TaxTMI 
TaxTMI 
2006 (2) TMI 265
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the business eligible for deduction under s. 80HHC of the IT Act, 1961. 3. The learned CIT(A)-III, Pune erred in confirming disallowance out of staff welfare expenses, telephone expenses and miscellaneous expenses to the extent of Rs. 10,000, Rs. 25,000 and Rs. 25,000 respectively on account of nonbusiness use for want of verification. 4. The appellant-company craves leave to add to, alter, amend, modify and/or delete any or all of the above grounds of appeal. 3. In the return filed for asst. yr. 1998-99 on 24th Nov., 1998, the assessee-company had claimed deduction of Rs. 81,94,588 under s. 80-IA of the Act. In the assessment order passed under s. 143(3) on 15th Dec., 2000, the AO restricted the assessee's claim for deduction under s. 80-IA to Rs. 46,99,378 worked out as under: Returned Rs. Assessed Rs. Profits and Gains from Business 2,81,51,241 2,82,76,241 Less: Items not eligible for deduction/not "derived from" industrial undertaking. (a) Interest received on bank deposits, etc. 2,44,704 2,44,704 (b) Interest on deposit with group companies 24,932 24,932 (c) Commission rece....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. Dy. CIT (2002) 74 TTJ (Hyd) 272 : (2002) 124 Taxman 76 (Hyd)(Mag); (ii) Anil L. Shah vs. Asstt. CIT (2005) 95 TTJ (Mum) 216 (iii) Dy. CIT vs. Metro Tyres Ltd. (2001) 79 ITD 557 (Del) 6. Shri P.V. Kulkarni, the learned Departmental Representative relied on the order of the AO and of CIT(A) and vehemently argued saying that the order of CIT(A) needed to be upheld. It was, however, pointed out by him that the AO had no occasion to examine the issue in the light of DEPB Scheme. 7. We have considered the rival submissions in the light of material on record and the precedents cited. It was noted by the AO in his order that the export incentive amounting to Rs. 80,66,246 had been received by the assessee due to the policy of the Government, that it was not income 'derived from' the manufacturing activity and that the assessee was not eligible for deduction in respect of this income. He placed reliance on the decision of the Supreme Court in the case of CIT vs. Sterling Foods (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC). The CIT(A) while confirming the AO's action observed that the receipt of Rs. 80,66,246 was out of promotional scheme of the Cen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n integral part of the cost of production and any receipts by way of reimbursement of such duties are inextricably linked with the cost of production, which had to be reflected in the profit and loss account of the assessee. 7.3 The Court observed that the distinction between the general incentives like 'cash assistance' and "import entitlement' on one hand and the specific incentives like 'duty drawback' was not brought to the notice of the Madras High Court. The Gujarat High Court therefore, recorded disagreement with the view taken by the Madras High Court in the cases of CIT vs. Jameel Leathers & Uppers (2000) 246 ITR 97 (Mad) and CIT vs. Viswanathan & Co. (2003) 181 CTR (Mad) 335 : (2003) 261 ITR 737 (Mad). 7.4 Shri Inamdar took us through the salient features of the DEPB Scheme. He submitted that the benefit available under the DEPB Scheme was of the nature of 'duty drawback'. He explained that the deposit of DEPB Scheme was to neutralize the incidence of basic customs duty and surcharge on the import content of the export product. The neutralization was provided by way of grant of duty credit against the export product. He reiterated that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....deduction under s. 80HH of the Act......... If the legislature had intended to grant deduction to any profit from the industrial undertaking it would have very well used the expression 'attributable to' in s. 80HH of the Act. We, therefore, do not find any justification to give the expression 'derived from' a wider meaning to cover every receipt connected with the industrial undertaking .........." 7.8 It was noted by the Madras High Court (1998) 147 CTR (Mad) 5 : (1998) 233 ITR 497 (Mad) that the expression 'attributed to' had a wider meaning than the expression 'derived from'. 7.9 While affirming the decision of the Madras High Court in the case of Pandian Chemicals Ltd. the Supreme Court in Pandian Chemicals Ltd. vs. CIT (2003) 183 CTR (SC) 99 : (2003) 262 ITR 278 (SC) held that the word 'derived from' in s. 80HH of the Act must be understood as something which had direct or immediate nexus with the assessee's undertaking. 7.10 In our opinion, the decisions of the Madras High Court in the cases; of Jameel Leathers & Uppers and Viswanathan & Co. are in line with the judgments of the Supreme Court in the case Sterling Foods and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he learned Authorised Representative that this issue was covered in favour of the assessee by the decision of Tribunal Pune in the case of Finolex Pipes Ltd. vs. Dy. CIT (2000) 68 TTJ (Pune) 422. 8.1 We have considered the rival submissions in the light of material and the precedent cited. The CIT(A) while confirming the AO's action observed in para 7.3 of his order as under: "The rival submissions have been considered. I agree with the AO that in view of the decision of Bombay High Court decision in the case of CIT vs. K.K. Doshi & Co. (2000) 163 CTR (Bom) 472 : (2000) 245 ITR 849 (Bom) the income though assessable as business income have no link with the export. These receipts do not have direct nexus with the export income hence the appellant is not entitled to claim deduction under s. 80HHC on these receipts. The AO's action in reducing 90 per cent of the liability written back and misc. receipts while computing the profits of the business eligible for deduction under s. 80HHC is upheld. The appeal fails." 8.2 We find that the decision of Tribunal Pune in the case of Finolex Pipes Ltd. does not render any help to the case of the assessee insofar as this i....