Court Upholds Denial of Deductions for DEPB License & Interest: Direct Nexus Required

RAJKUMAR IMPEX (P) LTD. Versus DEPUTY COMMISSIONER OF INCOME TAX

RAJKUMAR IMPEX (P) LTD. Versus DEPUTY COMMISSIONER OF INCOME TAX - TMI Issues involved: Appeal against Tribunal's order denying deduction under s. 80-IA for miscellaneous income including DEPB license and interest on margin money deposit.

Summary:
The appellant, engaged in cashew kernel manufacture and export, filed income return for 1999-2000 admitting total income of Rs. 11,99,560. Assessment was reopened under s. 147, resulting in total income determination of Rs. 96,60,427, with AO denying deduction under s. 80-IA for DEPB license and interest on margin money deposit. CIT(A) and Tribunal upheld AO's decision. Appellant raised questions of law regarding entitlement to deduction under s. 80-IA for DEPB and interest on margin money deposits.

In a similar case, the Court held that profits eligible for deduction under s. 80HH must be directly derived from the industrial undertaking itself, not from any other source. The Court emphasized the direct nexus between income and the industrial undertaking for claiming deductions under s. 80HH.

Regarding interest earned on amounts retained by the bank, the Court ruled that such interest does not qualify for deduction under s. 80-I as it is linked to better business prospects and lacks nexus with export earnings. The Court cited previous decisions to support this stance, emphasizing the need for a clear connection between income and the industrial activity for claiming deductions under s. 80-I.

The Court dismissed the appeal, stating that the questions of law raised had already been answered against the assessee based on previous judgments. The decision in the cited case was deemed applicable to the current issue, leading to the dismissal of the appeal and connected miscellaneous petition.