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(a) Deemed Export Drawback (Export Incentives) Rs. 1,22,25,214/-

(b) Customer Claims Rs. 28,27,224/-

(c) Freight Subsidy Rs. 29,24,405/-

(d) Interest on Fixed Deposit Receipts (FDRs) made for business purposes:

Rs.43,287/-.

5. The return of the Assessee was picked up for scrutiny and notice under Section 143(2) was issued. The Assessing Officer ('AO') by order dated 3rd December 2010 excluded the above receipts from the computation of eligible income under Section 10B (4) of the Act. The AO was of the view that the above receipts did not fall within the expression 'profit derived' from the export of articles.

6. The appeal of the Assessee was dismissed by the Commissioner of Income Tax (Appeals) ['CIT (A)'] on 11th January 2012. The Assessee thereafter filed an appeal before the ITAT which came to be decided by the impugned order.

7. The ITAT in the impugned order agreed with the contention of the Assessee as regards the deemed export drawback forming part of the income eligible for deduction under Section 10B of the Act. However, as regards other three items, viz., customer claims, freight subsidy and interest on FDRs made for business purposes, the ITAT concurred with the view of the AO and the CIT (A). This is how the Assessee is in appeal before this Court.

14. Mr. Manchanda's attempt was to show that Section 80A (4), which inter alia stated that any deduction allowable under Section 10B cannot in any case "exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be" made it clear that a unit seeking deduction under Section 10B would be eligible to do so only in so far as such income was directly attributable to the business of export. Any income that might be merely incidental to the business of the undertaking, not directly related to the activity of export, would not be eligible for such deduction. He also took the Court again through the decision of the Supreme Court in Liberty India (supra) and submitted that the earlier decisions of this Court in Hritnik Exports (supra) and Universal Precision Screws (supra) might require to be reconsidered. When a question was posed to him as to whether the Revenue had challenge the aforementioned decisions of this Court, and of the ITAT in the present case to the extent it has allowed the plea of the Assessee as regards 'deemed export drawback', Mr. Manchanda stated that the Revenue ought to have challenged the above decisions as well as the impugned order of the ITAT in the present case and perhaps he would advise it to do so hereafter. He has also handed over a written note of submissions, reiterating the above submissions.

16. This then brings us to the questions framed for consideration in the present case and the decision of the ITAT in not accepting the Assessee's plea in regard to 'customer claims' 'freight subsidy' and 'interest on fixed deposit receipts' even while it accepted the Assessee's case as regards 'deemed export drawback'.

17. The contention of the Assessee as regards customer claims was that it had received the claim of Rs. 28,27,224 from a customer for cancelling the export order. Later on the cancelled order was completed and goods were exported to another customer. The sum received as claim from the customer was non-severable from the income of the business of the undertaking. The Court fails to appreciate as to how the ITAT could have held that this transaction did not arise from the business of the export of goods. Even as regards freight subsidy, the Assessee's contention was that it had received the subsidy in respect of the business carried on and the said subsidy was part of the profit of the business of the undertaking. If the ITAT was prepared to consider the deemed export draw back as eligible for deduction then there was no justification for excluding the freight subsidy. Even as regards the interest on FDR, the Court has been shown a note of the balance sheet of the Assessee [which was placed before the AO] which clearly states that "fixed deposit receipts (including accrued interest) valuing Rs.15,05,875 are under lien with Bank of India for facilitating the letter of credit and bank guarantee facilities." In terms of the ratio of the decisions of this Court both in Hritnik Exports (supra) and Universal Precision Screws (supra), the interest earned on such FDR ought to qualify for deduction under Section 10B of the Act.