2014 (1) TMI 1243

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....form part of the income for the purpose of Section 80HHC.    2. The Ld.CIT(A) has erred in law and on facts in holding that only net interest should be reduced from the income of the assessee while computing deduction u/s.80HHC.    3. In doing so, the ld.CIT(A) has erred in law and on facts in not appreciating the ratio of the decision of the Hon'ble Bombay High Court in the case of Asian Star, 231 CTR.1    4. On the facts and in the circumstances of the case, the Ld.CIT(A) ought to have upheld the order of the Assessing Officer.    5. It is, therefore, prayed that the order of the Ld.CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent. 2.1. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed. Aggrieved by the assessment order, the assessee preferred an appeal before the ld.CIT(A), who also confirmed the action of the AO. The assessee further filed an appeal before the Hon'ble ITAT and the Hon'ble ITAT vide its order dated 25/01/2007 in ITA No.1315/Ah....

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....h trading goods as reduced by the direct costs and indirect costs attributable to such export;        (c) where the export out of India is of goods or merchandise manufactu5red or processed by the assessee and of trading goods, the profits derived from such export shall,--            (i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and            (ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods:        Provided that the profits computed under clause(a) or clause (b) or clause(c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiia) (not being profits on sale o....

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....that income is earned from deposits made and not from industrial undertaking manufacturing or producing articles or things. This distinction may be valid for determining the income whether from business where only incidental connection is required to be established and determining whether income is derived from where the effective and direct source of first degree alone is to be established. Hence the assessee would not be entitled to deduction on such interest receipts."    4. The Special Bench decision in the case of Nirma Industries Ltd. 95 ITD 199 (Ahd.)(SB) also held as under:        "The assessee sold detergent powder/cake to various customers. The sale proceeds had a direct/immediate nexus with the industrial undertaking. If the amount of sale proceeds was not paid within the credit period allowed, the buyer had to pay interest on such delayed payment. The interest was not arising because of manufacturing of detergent powder/cake by the industrial undertaking but becaue the sale proceeds remained unpaid for a stipulated period. The interest could not be said to flow directly from the industrial undertaking. The assessee had sold the ....

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....e Bombay High Court in the case of Asian Star reported at 231 CTR 01. 7.1. At the outset, ld.counsel for the assessee submitted that this decision of the Hon'ble Bombay High Court was impliedly overruled by the Hon'ble Apex Court in the case of ACG Associated Capsules P.Ltd. vs. CIT reported at (2012)343 ITR 89(SC). This fact is not controverted by the ld.Sr.DR, therefore this ground is hereby rejected. 8. Ground Nos.4 & 5 are general in nature which require no independent adjudication. 9. In the result, Revenue's appeal, i.e. ITA No.2692/Ahd/2010 for AY 1996-97 is dismissed. 10. Now, we take up the appeal in ITA No.2693/Ahd/2010 for AY 2006-97. 10.1. The Revenue has raised the following grounds of appeal:    1. The Ld.CIT(A) has erred in law and on facts in directing the AO to allow the excess expenditure of Rs.10,13,759/- claimed by the assessee during the course of assessment proceedings on account of expenditure on seminars.    2. The Ld.CIT(A) has erred in law and on facts in not appreciating the fact that the assessee's books have been audited and balance-sheet has been prepared with original expenditure i.e. Rs.2,22,26,481/- as against Rs.2,32,40,2....