TaxTMI 
TaxTMI 
2014 (4) TMI 822
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.... Act. 3. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in directing the Assessing Officer to recompute the deduction u/s 80IB of the Act by including the interest income of Rs.87,89,652/- received from AEPC and banks to the profits derived from eligible business. 4. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in directing the Assessing Officer to recomputed the income u/s 115JB of the IT Act after reducing the book profits by the amount of deduction u/s 80HHC of the Act." Ground No.1 3. Apropos ground no.1, the ld. DR submitted that the assessee claimed deduction u/s 80HHC of the Income Tax Act, 1961 (for short the Act) and profits on sale of Duty Entitlement Passbook Scheme (DEPB) Licence is not included in section 28 of the Act. The DR also submitted that the benefits of the ratio of the judgment of Hon'ble Supreme Court in the case of Topman Export vs Commissioner of Income Tax (2012) 342 ITR 49 (SC) and judgment of Hon'ble Gujarat High Court in the case of Avani Exports & Others vs Commissioner of Income Tax (2012) 348 ITR 391 (Guj) is not available to the assessee in the present case. T....
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....d, reliance was placed on the decision of the Delhi Bench 'B' in the case of P&G Enterprises Pvt. Ltd. Vs DCIT in ITA No. 3942/Del/2004 in respect of A. Y. 2001-02 and the decision of the Ahmedabad Bench of IT AT in the case of ACIT Vs Pratibha Sintex Ltd. 63 TTJ 409. It was submitted that DEPB is not like a license which is saleable in the market. The DEPB entitlement is available to the importer only after making the initial payment of custom duty. A credit of an amount equivalent to the duty paid is then available to the importer. This credit can be used to offset customs duty payable in respect of further imports. Since at the time of initial import the custom duty paid was debited to P&L account, therefore, when the corresponding credit was availed a matching amount was shown as revenue receipt in the P&L account. Thus, the DEPB credit should be considered not as a sum covered by the provisions of sec. 28(iiia), (iiib) & (iiic), but should be considered as a sum covered by the provisions of sec.28(iv). It was further submitted that the Supreme Court has ruled in the cases of CIT Vs Progold Manufacturing Co. Ltd (177 ITR 431) and Bajaj Tempo Vs CIT (196 ITR 188) that the law pr....
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....Accordingly, the AO is directed to recomputed the deduction after including a sum of Rs.6,90,75,728/- being the amount of DEPB credits." 6. In view of above, we hold that the Commissioner of Income Tax(A) has relied on the judgment of ITAT Delhi 'B' Bench in the case of PG Enterprises Ltd. vs DCIT in ITA No.3942/D/2004 for AY 2001-02. Accordingly, we hold that the Commissioner of Income Tax(A) rightly held that DEBP entitlement is available to the importer only after making the initial payment of custom duty and the credit of an amount equivalent to the duty paid is the available to the importer. The Commissioner of Income Tax(A) also rightly held that the credit of DEPB can be used to offset custom duty payable in respect of further imports. As per accounting principle, at the time of initial import, custom duty paid was debited to P&L account, therefore, when the corresponding credit was availed, a matching amount was shown as revenue receipt in the P&L account. Thus, it was rightly held by the first appellate authority that the DEPB credit should be considered as a sum covered by the provisions of section 28(iv) of the Act. Accordingly, we also hold that the benefit of the rati....
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....n fixed deposits and earns interest thereon, such income cannot be treated as business income since it does not bear any direct nexus with the export business of the assessee. 29. In the following decisions, the Kerala High Court has consistently held that in the context of Section 80HHC the interest income earned on fixed deposits having to be kept by the assessee for availing of credit facilities from bank, does not qualify as business income and therefore, will go to reduce the deductible amount for the purposes of that Section: (i) Nanji Topanbhai v. ACIT (2000) 243 ITR 92 (ii) Abad Enterprises v. CIT (2002) 253 ITR 319 (iii) CIT v. Jose Thomas (2002) 253 ITR 553 (iv) CIT v. Abad Fisheries (2002) 258 ITR 641 (v) Southern Cashew Exports v. DCIT (2003) 130 Taxman 203 (vi) ACIT v. South Indian Produce Co. (2003) 262 ITR 20 (vii) K. Ravindranathan Nair v. CIT (2003) 262 ITR 669 (viii) Urban Stanislaus Co. v. CIT (2003) 263 ITR 10 (ix) GTN Textiles v. DCIT (2005) 279 ITR 72. 30. In particular, reference may be made to the observati....
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....ts of the Kerala High Court that has consistently held that interest earned on fixed deposits for the purposes of availing credit facilities from the bank, does not have an immediate nexus with the export business and therefore has to necessarily be treated as income from other sources and not as business income. In each of these decisions, the Kerala High Court has consistently followed the earlier judgments listed at (i) to (iv) of para 14 above. The decision of the Bombay High Court in CIT v. Punit Commercial Ltd. 245 ITR 550 (Bom) concerned a case where the assessee was a 100 per cent exporter. The High Court noticed that according to the Tribunal, the AO had proceeded on the footing that the interest income was business income, but that it was not income from exports. In those circumstances, the High Court held that since the entire business activity of the assessee is only of exports, "the entire business income is deemed to be profit derived from export of goods." It is not clear from the narration of the facts in Punit commercial whether the interest earned was as a result of parking surplus funds in deposits. If it was so earned then it is difficult, in view ....
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....terest earned on fixed deposits for the purposes of availing credit facilities from the bank, does not have an immediate nexus with the export business and therefore has to necessarily be treated as income from other sources and not business income. Question (a) and issue (i) are answered accordingly." Respectfully following the precedent, we set aside the issue to the file of the Assessing Officer with the direction that the nature of interest received should be examined in the light of decision of Hon'ble Jurisdictional High Court and deduction u/s 80HHC should be computed on merits accordingly." 9. On careful perusal of above judgment in assessee's own case, we hold that ground no. 2 of the present appeal is squarely covered by the above judgment of ITAT in assessee's own case/appeal pertaining to AY 2001-02. Respectfully following the precedent, we set aside the issue to the file of Assessing Officer with the direction that the nature of interest received should be examined in the light of decision of Hon'ble Jurisdictional High Court of Delhi in the case of Commissioner of Income Tax vs Shriram Honda Power Equipment Corporation (supra) and above decision of ITAT....
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....e opinion that the learned Commissioner of Income Tax(A) was right in holding that interest earned on deposits with AEPC and with the bank had direct and proximate connection with the business of industrial undertaking of the assessee. Therefore, the assessee was eligible for deduction under section 80IA on the interest on the deposits. Thus, we find no infirmity in the order of Commissioner of Income Tax(A) and the same is sustained for the reasons given therein." Further, in assessee's own appeal in ITA No.1224/Del/2004 for AY 2001-02 (supra), reversing its own decision for AY 2000-01, the same issue has been decided in favour of the revenue by restoring the assessment order. The relevant observations and findings of the Tribunal in para 11 reads as under:- "11. The expression "any profits and gains derived from any business of an industrial undertaking or an enterprise" appearing in sec. 80IA(1) has been referred to the business specified in sub section (4) of the said section. Sub section (4) does not include the business from earning of interest on FDRs. Therefore, the interest income though may be in the nature of business income cannot be said to have been der....
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....on'ble Supreme Court in the case of Pandian Chemical Ltd. 262 ITR 278. Since Ld. Commissioner of Income Tax(A) has wrongly allowed the claim of assessee treating the interest income as eligible business income, we set aside the order of ld. Commissioner of Income Tax(A) and restore the order of Assessing Officer." 12. From bare reading of above decision of the Tribunal in assessee's own case for AY 2001-02, we clearly observe that the earlier decision for AY 2000-01 has been reversed in favour of the revenue and order of relief allowed for the assessee in AY 2000-01 has been set aside by restoring the order of the Assessing Officer. The Tribunal held that earlier decision of ITAT 'F' Bench for AY 2000-01 was based on the decision of ITAT Cuttack Bench in the case of ACIT vs Maxcare Laboratories Ltd. 273 ITR (AT) 1 for AY 1995-96 to AY 1998-99. It was also held that the decision of ITAT Cuttack Bench is not applicable for AY 2000-01 onwards. The Tribunal categorically made it clear that section 80IA of the Act was substituted by Finance Act, 1999 w.e.f. 1.4.2000 and prior to this substitution, the provisions of Section 80IA(1) applicable upto AY 1999-2000 did not include the expres....