TaxTMI 
TaxTMI 
2007 (5) TMI 358
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..... Brief facts in this case are that the assessee-company is engaged in the manufacture of tele-communication equipments. The assessee claimed deduction under section 80-IB of the Act @ 30% of the eligible profits. During the course of assessment under section 143(3), the Assessing Officer observed that assessee is claiming deduction on the basis of profit as per profit and loss account whereas deduction under section 80-IA of the Act is available on the eligible profit only i.e. the profit from manufacturing activity of eligible unit. The Assessing Officer assessed interest income on FDRs with banks against margin money and corporate loans, as "income from other sources" instead of eligible business profits claimed by the assessee. Accordingly, deduction under section 80-IB was declined on the interest income. 3. By the impugned order, CIT (Appeals) allowed assessee's claim of interest income by observing that assessee was required to invest in FDRs for margin money not for the sake of earning income from investment of surplus funds but as a mandatory requirement in order to obtain orders for sale. It could not have fluctuated tenders without filing bank guarantee and without th....
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....ion under section 80-IB should have been allowed. He draw our attention to the language of section 80-IB which reads as "where the gross total income of the assessee includes any profit and gains derived from any business referred to in sub-section (3) to (ii), (iiA) and (iiB )...." Mr. Singhvi further contended that on identical facts, benefit under section 80-IB has been allowed in the preceding year, therefore, revenue cannot be allowed to change its stand, without there being change in the facts and circumstances during the year under consideration. He further submitted that even otherwise there is no infirmity in the order of CIT (Appeals), as benefit of netting is to be allowed even as per the decision of Hon'ble Delhi High Court in case of CIT v. Shri Ram Honda Power Equip. Ltd. [2007] 289 ITR 475. The purchase of FDRs were out of borrowed funds, therefore, there is on reason to decline netting of the interest expenditure out of the interest income, while bringing the net interest income for taxation under the head "Income from other sources". He further relied on various decisions of the following co-ordinate Benches, wherein bank interest income was considered as inextrica....
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....tesh Industries Ltd. [2005] 274 ITR 324 (Delhi), wherein it was held that such duty drawback may constitute profits or gains of the business by virtue of section 28, but, it cannot be constituted as profits or gains "derived" from the industrial undertaking for, its, immediate and proximate source is not the industrial undertaking but the scheme for duty drawback. On account of duty drawback, business profits may be increased, but so far as profits and gains are concerned, it cannot be said to be "derived" from an industrial undertaking, it will not increase. It will remained the same. Similar view has been taken in case of CIT v. J.B. Exports Ltd. [2006] 286 ITR 603 by the Hon'ble Delhi High Court, wherein decision of Madras High Court in case of CIT v. Jameel Leathers & Uppers [2000] 246 ITR 97 was followed. Similar view has been taken by the Punjab & Haryana High Court in case of Nahar Export Ltd. v. CIT [2006] 288 ITR 494 . 7. The issue regarding treatment of interest income while computing deduction under section 80HHC has been elaborately considered by the jurisdictional High Court in case of Shri Ram Honda Power Equip. Ltd.'s case (supra). The provisions of section 80HHC ....
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....for the purpose of section 80HHC. To give effect to this position, the Assessing Officer while computing profits of the export business will have to remove from the debit side of the profit & loss account the corresponding interest expenditure that has been 'laid out' to earn such income from other sources. Otherwise this will depress the profits by an amount which is out of the reckoning of section 80HHC, a consequence not intended to be brought about." 8. It is quite clear from the above proposition that if the assessee has incurred any expenditure for making the FDRs, interest income of which is brought to tax under the head 'Income from other sources', such interest expenditure is to be taken out from the profits of export business, and at the same time such interest expenditure is to be deducted while arriving at net income from interest on bank deposit. Taking out such interest income and interest expenditure out of the profit & loss account prepared for computing export profits, will change such export profit, therefore Assessing Officer is to recalculate permissible deduction under section 80HHC with reference to such revised export profits. On the other hand, such in....