that there must be, for the application of the words "derived from", a direct nexus between the profits and gains and the industrial undertaking. As the nexus was only incidental and not direct, the receipts from the sale of import entitlements could not be included in the income of the assessee for the purpose of computing the relief under section 80HH of the Act. Similar views were expressed by the Hon'ble apex court in the case of Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278.
14.11 In the case of Ahmedabad manufacturing and Calico Printing Co. Ltd. Vs. CIT,137 ITR 616(Guj),Hon'ble jurisdictional High Court held "We are in full agreement with the view taken by the Bombay High Court and to some extent with the view taken by the Kerala High Court. Profits and gains can be said to have been " derived " from an activity carried on by a person only if the said activity is an immediate and effective source of the said profit or gain. There must be a direct nexus between the activity and the earning of the profits and gains. In other words, what we have to consider is the proximate source and not the source to which the profit or gain may in a remote indirect way be referable. The view to this effect of the Privy Council in CIT v. Kamakhya Narayan Singh [1948] 16 ITR 325 was approved by the Supreme Court in Mrs. Bacha F. Guzdar v. CIT [1955] 27 ITR 10 ITA No.389/Ahd/2005 1 and followed by the Kerala High Court in Cochin Company v. CIT [1978] 114 ITR 822 and by the Bombay High Court in Hindustan Lever Ltd. v. CIT [1980] 121 ITR
951. In our opinion, the word " derive " to be found in s. 2(5)(a)(i) of the relevant Finance Act will have to be given a meaning consistent with what was decided in the above decisions. The words "derived from exports" cannot be accepted as equivalent to " referable to exports " or even indirectly or remotely connected with the exports by a nebulous link.
14.12 Hon'ble Punjab and Haryana High Court in the case of Nahar Exports Vs. CIT,288 ITR 494 upheld disallowance of claim for deduction u/s 80IB of the Act on the interest income, in the light of aforesaid decisions of the Apex Court .
14.13 For the purpose of claiming deduction under s. 80-IB of the Act, the assessee is not only required to establish that it was business profit of the industrial undertaking, but also to establish that this was a profit 'derived from' the business activity of an industrial undertaking, which means a direct nexus between the profits and industrial undertaking. The mere fact that such income was a business income would not entitle the assessee for deduction under s. 80-IB of the Act. Though the assessee may necessarily have to make the deposit with the bank for certain guarantees or warranties , the income on account of interest from such deposits with the bank cannot be said to have been derived from the business of the industrial undertaking. The immediate source of interest is the deposit itself, and the effective source of the genealogy of the source of the interest income is the deposit and not business, as the industrial undertaking is removed by one step from the source of income for the interest. In other words, the immediate and effective source of the interest is the deposit and not the business of the industrial undertaking. As held by the Hon'ble Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v.
CIT [1978] 113 ITR 84, the profits or gains eligible for deduction under section 80IA of the Act must be derived from the actual conduct of the business, and unless the profits or gains are derived from the actual conduct of the business, it cannot be stated that the interest is derived from the business of the industrial undertaking. In other words, the industrial undertaking must directly yield the profit, and it cannot be the means to yield the income. The deposit might be an incidental investment with the business of the industrial undertaking and that would not be sufficient to render the interest income as profits and gains derived from the industrial undertaking.
11 ITA No.389/Ahd/2005The fact that the amount was assessed as business income itself would not be sufficient to hold that the interest income was derived from the actual conduct of the business of the industrial undertaking. In other words, it is not all business receipts that would qualify for the deduction and the Legislature has apparently not intended to give the benefit of deduction to all business income. If the intention of the Legislature was to grant relief to all business income, it could have used the expression, "profits and gains of industrial undertaking", The fact that the Legislature has used the expression "profits and gains derived from the business of industrial undertaking" has some significance and it connotes that the immediate and effective source of income eligible for grant of relief under section 80IB of the Act must be the industrial undertaking itself and not any other source. The mandate of law is that unless the source of the profit is the undertaking, the assessee is not eligible to claim deduction under section 80IB of the Act. Mere commercial connection between the income and the industrial undertaking would not be sufficient. The derivation of the income must be directly connected with the business in the sense that the income is generated by the business. It would not be sufficient if it is generated by the exploitation of a business asset.
14.14 Hon'ble jurisdictional High Court in the case of CIT Vs.Gaskets and Radiators Distributors, 296 ITR 440(Guj) in the context of deduction u/s 80HHC of the Act in respect of income on account of interest on fixed deposits held "Identical question came to be considered by the hon'ble Supreme Court in Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 and the question, which was posed for consideration before the apex court was whether the interest on deposits with the Tamil Nadu Electricity Board should be treated as income derived by the industrial undertaking for the purpose of section 80HH or not, and the Hon'ble Supreme Court has observed that section 80HH of the Income-tax Act grants deduction in respect of profits and gains "derived from" an industrial undertaking and the words "derived from" in section 80HH of the Income-tax Act, 1961, must be understood as something which has a direct or immediate nexus with the assessee's industrial undertaking. The Supreme Court held that interest derived by the industrial undertaking of the assessee on deposits made with the Tamil Nadu Electricity Board for the supply of electricity for running the industrial undertaking could not be said to flow directly from the industrial undertaking itself and was not profits or gains derived by the undertaking for the purpose of the said deduction under section 80HH. In G.T.N. Textiles Ltd. v. Dy. CIT [2005] 279 ITR 72, the Kerala High Court held that interest on bank deposits was not profit derived from export of goods. The Kerala High Court has further held that the interest earned by the assessee on fixed 12 ITA No.389/Ahd/2005 deposits, commission received on sale of machinery, etc., were not business income and consequently the assessee was not entitled to computation of eligible deduction under section 80HHC of the Act by including those receipts under business income. Therefore, considering the aforesaid two decisions, we must hold that the Tribunal as well as the Commissioner of Income-tax (Appeals), both committed an error in treating the interest on deposits as "business income" and granting the assessee the deduction under section 80HHC of the Act.."
14.15 In view of the foregoing, especially when there is nothing to establish the nexus of earning of interest income from the bank and expenditure incurred by the assessee on account of interest, in the light of the aforesaid judicial pronouncements, including the judgments in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC), CIT v. Cochin Refineries Ltd. [1982] 135 ITR 278 (Ker.) and Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC) as also of jurisdictional High Court in the case of Gaskets and Radiators Distributors(supra), we have no alternative but to uphold the conclusion of the ld. CIT(A). Thus, the ground relating to claim for deduction u/s 80IB of the Act on the interest income is dismissed.
15. As regards claim for deduction u/s 80IB on the amount of sales tax set off, no specific submissions have been made before us by the ld. AR on behalf of the assessee. Since there is no material before us that the said amount on account of sales tax set off is derived from the business of industrial undertaking, in view of detailed reasons given while considering ground nos 2 & 3 of the appeal and in the light of decisions referred to therein, we have no hesitation in upholding the conclusions of the ld. CIT(A).
16. In view of the foregoing, ground nos. 3 & 4 of the appeal are dismissed.
17. Ground no. 6 relates to claim for deduction u/s 80HHC of the Act on the amount of bank interest, rent and interest, sales tax set off, vatav and kasar, discount income and rate difference. The AO ,while determining profits of the business for the purpose of deduction u/s 80HHC of the Act, excluded 90% of the aforesaid receipts shown under the head 'other income' in terms of explanation (baa) to sec.
13 ITA No.389/Ahd/200580HHC of the Act. On appeal, the ld. CIT(A) upheld the findings of the AO in respect of aforesaid receipts.
18. The assessee is now in appeal before us.
19. We have heard both parties and gone through the facts of the case as also relevant decisions . In their decision on the interpretation of explanation (baa) to section 80HHC of the Act, Hon'ble Supreme Court in the case of CIT v. K. Ravindranathan Nair, 295 ITR 228(SC) held that the formula in section 80HHC(3) provided for a fraction of export turnover divided by the total turnover to be applied to business profits calculated after deducting 90 per cent of the sums mentioned in clause (baa) of the explanation. Profit incentives like rent, commission, brokerage charges, etc., though they formed part of the gross total income, had to be excluded as these were "independent incomes" which had no element of export turnover. All the four variables in the section are required to be kept in mind. If all the four variables are kept in mind, it becomes clear that every receipt is not income and every income would not necessarily include the element of export turnover. Clause (baa) of the explanation states that 90 per cent of the incentive profits or receipts by way of brokerage, commission, interest, rent, charges or any other receipt of like nature included in business profits have to be deducted from business profits computed in terms of sections 28 to 44D. In other words, receipts constituting independent income having no nexus with exports were required to be deducted from business profits under clause (baa). Hon'ble Supreme Court further observed that a bare reading of clause (baa)(1) indicates that receipts by way of brokerage, commission, interest, rent charges, etc., formed part of the gross total income being business profits. But for the purpose of working out of formula and in order to avoid distortion in arriving at the export profits clause (baa) stood inserted to say that although incentive profits and "independent incomes" constituted part of the gross total income, these had to be excluded from gross total income because such receipts had no nexus with the export turnover. It was concluded by the Hon'ble Supreme Court that "In the above formula there existed four variables, namely, business profits, export turnover, total turnover and 90 per cent. of the sums referred 14 ITA No.389/Ahd/2005 to in clause (baa) to the said Explanation. In the computation of deduction under section 80HHC all four variables had to be taken into account. All four variables were required to be given weightage. The substitution of section 80HHC(3) secures profits derived from the exports of eligible goods. Therefore, if all the four variables are kept in mind, it becomes clear that every receipt is not income and every income would not necessarily include element of export turnover. This aspect needs to be kept in mind while interpreting clause (baa) to the said Explanation. The said clause stated that 90 per cent. of incentive profits or receipts by way of brokerage, commission, interest, rent, charges or any other receipt of like nature included in business profits, had to be deducted from business profits computed in terms of sections 28 to 44D of the Income-tax Act. In other words, receipts constituting independent income having no nexus with exports were required to be reduced from business profits under clause (baa). A bare reading of clause (baa)(1) indicates that receipts by way of brokerage, commission, interest, rent, charges, etc., formed part of gross total income being business profits. But for the purposes of working out the formula and in order to avoid distortion of arriving at the export profits, clause (baa) stood inserted to say that although incentive profits and "independent incomes" constituted part of gross total income, they had to be excluded from gross total income because such receipts had no nexus with the export turnover. Therefore, in the above formula, we have to read all the four variables. On reading all the variables it becomes clear that every receipt may not constitute sale proceeds from exports. That, every receipt is not income under the Income-tax Act and every income may not be attributable to exports. This was the reason for this court to hold that indirect taxes like excise duty which are recovered by the taxpayers for and on behalf of the Government, shall not be included in the total turnover in the above formula."
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"Before concluding we state that the nature of every receipt needs to be ascertained in order to find out whether the said receipt forms part of/or that it has an attribute of an export turnover. When an indirect tax is collected by the taxpayer on behalf of the Government the tax recovered is for the Government. It may be an income in the conceptual sense or even under the Income-tax Act but while working out the formula under section 80HHC(3) of the Income-tax Act and while applying the four variables one has to ascertain whether the receipt has an attribute of export turnover."
19.1 Hon'ble Gujarat High Court in the case of Alembic Chemical Works Ltd. vs. DCIT [ 266 ITR 47](Guj) in the context of explanation (baa) have held that "(d) Whether the Tribunal was right in law in holding that for the purpose of computation of deduction under section 80HHC, 90 per cent. of the income relatable to rent, computer charges, service charges, miscellaneous income and insurance claim was required to be deducted 15 ITA No.389/Ahd/2005 from the profits under Explanation (baa) to section 8OHHC(4A), ignoring use of the word 'or' between reference to clauses (iiia), (iiib) and (iiic) of section 28 in clause (1) of the said Explanation and other items above referred to, and further erred in reading the word 'or' as 'and' ?"
....................................................................................... IV. Deduction under section 80HHC of the Act On a plain reading of the provision as it stands it is apparent that what the provision stipulates is that 'profits of the business' for the purpose of section 80HHC of the Act mean the profits of the business as computed under the head 'Profits and gains of business or profession'. While computing such profits under the head 'Profits and gains of business or profession' if any sum referred to in clause (iiia), (iiib) or (iiic) of section 28 of the Act has been included in such profits the same has to be reduced by 90 per cent. from the profits computed as aforesaid. Similarly if any receipt by way of brokerage, commission, interest, rent, charges, or any other receipt of a similar nature is included in such profits, i.e. profits of the business, such profits have to be reduced by the said figure, i.e., by 90 per cent. while computing (profits of the business) for the purpose of section 8OHHC of the Act. Therefore, once the sums or the receipts of the nature specified in sub- clause (1) of clause (baa) of the Explanation are included while computing the profits and gains of business then such sums or receipts are to be reduced to the extent of 90 per cent. from the profits of the business. Once the language employed by the provision is clear it is not necessary for the court to read anything into the said language nor go behind the language employed by the Legislature so as to ascertain the intention of the Legislature. This would become necessary only when the language employed by the statute is ambiguous in any manner. In the present case that cannot be termed to be the situation. Therefore, the ground raised on behalf of the appellant as regards the interpretation to be placed on clause (baa) of the Explanation to section 8OHHC of the Act does not merit acceptance and fails."
19.2 In view of the aforesaid judgment of the Apex Court in the case of K. Ravindranathan Nair(supra) and of the Hon'ble jurisdictional High Court , it is evident that any income which is not derived from the export activities in terms of section 80HHC(2) of the Act but is otherwise assessed as business income, is liable to be included in the total turnover and 90% of the same has to be reduced from the profits of the business in terms of explanation (baa) to sec. 80HHC of the Act.
19.3 In KRM Marine Exports Ltd. Vs. ACIT,288 ITR 151(Mad),Hon'ble High 16 ITA No.389/Ahd/2005 Court held that that the service charges or the incentive received at 3.5 per cent. of the invoice value by the assessee cannot be considered as export turnover as it has not been received in convertible foreign exchange as required in the section. Hence that part of the sum is not eligible for the benefit granted under section 80HHC and reduction by 90 per cent. as provided under clause (baa) is correct.
19.4 A bare perusal of provisions of sec. 80HHC of the Act reveals that the income which is understood to be computed under this provision must have been derived by the assessee from the export of such goods or merchandise. Admittedly the interest income was not derived by export of goods or merchandise. A Division Bench of the Hon'ble Kerala High Court in Nanji Topanbhai and Co. v. Asst. CIT [2000] 243 ITR 192 was considering the question as to whether the interest earned on fixed deposit was income arising out of export or income from other sources. The Hon'ble High Court held (headnote):
"Under section 80HHC of the Income-tax Act, 1961, the assessee who is engaged in export business is allowed, in computing the total income, a deduction out of the income derived from the export of such goods. Unless the assessee is able to show that the income received by way of interest from the fixed deposit is derived from the export business, it will not be entitled to claim deduction under section 80HHC in respect of it".
19.5 In another judgment reported in CIT v. Cochin Refineries Ltd. [1985] 154 ITR 345, Hon'ble Kerala High Court held:
"Profits and gains are well understood to mean only the business income, and not any other income. So long as the company has no business of lending money, and so long as the admitted case of the company is that the income derived is only on account of the peculiar situation arising from the time schedule for repayment of the loans, it cannot be stated that the income yielded by the deposits or investments was received in the course of the company's business so as to be treated as a business profit"
19.6 We find that in Urban Stanislaus Co. [2003] 263 ITR 10 (Ker) where the assessee had contended that as a condition for obtaining a loan from the bank, 29 per cent. of the sale receipts had to be deposited by way of security. It was claimed that the interest earned on such deposit was business income for the purpose of section 80HHC. This was negatived by the Hon'ble Kerala High 17 ITA No.389/Ahd/2005 Court by observing that:
"the assessee can claim deduction in respect of the profits derived from the export of goods only when it is established that the income is solely related to the export. The obvious intention behind the provision in section 80HHC is to promote exports. However, the income earned by way of interest from fixed deposit is not an income from exports. Thus, it was rightly taken into account as income from other sources".
19.7 This decision has been affirmed by the Hon'ble Supreme Court by the dismissal of the special leave petition. In K. Ravindranathan Nair [2003] 262 ITR 669 (Ker), in dealing with a similar issue, the Hon'ble Kerala High Court held:
"The interest from short-term deposits received by the appellant is not the direct result of any export of any goods or merchandise. The fixed deposit was made only for the purpose of opening letters of credit and for getting other benefits which are necessary requirements to enable the appellant to make the export. From the above it is clear that the interest income received on the short-term deposits though it can be attributed to the export business cannot be treated as income which is derived from the export business. In the above circumstances, even assuming that the bank has insisted for making shortterm deposits for opening letters of credit and for other facilities, it cannot be said that the income is derived from the export business."
19.8 The above decision in K. Ravindranathan Nair [2003] 262 ITR 669 (Ker) has been affirmed by the Hon'ble Supreme Court by the dismissal of the special leave petition. To the same effect is the judgment of the same High Court in Southern Cashew Exporters v. Deputy CIT [2003] 130 Taxman 203 (Ker) which has been affirmed by the Hon'ble Supreme Court on account of the dismissal of the special leave petition. The resultant position is that on three occasions, the Hon'ble Supreme Court has affirmed the judgments of the Kerala High Court that has consistently held that interest earned on fixed deposits for the purposes of availing of credit facilities from the bank, does not have an immediate nexus with the export business and, therefore has to necessarily be treated as income from other sources and not as business income. In CIT v. Sterling Foods [1999] 237 ITR 579 (SC) and Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC), the Hon'ble Supreme Court reiterated the nexus theory and declined to treat such interest earned as business income. An assessee who is engaged in the business of exports and invests the surplus funds in fixed deposits will not be able to treat the interest earned thereon as business income since it does not bear any direct nexus with the export business of 18 ITA No.389/Ahd/2005 the assessee. Hon'ble jurisdictional High Court in the case of CIT Vs. Gaskets & Radiators Distributors,296 ITR 440(Guj) relying ,inter alia, on the decision of the Hon'ble Supreme Court in Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 held that receipts on account of interest on deposits is not required to be considered for deduction u/s 80HHC of the Act. Hon'ble High Court held in following terms:
"Identical question came to be considered by the Hon'ble Supreme Court in Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 and the question, which was posed for consideration before the apex court was whether the interest on deposits with the Tamil Nadu Electricity Board should be treated as income derived by the industrial undertaking for the purpose of section 80HH or not, and the hon'ble Supreme Court has observed that section 80HH of the Income-tax Act grants deduction in respect of profits and gains "derived from" an industrial undertaking and the words "derived from" in section 80HH of the Income-tax Act, 1961, must be understood as something which has a direct or immediate nexus with the assessee's industrial undertaking. The Supreme Court held that interest derived by the industrial undertaking of the assessee on deposits made with the Tamil Nadu Electricity Board for the supply of electricity for running the industrial undertaking could not be said to flow directly from the industrial undertaking itself and was not profits or gains derived by the undertaking for the purpose of the said deduction under section 80HH. In G.T.N. Textiles Ltd. v. Dy. CIT [2005] 279 ITR 72, the Kerala High Court held that interest on bank deposits was not profit derived from export of goods. The Kerala High Court has further held that the interest earned by the assessee on fixed deposits, commission received on sale of machinery, etc., were not business income and consequently the assessee was not entitled to computation of eligible deduction under section 80HHC of the Act by including those receipts under business income. Therefore, considering the aforesaid two decisions, we must hold that the Tribunal as well as the Commissioner of Income-tax (Appeals), both committed an error in treating the interest on deposits as "business income" and granting the assessee the deduction under section 80HHC of the Act."
19.9 In CIT Vs. Rakesh Rakheja ,166 Taxman 50(Delhi), Hon'ble High Court held that the income earned by the assessee from FDRs is required to be assessed as income from other sources. The said income is therefore outside the purview of section 80HHC of the Act and 100 per cent of the interest is required to be excluded from the profits of the business in terms of Explanation (baa) to section 80HHC of the Act.
19.10 In CIT Vs. Kraft Land India, 162 Taxman 123 (Del),Hon'ble Delhi High Court held that interest received on FDRs pledged for shipping loan/depository loan, was 19 ITA No.389/Ahd/2005 not business income and therefore, interest paid by the assessee could not be reduced from the interest received while calculating deduction u/s 80HHC read with explanayion (baa) thereto.
19.11 In CIT Vs. Malwa Cotton Spinning Mills Ltd.,166 Taxman 457(Pb. & Haryana) ,Hon'ble High Court held that
6. Clause (baa), as referred to above, talks of procedures, as to how profits of business are to be computed. It provides that in case, incomes of the kind including interest are included in the profits of business, 90 per cent thereof shall be reduced therefrom. It does not make any distinction between the interest earned from source 'A' or source 'B'. Interest from wherever it is earned retains the character of interest. Be it an interest from the customer on delayed payment of dues.
19.12 In view of the foregoing, especially when the aforesaid receipts on account of bank interest, rent and interest, sales tax set off, vatav and kasar, discount income and rate difference are independent incomes , we are not inclined to interfere with the findings of the ld. CIT(A). These receipts have no relation with exports made by the assessee during the year under consideration. There is no material before us that any expenditure has been incurred for earning the aforesaid receipts nor such an issue seems to have been raised before the ld. CIT(A).Therefore, even the alternate claim made by the assessee in their ground of appeal is not tenable. Thus, ground no. 6 is dismissed.
.
20. Ground nos. 5 & 7 relate to findings of the ld. CIT(A) that if the result of trading and manufacturing export is loss, no deduction u/s 80HHC on profit on sale of DEPB incentives can be granted. The AO observed that incentives received from the Government and DEPB were not profit derived from export and if the element of other income such as incentive, interest etc. are deducted from business profits for the purpose of arriving at eligible profits for the purpose of computation of deduction u/s80HHC, then the profits of the business worked out as under:
Business income Rs.28460489/-
Less: 90% of incentives and other income
of Rs.72014174/- Rs.64812756/-
Eligible business income (-) Rs.36352267/-
20 ITA No.389/Ahd/2005
=========
Since the profits of the business worked out at a negative figure, the AO concluded that the assessee is not eligible for deduction in terms of provisions of Sec. 80HHC(3) (a)(b) and (c ) of the Act and if the trading profit is also taken into consideration ,the adjusted profit will be further reduced. The AO further held that since the eligible profit worked out is a negative figure, any further addition against incentive does not arise in view of the fact that as per Section 80HHC, the total profit as per clause (c ) of Sub.Sec.3 should be further increased by 90% of the export incentives, but where there is a business loss in export activity as per sub sec. (3)
(c), the addition of 90% of incentives is not required, inter alia in view of the decision of Hon'ble Mumbai High Court in the case of IPCA Laboratories 251 ITR 401.
21. On appeal, the ld. CIT(A) upheld the findings of the A in view of decision of the Hon'ble Apex Court in IPCA Laboratories Vs. CIT, 266 ITR 571(SC).
22 The assessee is in appeal before us against the aforesaid findings of the learned CIT(A). Before us both the parties agreed that the assessee is entitled to deduction under Section 80HHC on the profit on DEPB premium in view of amended provisions of Section 28(iiid) and the 3rd as well as fifth provisos inserted in section 80HHC of the Act w.e.f. 1-4-1998 by the Taxation Laws (Second Amendment ) Act,2005 . The ld. AR ,inter alia, relied upon the decision in the case of Topman Exports Vs. ITO,318ITR(AT)87(Mumbai)(SB).
23. We have heard both the parties and gone through the facts of the case. We find that the export turnover of the assessee exceeds Rs. 10 crores, deduction u/s 80HHC of the Act on the profit on account of DEPB benefits by the assessee in this case is now governed by the third and fifth provisos to section 80HHC(3) of the Act, inserted by the Taxation Laws(Second Amendment) Act,2005 read with section 28(iiid) w.e.f. 1.4.1998, which stipulates as under:
Third Proviso "Provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits 21 ITA No.389/Ahd/2005 computed under clause (a) or clause (b) or clause (e) of this sub- section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiid) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that,-
(a) he had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme; and
(b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme."
Fifth Proviso "Provided also that in case the computation under clause (a) or clause (b) or clause (c) of this sub-section is a loss, such loss shall be set off against the amount which bears to ninety per cent of-
(a) any sum referred to in clause (iiia) or clause (iiib) or clause (iiie), as the case may be, or
(b) any sum referred to in clause (iiid) or clause (iiie), as the case may be, of section 28, as applicable in the case of an assessee referred to in the second or the third or the fourth proviso, as the case may be, the same proportion as the export turnover bears to the total turnover of the mess carried on by the assessee."
24. Both the ld. CIT(A) and the AO did not have the benefit of the aforesaid provisions inserted by the Taxation Laws(Second Amendment )Act,2005 at the time of passing the respective orders. We find that the law is well-settled by the decision of the Hon'ble Supreme Court in M. K. Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. [1958] 34 ITR 143 that the effect of the provision that a particular amendment shall be deemed to come into force from a particular date with retrospective effect is that the amendment must be deemed to have been included in 22 ITA No.389/Ahd/2005 the principal Act as from that date for all purposes. That being so, section 80HHC as amended must be deemed to be in existence on the date of passing of the order of assessment by the AO and applicable to the assessment under consideration. The AO is bound to give effect to the Parliamentary legislation which has undone the effect of the order of the ld. CIT(A).Since deduction u/s 80HHC of the Act on the amount of DEPB premium has to be computed in terms of the amended provisions, accordingly, we vacate the findings of the ld. CIT(A) and restore the matter to the file of the AO with the directions to recompute deduction u/s 80HHC of the Act in terms of the aforesaid third & fifth provisos to section 80HHC(3) of the Act and in the light of decision of the Mumbai Special Bench in the case of Topman Exports(supra). Thus, issue raised in terms of ground nos. 5 & 7 are disposed of as indicated hereinbefore.
25. Ground no. 8 relates to claim for deduction u/s 80HHC and 80IB of the Act on the gross total income. There is no discussion on this aspect in the impugned orders nor any specific ground appears to have been taken before the ld. CIT(A). Even before us the ld. AR on behalf of the assessee contended that issue is squarely covered by a recent decision dated 23.6.2009 of the ITAT Special Bench, Delhi [5 members] in the case of ACIT Vs. M/s Hindustan Mint & Agro Products Pvt. Ltd.,Chandausi,119 ITD 107. The ld. DR did not dispute these submissions on behalf of the assessee.
26. We have heard both the parties and gone through the facts of the case. We find that the issue is now squarely covered by the decision of Special Bench of the Tribunal in the case of M/s Hindustan Mint & Agro Products Pvt. Ltd(supra). Earlier in ACIT Vs Rogini Garments 108 ITD 49, the Special Bench at Chennai held that relief allowed u/s 80-IA had to be deducted from profits and gains of the business on which relief u/s 80HHC of the Act is to be computed. Subsequently, Hon'ble Madras High Court in SCM Creations, 304 ITR 319 took a contrary view. The question whether Rogini Garments was impliedly overruled was referred to a five Member Special Bench. The Special Bench upheld the correctness of Rogini Garments, holding that SCM Creations is not an authority on how s. 80-IA (9) is to 23 ITA No.389/Ahd/2005 be applied because the effect and implementation of above provision was neither raised nor examined and nor even decided by the Hon'ble High Court. It was held that a decision is an authority for the proposition that it decides and not what can logically be deduced there from. A point not raised nor argued at the Bar cannot be said to be the ratio of the decision. Accordingly, the Special Bench ruled that SCM Creation did not impinge upon the ratio of Rogini Garments. It was, accordingly, concluded that Rogini Garments was correctly decided and did not require reconsideration. The language of s. 80-IA (9)/80-IB (9A) was clear and unambiguous and was required to be given effect to. Deduction of profit and gains allowed u/s 80- IA/80-IB had to be deducted from profits and gains of the business on which deduction u/s 80HHC had to be computed. The Special Bench , therefore, held in following terms:
"27. ............. We agree that all the provisions should be read together and given a harmonious construction. All provisions are inter-related and cannot be read de hors one and other. The Special Bench in the case of Rogini Garments has held that the restriction imposed by sub-section (9) on account of 80-IA is to be read in all the provisions of Chapter VI-A and it is not possible to ignore the restriction that profit and gains claimed and allowed as exempt under sub-section (9), (to the extent allowed) can not be allowed under any other provision of chapter 'C'. Above construction in reading restriction in all relevant provisions under chapter 'C', in our opinion, is leading to no contradiction or absurdity and is reasonable. It is the legislative policy not to allow repeated deduction of same profit under sections of deductions in Chapter VI-A. We, therefore, see no conflict or contradiction in giving effect to the legislative mandate. Doing otherwise would, no doubt, be doing violence to the clear language. The argument is accordingly rejected. ...............................................................................
29. Having done so, we are unable to find any substance in the argument advanced on behalf of the taxpayers. The notes on objects and accompanying reasons are only an aid to construction. Such aid to construction is needed when literal reading of provision leads to ambiguous results or absurdity. Where language is clear and there is no ambiguity or absurdity, notes on clauses need not be referred to. Therefore, on facts, we do not see any support for the assessee from notes on clauses of the Finance Act. As regards Circular No. 772 dated 23.12.1998, we have already held that the said Circular was dealing with restriction (b) which provided that deduction (under other provision with heading "C"), "shall in no case exceed profit and gains of business or hotel as the case may be". The above portion of the Section is separated from the other portion of the sub-Section by word 'and'. It is, therefore, clear that there are two restrictions in the sub-section and circular of the Board is dealing only with the second restriction. It is difficult to accept that circular was issued to do away with first restriction incorporated in the provisions. There is absolutely no justification for allowing repeated deductions on profit and gain on 24 ITA No.389/Ahd/2005 which deduction has been allowed u/s 80-IA or 80-IB of the Act. The Special Bench in the case of Rogini Garments rightly held that repeated deductions of same profit and gains of undertaking was not intended to be disallowed. Above conclusion, in our opinion, was rightly arrived at and is confirmed.
............................................................................................................... ............
32. ............. In our considered opinion, the language used in Section 80-IA(9)/80- IB(9A) is clear and unambiguous and is required to be given effect to. Deduction of profit and gains allowed u/s80-IA/80-IB is not to be allowed again under any other provision. There is then further restriction on total deduction not exceeding eligible profit of the undertaking. No useful purpose would be served in repeating what we have observed above.
............................................................................................................
35. ...........................In our considered opinion, all statutory provisions are inter- related and are part of one scheme. This cannot be read de hors one and other. Restriction imposed in Section 80-IA(9)/80-IB(9A) are to be read in all sections and given effect to. This would only give harmonious reading. The decision of Supreme Court relied upon by Shri Vohra also support above proposition although they do not deal with Section 80-IA/80-IB of the Act. We are unable to find any substance in above argument of the learned counsel.
36. Shri Vohra, on the applicability of the decision of Hon'ble Madras High Court in the case of SCM Creations (supra), submitted that principle High Court being decision of a superior court has to be given preference over the decision of Rogini Garments (Special Bench). In support of this contention, it was submitted that even decision of non-jurisdictional High Court is to be given preference over the Special Bench decision. In this connection, reliance was placed on the decision of Madhya Pradesh High Court in the case of National Textile Corporation Ltd. vs CIT (2008) 171 Taxman 339 (M.P.) as also on the decision of Hon'ble Delhi High Court in the case of All India Lakshmi Commercial Bank Officers Union vs. Union of India 150 ITR 1. Shri Vohra also submitted that certain observations of the bench of ITAT in the case of Nodi Exports Vs ACIT, Moradabad, clearly exceeded its jurisdiction. After careful consideration of decision of Hon'ble Madras High Court in the case of SCM Creations(supra), we have already held that the said decision cannot be treated as a precedent. The issue has been discussed threadbare and those reasons need not be repeated again. Observations of Hon'ble Madras High Court in the later decision dated 20.12.08 in case of General Optics (Asia ) Ltd. (supra) has put the controversy beyond any shadow of doubt. In the above case, amendment brought w.e.f. 1.4.99 introducing Section 9 and (9A) in 80-IA and 80-IB respectively were clearly noticed. These amendments were not brought to the knowledge of the Hon'ble Court in the case of SCM Creations. Therefore, there is no question of supersession of Special Bench decision in the case of Rogini Garments. The said decision is applicable with full force. We do agree that correct propositions in the case Nodi Exports are overstated. There is no question of Tribunal not following and applying decision of superior court. The question involved here is whether decision of SCM Creations can be treated as a precedent. For the reasons already given, the said decision did not lay down that section 80-IA(9) or 809-IB(13) should be disregarded while computing deduction u/s 80HHC or other deduction under Chapter 'C' of VI-A. 25 ITA No.389/Ahd/2005
37. We accordingly hold that deduction to be allowed under any other provision of Chapter VI-A with the heading 'C' is to be reduced by amount of deduction allowed u/s 80-IB/80-IA of the I.T. Act . We answer the question referred to the Special Bench in the affirmative i.e. in favour of the revenue."
27. In the light of aforesaid view taken by the Special Bench of the ITAT and considering the facts of the case under consideration, ground no. 8 is dismissed.
28. As regards ground no.9 relating to levy of interest u/s 234B and 234C of the Act , the ld. AR on behalf of the assessee did not make any submissions before us. Levy of interest u/s 234B & 234C of the Act, being mandatory [Commissioner Of Income Tax.vs Anjum M. H. Ghaswala And Others,252 ITR 1(SC)] and no infirmity having been pointed out in its levy, this ground is dismissed. However, the AO shall allow consequential relief while giving effect to this order.
29. Ground no. 10 relates to initiation of penalty proceedings. The ld. AR on behalf of the assessee did not make any submissions before us on this ground .Since mere initiation of penalty proceedings is not appealable while no additional ground having been raised in terms of residuary ground ,accordingly, these grounds are dismissed.
3-. In the result, appeal is partly allowed, but for statistical purposes The order was pronounced in the open court on 23 .12.2009.
Sd/- Sd/-
(H.L.KARWA) (A.N.PAHUJA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
AHMEDABAD, DATED: 23 .12.2009
Copy to:
(1) The assessee (2) ITO Ward- 4(2),Ahmedabad. (3) CIT(A)-VIII, Ahmedabad (4) The CIT, concerned,(5) The DR, ITAT, Ahmedabad, (6) Guard File. BY ORDER ASSTT. REGISTRAR/ DEPUTY REGISTRAR