Interest income on FDRs not deductible under Section 80-IB. Court dismisses appeals, no substantial question of law.

The court held that interest income earned on Fixed Deposit Receipts (FDRs) pledged as security with departments does not qualify for deduction under Section 80-IB as it does not directly flow from the business activity of the industrial undertaking. The court also rejected the argument for netting interest earned on FDRs against interest paid on bank overdraft, citing relevant Supreme Court precedents. Ultimately, the court dismissed both appeals filed by the Assessee, ruling that there was no substantial question of law to consider.

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Issues Involved:
1. Deduction under Section 80-IB on interest earned on FDRs.
2. Interest earned on FDRs pledged as security with departments.
3. Netting of interest earned on FDRs against interest paid on bank overdraft.
4. Applicability of Supreme Court judgments regarding interest income eligibility for deduction under Section 80-IB.

Issue-wise Detailed Analysis:

1. Deduction under Section 80-IB on interest earned on FDRs:
The primary issue was whether the interest earned on Fixed Deposit Receipts (FDRs) kept as a guarantee with the Electricity Department and the Banks for securing credit facilities qualifies for deduction under Section 80-IB of the Income-tax Act, 1961. The Assessee argued that this interest should be considered part of the business income of an industrial undertaking and thus eligible for deduction. However, the Assessing Officer (A.O.), CIT(A), and ITAT all disallowed the deduction, treating the interest as 'Income from other sources'. The court held that the interest income on FDRs does not flow directly from the business activity of the industrial undertaking and thus cannot be computed for deduction under Section 80-IB.

2. Interest earned on FDRs pledged as security with departments:
The Assessee contended that the interest earned on FDRs pledged as security with the P.D.D. Department and Sales Tax Department for securing electric connection and sales tax registration had a direct and proximate connection with the business of the industrial undertaking, making it eligible for deduction under Section 80-IB. The court, however, upheld the findings of CIT(A) and ITAT, which relied on the Supreme Court's judgment in Pandian Chemicals Ltd. v. CIT, stating that the interest derived from deposits made with the Electricity Board cannot be said to flow directly from the industrial undertaking itself.

3. Netting of interest earned on FDRs against interest paid on bank overdraft:
The Assessee argued that even if the deduction under Section 80-IB on interest earned on FDRs pledged for overdraft is not allowable, the netting of interest earned against interest paid in bank overdraft should be permitted. The court rejected this argument, referencing the Supreme Court's decision in CIT v. Dr. V.P. Gopinathan, which stated that the interest paid by the Assessee as interest on overdraft facility cannot be set off against the interest received on the FDRs pledged with the Bank.

4. Applicability of Supreme Court judgments regarding interest income eligibility for deduction under Section 80-IB:
The Assessee cited the judgment in CIT v. Eltek SGS (P.) Ltd. to support their claim, arguing that the language in Section 80-IB, which refers to 'profits and gains derived from any business of Industrial Undertaking', should be interpreted broadly. However, the court noted that a conjoint reading of Section 80-IB(1) and 80-IB(4) reveals that the deduction is meant for 'profits and gains derived from the industrial undertaking'. The court further emphasized that the expression 'profits and gains derived from any business' should be read as 'profits and gains derived from the industrial undertaking', aligning with the narrower interpretation established in previous Supreme Court judgments, including Pandian Chemicals Ltd. v. CIT and Cambay Electric Supply Industrial Co. Ltd. v. CIT.

Conclusion:
The court concluded that no substantial question of law arises for consideration in these appeals, and thus, both appeals filed by the Assessee were dismissed.

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