Shilpa Filaments Pvt.Ltd.,, Surat v. The Income tax Officer,Ward-4(1),, Surat

ITA 2641/AHD/2004 | 2001-2002
Pronouncement Date: 29-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 264120514 RSA 2004
Assessee PAN AADCS3409B
Bench Ahmedabad
Appeal Number ITA 2641/AHD/2004
Duration Of Justice 5 year(s) 4 month(s) 26 day(s)
Appellant Shilpa Filaments Pvt.Ltd.,, Surat
Respondent The Income tax Officer,Ward-4(1),, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 29-01-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 29-01-2010
Date Of Final Hearing 28-01-2010
Next Hearing Date 28-01-2010
Assessment Year 2001-2002
Appeal Filed On 03-09-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI T.K. SHARMA JM & SHRI A.N. PAHUJA AM I.T.A. NO.2641/AHD/2004 - AY 2001-02 I.T.A. NO.1618/AHD/2005 - AY 2002-03 SHILPA FILAMENTS PVT LTD VS ITO WARD.-4(1) 4023 JASH TEXTILE MARKET AAYAKAR BHAVAN RING ROAD SURAT MAJURA GATE SURAT [PAN : AADCS3409B] (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE[WRITTEN SUBMISSIONS] REVENUE BY : SHRI DS CHAUDHARY DR O R D E R AN PAHUJA : THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST TWO SEPARATE ORDERS DATED 21-06-2004 AND 04-04-2005 OF THE CIT(A )-III SURAT FOR THE AYS 2001-02 AND 2002-03 RESPECTIVELY. SINCE COMMON ISS UES ARE INVOLVED THESE APPEALS WERE HEARD TOGETHER FOR THE SAKE OF CONVENI ENCE AND ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER. 2. AT THE OUTSET NONE APPEARED BEFORE US ON BEHALF OF THE ASSESSEE AND INSTEAD IN THEIR WRITTEN SUBMISSIONS THE ASSESSEE DID NOT PRESS GROUND NOS. 1 & 2 IN THE APPEAL FOR THE AY 2001-02 & GROUND NO.3 IN THE APPEAL FOR THE AY 2002- 03 RELATING TO ALLOWANCE OF DEPRECIATION U/S 32 OF THE ACT WHILE DETERMINING PROFITS OF THE BUSINESS FOR THE PURPOSE OF DEDUCTIO N U/S 80IB OF THE ACT. ACCORDINGLY THESE GROUNDS ARE DISMISSED AS WITHD RAWN. 3. GROUND NO. 3 IN THE APPEAL FOR THE AY 2001-02 RE LATES TO THE REDUCTION OF AN AMOUNT OF RS.3 03 857/- IN CLAIM FOR DEDUCTION U /S 80IB(4) BY DEDUCTING (CHARGING) NOTIONAL INTEREST OF RS.3 03 857/- FROM THE ELIGIBLE PROFITS OF THE INDUSTRIAL UNDERTAKING WHILE GROUND 4 PERTAINS TO R EALLOCATION OF EXPENSES AND THEREBY DEBITING EXPENSES OF RS.2 37 396 OF UNIT-I TO UNIT-II AND ACCORDINGLY REDUCING DEDUCTION U/S 80IB OF THE ACT. THE ASSESS ING OFFICER[AO IN SHORT] ITA 2641/AHD/2004 ITA 1618/AHD/2005 2 NOTICED THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80IB OF THE ACT ON THE PROFITS OF UNIT-II WHICH COMMENCED PRODUCTION IN THE FY 1997-98. THE AO FOUND THAT PROFITS OF UNIT-II HAD NOT BEEN WORKED OUT COR RECTLY AND COMMON EXPENSES WERE NOT ALLOCATED TO UNIT-II. ACCORDINGLY HE WORK ED OUT THE APPLICATION OF FUNDS FOR BOTH THE UNITS FOR THE A.Y. 2001-02 AS ON 31.3. 2001 AS DETAILED ON PAGE 5-6 OF THE ASSESSMENT ORDER AND NOTICED THAT OUT OF TH E FINANCIAL RESOURCES OF THE UNIT-I THE ASSESSEE COMPANY HAD GIVEN INTEREST FRE E LOAN OF RS.29 10 066[6 87 47 070-6 58 37 004] TO THE UNIT-I I WITHOUT CHARGING ANY INTEREST WHILE THE ASSESSEE COMPANY PAID INTEREST O N THE BORROWINGS MADE BY THE UNIT-I. THE AO POINTED OUT THAT SOURCES OF FUN DS IN UNIT-II WERE ONLY RS. 6 58 37 004/- WHILE APPLICATION OF FUNDS WAS RS. 6 87 47 070/-. ACCORDINGLY THE A.O. WORKED OUT THE PROPORTIONATE AMOUNT OF INTERE ST PAID BY THE ASSESSEE COMPANY FOR UNIT-I ON THE ABOVE AMOUNT OF RS.29 10 066/- AND CONCLUDED THAT INTEREST TO THE EXTENT OF RS.3 03 857/- WAS PAID BY UNIT-I ON BEHALF OF UNIT-II. WHEN SHOW CAUSED AS TO WHY THE ABOVE REFERRED AMOUN T OF RS.3 03 857/- BE NOT CONSIDERED AS EXPENDITURE OF UNIT-II AND DEDUCTED F ROM ITS PROFITS AS THE FUNDS WERE USED BY IT AND NOT BY UNIT-I THE ASSESSEE DID NOT FILE ANY CONVINCING REPLY. IN THE ABSENCE OF ANY EXPLANATION THE PROFITS OF U NIT-II WERE REDUCED BY AN AMOUNT OF RS.3 03 857/- AND DEDUCTION U/S 80IB RECO MPUTED ACCORDINGLY. LIKEWISE THE AO ALLOCATED EXPENSES ON ACCOUNT OF SALARY/WAGES INSURANCE TRAVELLING/MOTOR CAR POSTAGE PRINTING AND STATION ERY AUDIT FEE LEGAL AND PROFESSIONAL CHARGES ELECTRICITY OFFICE MAINTENAN CE DIRECTORS SALARY RENT RATES AND TAXES IN THE RATIO OF TURNOVER OF THE TWO UNITS AND ATTRIBUTED THE EXPENSES OF RS. 2 37 396/- TO UNITII AND WORKED OUT THE DEDUCT ION U/S 80IB ACCORDINGLY. 4. ON APPEAL THE ASSESSEE EXPLAINED THAT THE PRESU MPTION OF THE AO IS COMPLETELY WRONG. THE BORROWED FUNDS (SECURED & UN SECURED) OF UNIT-I WERE UTILIZED FOR THE PURPOSE OF UNIT-I. NO PORTION OF THE SAME WERE DIVERTED IN UNIT-II. IN THE BOOKS OF UNIT-I THE ASSESSEE IS HAVING SUFF ICIENT AMOUNT OF SHARE CAPITAL (RS.30 LAKHS) SHARE APPLICATION (RS.10 LAKHS) RES ERVES (RS.53.37 LAKHS) WHICH ARE BASICALLY OF THE NATURE OF CORPORATE FUNDS. TH E INVESTMENT IN UNIT-II ITA 2641/AHD/2004 ITA 1618/AHD/2005 3 (RS.29 10 066) IS OUT OF THESE CORPORATE FUNDS I.E. SHARE CAPITAL ETC. NO PORTION OF BORROWED FUNDS OF UNIT-I WERE INVESTED IN UNIT-I I. THE INVESTMENT WAS OUT OF CORPORATE FUNDS SUCH AS SHARE CAPITAL ETC. WHICH HA S NO INTEREST COST. HOWEVER THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAD FAILE D TO EXPLAIN ITS CASE AND THE AO HAD WORKED OUT THE APPLICATION OF FUNDS ON PAGE 6 OF THE ORDER. WHICH REVEALS THAT THE DIFFERENCE OF RS. 29 10 066/- HAD BEEN UTI LIZED BY UNIT-II. ACCORDINGLY THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO. IN R ESPECT OF ALLOCATION OF EXPENSES OF RS. 2 37 396/- TO UNIT-II THE LD. CIT(A) OBSER VED THAT THE EXPENSES SUCH AS MISCELLANEOUS TRAVELLING-CONVENYANCE MOTOR CAR P OSTAGE AND TELEPHONE PRINTING AND STATIONERY LEGAL AND PROFESSIONAL FEE S ELECTRICITY EXPENSES OFFICE MAINTENANCE DIRECTORS SALARY RENT RATES AND TAX ES WERE COMMON FOR BOTH THE UNITS AND EXCEPT TURNOVER METHOD THERE WAS NO OTH ER WAY TO ALLOCATE EXPENSES TO THE TWO UNITS. ACCORDINGLY THE LD. CIT(A) UPHEL D THE FINDINGS OF THE AO. 5. THE ASSESSEE IS NOW IN APPEAL BEFOR E US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE ASSESSEE IN THEIR WRITTEN SUBMISSIONS REITERATED THE ARGUMENTS BEFORE THE LOWER AUTHORITIES AND PO INTED OUT THAT THE PRESUMPTION OF THE AO WAS WRONG AND INCORRECT. THE BORROWED FU NDS (SECURED AND UNSECURED LOANS) OF UNIT-I WERE UTILIZED FOR THE PU RPOSES OF UNIT-I ONLY AND INVESTED IN FIXED ASSETS INVENTORIES AND DEBTORS O F SAID UNIT- I. NO PORTION OF THE SAME WAS DIVERTED TO UNIT-II. IN THE BOOKS OF UNIT -I THE ASSESSEE IS HAVING SUFFICIENT AMOUNT OF SHARE CAPITAL (RS.30 LAKHS) S HARE APPLICATION MONEY (RS.10 LAKHS) AND RESERVES (RS.53.37 LAKHS) WHICH ARE BASI CALLY OF THE NATURE OF INTEREST FREE FUNDS. THIS FACT IS ALSO EVIDENT FROM CHART PREPARED BY LEARNED AO HIMSELF IN PARA 4.9 OF THE ASSESSMENT ORDER. THUS INTERES T FREE FUNDS OF UNIT-I ARE SUFFICIENT ENOUGH TO COVER UP THE INVESTMENT MADE I N UNIT-II WHICH IS ONLY RS.29.10 LAKHS AS AGAINST INTEREST FREE FUNDS AVAIL ABLE OF RS.93.37 LAKHS. THE INVESTMENT IN UNIT-II (RS.29 10 065) IS OUT OF THES E INTEREST FREE FUNDS OF UNIT-I. THUS THE LEARNED AO IS NOT AT ALL CORRECT IN ASSUM ING THAT BORROWED FUNDS OF UNIT- I MAY HAVE BEEN INVESTED IN UNIT- II. THERE HAS BEEN NO SUCH FINDING OR NEXUS AT ALL. IN FACT BORROWED FUNDS OF UNIT- I W ERE BORROWED LONG BACK AND WERE ITA 2641/AHD/2004 ITA 1618/AHD/2005 4 DIRECTLY UTILIZED IN BUSINESS OF UNIT- I. THE ASSE SSEE SUBMITTED. IT WAS OUT OF SURPLUS FUNDS AS MENTIONED ABOVE (SHARE CAPITAL S HARE APPLICATION AND RESERVES SURPLUS) WHICH WERE INVESTED WITH UNIT-II. NO INTE REST WAS PAID ON THESE OWN FUNDS NOR BORROWED FUNDS OF UNIT-I WERE TRANSFERRED TO UNIT-II. INTER ALIA THE ASSESSEE RELIED ON THE JUDGMENTS IN THE CASE OF M UNJAL SALES CORPORATION VS. CIT & ANOTHER 298 ITR 298(SC) CIT VS. RELIANCE UTIL ITIES AND POWER LTD. 313 ITR 340(BOM.) AND CIT VS. RADICO KHAITAN LTD. 274 I TR 354(ALL)FOR THE PROPOSITION THAT IF THERE WERE SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH COMPANY IN FORM OF SHARE CAPITAL AND RESERVES TO COVER UP I NTEREST FREE ADVANCES / INVESTMENTS THEN NO DISALLOWANCE OF INTEREST CAN B E MADE U/S 36(1)(III). AS REGARDS ALLOCATION OF CERTAIN EXPENSES TO UNIT II THE ASSESSEE POINTED OUT THAT SINCE SEPARATE BOOKS OF ACCOUNTS WERE BEING MAINTAI NED FOR BOTH THE UNITS EXPENSES PERTAINING TO A PARTICULAR UNIT WER E DEBITED IN THE RESPECTIVE BOOKS OF ACCOUNTS AND THE AO WAS NOT JUSTIFIED IN A LLOCATING EXPENSES OF UNIT-I TO UNIT-II. ON THE OTHER HAND THE LD. DR RELIED ON TH E ORDERS OF AUTHORITIES BELOW. 6. WE HAVE HEARD THE LD. DR GONE THROUGH THE FACTS OF THE CASE AND WRITTEN SUBMISSIONS FILED ON BEHALF OF THE ASSESSEE. IN TER MS OF PROVISIONS OF SEC. 80IB(13) READ WITH THE PROVISIONS OF SEC.801A(5) OF THE ACT THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS FOR THE PURPOSES OF DETERMI NING THE QUANTUM OF DEDUCTION U/S 80IB OF THE ACT FOR THE RELEVANT ASSESSMENT YEA R HAS TO BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCO ME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR FOR W HICH THE DETERMINATION IS TO BE MADE. THE RELEVANT PROVISIONS OF SUB-SEC (5) OF SEC.80IA OF THE ACT READ AS UNDER: 'NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WHICH THE PROVISIONS OF SUB-SECTION (I) APPLY SHALL FOR THE PURPOSES OF DETERMINING THE QU ANTUM OF DEDUCTION UNDER THAT SUB-SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUC CEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR BE COMPUTED AS IF SUCH ITA 2641/AHD/2004 ITA 1618/AHD/2005 5 ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YE AR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO B E MADE. ' 6.1. AS IS EVIDENT FROM THE AFORESAID PROVISIONS THE PROFIT OF UNIT-II OF THE ASSESSEE WERE THEREFORE TO BE COMPUTED AS IF IT W ERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR. IN SUCH A SITUATION THE COMMON EXPENDITURE IF ANY INCURRED BY THE OTHER UN IT-I TO THE EXTENT IT RELATED TO THE BUSINESS OF THE UNIT II ALONE WAS LIABLE TO BE DEDUCTED WHILE DETERMINING THE CORRECT PROFITS OF THE UNIT FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80IB OF THE ACT. SINCE THE ASSESSEE IS STATED TO BE MAIN TAINING SEPARATE BOOKS OF ACCOUNTS THE ONLY ISSUE REQUIRED TO BE CONSIDERE D WAS AS TO HOW MUCH EXPENDITURE OUT OF THE CORPORATE/COMMON EXPENSES I N UNIT-I WAS ESSENTIALLY INCURRED FOR RUNNING THE UNIT-II BECAUSE THE SAME W AS REQUIRED TO BE REDUCED FROM THE PROFITS OF UNIT-II FOR COMPUTING DEDUCTION U/S 80IB AND THE EXPENDITURE THAT HAD NOTHING TO DO WITH THE RUNNING OF THE UNIT -II WAS NOT TO BE REDUCED FROM THE PROFITS OF THE UNIT-II. IN THE INSTANT CASE WE FIND FROM THE IMPUGNED ORDERS THAT NO SUCH EXERCISE HAS BEEN MADE. IN THAT VIEW O F THE MATTER WE CONSIDER IT FAIR AND APPROPRIATE TO VACATE THE FINDINGS OF THE LD. CIT(A) AND RESTORE THE MATTER TO HIS FILE WITH THE DIRECTIONS TO RE-EXAMINE THE CLAIM OF THE ASSESSEE AS TO WHETHER OR NOT THE BORROWED FUNDS OF UNIT-I HAD IN DEED BEEN UTILIZED IN UNIT-II OR THE CORPORATE/COMMON EXPENSES IN UNIT-I WERE INCURR ED FOR THE PURPOSE OF OPERATING UNIT-II AND THEREAFTER ADJUDICATE THE IS SUE IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES .. THE ASSESSEE IS ALSO DIRECTED TO PLACE BEFORE THE LD. CIT(A) ALL THE RELEVANT MAT ERIAL IN SUPPORT OF THEIR CLAIM FOR DEDUCTION U/S 80IB OF THE ACT WHILE THE LD. CIT(A ) IS FREE TO UNDERTAKE ANY INDEPENDENT ENQUIRIES NECESSARY TO ASCERTAIN THE GE NUINENESS OF THE SAID CLAIM. WITH THESE DIRECTIONS GROUND NOS.3 & 4 IN THE APPE AL FOR THE AY 2001-02 ARE DISPOSED OF. ITA 2641/AHD/2004 ITA 1618/AHD/2005 6 7. GROUND NO. 5 IN THE APPEAL FOR THE AY 2001-02 AND GROUND NO.1 IN THE APPEAL FOR THE AY 2002-03 PERTAIN TO DEDUCTION U/S 80IB ON THE AMOUNT OF INTEREST RECEIVED FROM CUSTOMERS ON DELAYED PAYMENT S INCLUDED IN THE PROFITS OF THE INDUSTRIAL UNDERTAKING WHILE GROUND NO. 6 IN TH E APPEAL FOR THE AY 2001-02 & GROUND NO. 2 IN THE APPEAL FOR THE AY 2002-03 RELAT E TO DISALLOWANCE OF DEDUCTION U/S 80IB ON THE AMOUNT OF INTEREST ON FDRS.. THE AO EXCLUDED INTEREST RECEIVED FROM CUSTOMERS AMOUNTING TO RS.7 10 634/- IN THE AY 2001-02 AND RS. 3 97 851/- IN THE AY 2002-03 ON DELAYED PAYMENT FR OM THE PROFITS OF THE INDUSTRIAL UNDERTAKING WHILE WORKING OUT DEDUCTION U/S 80IB(4) ON THE GROUND THAT THE SAME HAD NO DIRECT NEXUS WITH THE ACTIVITIES OF THE INDUSTRIAL UNDERTAKING WHILE RELYING ON THE DECISIONS IN THE CASE OF CIT VS. RAJA BAHADUR KAMKHYA NARAYAN SINGH 16 ITR 325(PC) CIT VS STERLING FOODS 237 ITR 579 (SC) HINDUSTAN LEVER LTD VS CIT 239 ITR 297 (SC) NA TIONAL ORGANIC CHEMICAL INDUSTRIES LTD VS CCE 106 STC 457 (SC) ANDEASTERN C HEMICAL & MINERAL VS CIT 237 ITR 6 (SC) ETC. LIKEWISE INTEREST OF RS. 72 11 4/- ON FDRS IN THE AY 2001-02 & RS.1 15 462/- IN THE AY 2002-03 WAS ALSO EXCLUDED . 8. ON APPEAL THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO IN RESPECT OF INTEREST ON FDRS WHILE RELYING UPON THE DECISION IN THE CASE OF CIT VS. PANDIAN CHEMICALS 262 ITR 278 (SC) AS REGARDS INTEREST ON DELAYED PAYMENTS THE LD. CIT(A) CONCLUDED AS UNDER: 3.10 AFTER THE PERUSAL OF THE FINDINGS OF THE ASSE SSING OFFICER AND ALSO GOING THROUGH THE SUBMISSION MADE BY THE A.R. OF THE APPELLANT COMPANY I AM OF THE VIEW THAT THE APPELL ANT COMPANY WAS NOT JUSTIFIED WHILE INCLUDING THIS INCOME INTO TOTAL EXEMPTED INCOME FOR THE PURPOSE OF SECTION 80IB(4) OF THE AC T. IN VIEW OF THE FINDINGS OF THE HONBLE SUPREME COURT IN THE CASE O F PANDIAN CHEMICALS VS. CIT (SUPRA) SUCH INCOME IS NOT FOUND DIRECTLY DERIVED FROM ITS BUSINESS UNDERTAKING AND THEREFORE CANNOT BE ALLOWED AS AVAILABLE FOR EXEMPTION U/S 80IB(4) OF T HE ACT. THE HONBLE ITAT AHMEDABAD BENCH A IN THE CASE OF SU NCITY SYNTHETICS LTD (ITA 4807/AHD/96 AND ITA NO. 230/AHD /96 HAS HELD THAT THE INTEREST RECOVERED FROM THE DEBTOR ON THE SALE PRICE IS NOT ITA 2641/AHD/2004 ITA 1618/AHD/2005 7 AN INCOME DIRECTLY DERIVED FROM THE INDUSTRIAL UNDE RTAKING. THE HONBLE ITAT HAD MADE FOLLOWING OBSERVATIONS IN THE SAID ORDER. INTEREST IN GENERAL TERMS IS THE RETURN OR COMPE NSATION FOR THE USE OR RETENTION BY ONE PERSON OF A SUM OF MONE Y BELONGING TO OR OWED TO ANOTHER HALSBURYS LAWS. IT IS PAYMENT FOR COMMERCIAL COMPENSATION FOR NON PAYMENT OF THE DEBT ON TIME. WHEN A SALE IS EFFECTED THE MONE Y CONSIDERATION THEREOF BECOMES DUE AND PAYABLE AND I NTEREST STARTS RUNNING AS PER THE TERMS STIPULATED. SUCH I NTEREST IS NOT A CONSIDERATION OF SALE OF GOODS OF THE INDUSTR IAL UNDERTAKING EVEN THOUGH IT HAS ITS ORIGIN IN SALE. HAD SALE OF GOODS MANUFACTURED BEEN NOT MADE THERE WOULD NO T BE DEBT AND CONSEQUENTLY NO INTEREST BUT THE IMMEDIAT E SOURCE IS THE DEBT OWED WHICH TAKES IT AWAY A DEGREE AWAY FROM INDUSTRIAL UNDERTAKING. IN THE LIGHT OF THE PRIVY COUNSEL IN THE CASE OF RAJA RAI BAHADUR KAMAKHAYA NARAINSINGH (SUP RA) THE IMMEDIATE AND EFFECTIVE SOURCE WOULD BE THE DEB T ITSELF. IN GOVIND CHAUDHARYS CASE THE INTEREST PAID IS HEL D TO BE AN ACCRETION TO ASSESSEES RECEIPTS AND ATTRIBUTABL E TO AND INCIDENTAL TO THE BUSINESS CARRIED BY HIM AND NOT D E HORS THE BUSINESS CARRIED ON BY THE ASSESSEE. IT WAS THEREF ORE HELD TO BE NOT INCOME FROM OTHER SOURCES. THIS IS THE C ASE NEAR TO THE CASE OF CAMBAY ELECTRICITY (SUPRA). THE QUE STION WHETHER INTEREST WAS DERIVED FROM THE EXECUTION OF CONTRACTS WAS NOT THERE BEFORE THE SUPREME COURT IN THIS CASE . SEE ALSO IN THIS CONNECTION TWO DECISIONS OF THE SUPREM E COURT RELATING TO LEVY OF EXCISE DUTY IN THE CASE OF MADR AS RUBBER FACTORY AIR (1995) SCW 2654 AND IN THE CASE OF VST INDUSTRIES LTD VS. COLLECTOR OF CENTRAL EXCISE AIR (1998)(SC) 1441 THE OBSERVATIONS WHEREIN CLEARLY SHOW THAT WHE N GOODS ARE SOLD ON CREDIT AND INTEREST IS RECEIVED T HAT DOES NOT FORM PART OF THE PRICE ON WHICH EXCISE DUTY IS PAYABLE. 3.11 BASED ON THE ABOVE DISCUSSED FACTS I CONFIRM ADDITION AS MADE BY THE ASSESSING OFFICER BY TREATING THE ABOVE AMOUNT OF RS.9 71 619 AS NOT DIRECTLY DERIVED FROM THE INDUST RIAL UNDERTAKING. IN THE RESULT THIS GROUND OF APPEAL IS DISMISSED. 9. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE ASSESSEE IN THEIR WRITTEN SUBMI SSIONS RELIED ON THE DECISION IN THE CASE OF NIRMA INDUSTRIES LTD VS DCIT (2006) 283 ITR 402 (GUJ) AND CONTENDED THAT INTEREST ON LATE PAYMENT FROM CUSTO MERS IS ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. AS REGARDS DEDUCTION U/S 80IB ON THE AMOUNT OF INTEREST ON ITA 2641/AHD/2004 ITA 1618/AHD/2005 8 FDRS THE ASSESSEE SUBMITTED THAT THE FDR MADE BY IT WAS MEANT FOR BUSINESS OF INDUSTRIAL UNDERTAKING AND INTEREST EARNED ON TH E SAME IS AN INCOME DERIVED FROM BUSINESS OF INDUSTRIAL UNDERTAKING AND THEREFO RE ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. 10. WE HAVE LD. DR AND GONE THROUGH THE WR ITTEN SUBMISSIONS FILED ON BEHALF OF THE ASSESSEE. AS REGARDS DEDUCTION U/S 8 0IB OF THE ACT ON THE INTEREST RECEIVED FROM CUSTOMERS ON THE BELATED PAYMENTS OF DUES WE FIND THAT WHILE ADJUDICATING A SIMILAR ISSUE THE HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF NIRMA INDUSTRIES LTD.(SUPRA) HELD AS UNDER: .WHEN THE ASSESSEE ENTERS INTO A CONTRACT FOR S ALE OF ITS PRODUCTS IT COULD EITHER STIPULATE (A) THAT INTEREST AT THE SPECIFIED RATE WOULD BE CHARGED ON THE UNPAID SALE PRICE AND ADDED TO THE OUTSTANDING TILL THE POINT OF TIME OF REALISATION OR (B) THAT IN CASE OF DELAY THE PAYMENT FOR SALE O F PRODUCTS WORTH RS. 100 TO CARRY THE SALE PRICE OF RS. 102 FOR FIRST MONTH'S D ELAY RS. 104 FOR THE SECOND MONTH'S DELAY RS. 106 FOR THE THIRD MONTH'S DELAY AND SO ON. IF THE CONTENTION OF THE REVENUE IS ACCEPTED MERELY BECAUSE THE ASSESSE E HAS DESCRIBED THE ADDITIONAL SALE PROCEEDS AS INTEREST IN THE CASE OF A CONTRACT AS PER ILLUSTRATION (A) ABOVE SUCH PAYMENT WOULD NOT BE PROFITS DERIVED FR OM THE INDUSTRIAL UNDERTAKING BUT IN THE CASE OF ILLUSTRATION (B) AB OVE IF THE PAYMENT IS DESCRIBED AS SALE PRICE IT WOULD BE PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING THIS CAN NEVER BE BECAUSE IN SUM AND SUBSTANCE THESE ARE ONL Y TWO MODES OF REALISING SALE CONSIDERATION THE OBJECT BEING TO REALISE THE SALE PROCEEDS AT THE EARLIEST AND WITHOUT DELAY. THE PURCHASER PAYS A HIGHER SALE PRICE IF IT DELAYS PAYMENT OF THE SALE PROCEEDS. IN OTHER WORDS THIS IS A CONVER SE SITUATION TO OFFERING OF CASH DISCOUNT. THUS IN PRINCIPLE IN REALITY THE TRANS ACTION REMAINS THE SAME AND THERE IS NO DISTINCTION AS TO THE SOURCE. IT IS INCORRECT TO STATE THAT THE SOURCE FOR INTEREST IS THE OUTSTANDING SALE PROCEEDS. IT IS NOT THE ASS ESSEE'S BUSINESS TO LEND FUNDS AND EARN INTEREST. THE DISTINCTION DRAWN BY THE REV ENUE IS ARTIFICIAL IN NATURE AND IS NEITHER IN CONSONANCE WITH LAW NOR COMMERCIAL PR ACTICE. 10.1 ON A SIMILAR ISSUE IN RELATION TO DEDUCTION U /S 80HH OF THE ACT HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. BHANSALI E NGINEERING POLYMARS LTD. 306 ITR 194(BOM.) WHILE RELYING UPON THE DECI SION OF HONBLE MADRAS HIGH COURT REPORTED IN CIT V. MADRAS MOTORS LTD. [2002] 257 ITR 60 AND THE THIRD MEMBER DECISION REPORTED IN KIRLOSKAR ELECTRODYNE L TD. V. DEPUTY CIT [2004] 271 ITA 2641/AHD/2004 ITA 1618/AHD/2005 9 ITR (AT) 69 (PUNE); [2003] 87 ITD 264 (PUNE) HELD THAT INTEREST RECEIVED ON DELAYED PAYMENTS FROM SUNDRY DEBTORS COULD BE TREAT ED AS INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING AND THUS DECIDED THE I SSUE IN FAVOUR OF THE ASSESSEE. 10.2. IN THE LIGHT OF VIEW TAKEN IN THE AFORESAI D DECISIONS WE HAVE NO ALTERNATIVE BUT TO HOLD THAT INTEREST ON DELAYED P AYMENTS BY THE CUSTOMERS IS ELIGIBLE UNDER SECTION 80IB OF THE ACT. THEREFORE. GROUND NO. 5 IN THE APPEAL FOR THE AY 2001-02 AND GROUND NO.1 IN THE APPEAL FOR TH E AY 2002-03 ARE ALLOWED. 11. AS REGARDS EXCLUSION OF INTEREST ON FDRS FROM THE ELIGIBLE PROFITS FOR THE PURPOSE OF DEDUCTION U/S 80IB OF THE ACT THE LEADI NG DECISION IS THAT OF THE HON'BLE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. [1997] 227 ITR 172 WHICH HOLDS THAT INTEREST EARNED ON DEPOSITS PLACE D FOR THE PURPOSES OF OBTAINING LOANS FOR BUSINESS CANNOT BE TREATED AS BUSINESS INCOME BUT ONLY AS INCOME FROM OTHER SOURCES. IT WAS FURTHER HELD THAT THE ASSESSEE CANNOT CLAIM ADJUSTMENT OF EXPENDITURE AGAINST INT EREST ASSESSABLE UNDER SECTION 56. SECTION 57 OF THE ACT SETS OUT IN ITS C LAUSES (I) TO (III) THE EXPENDITURES WHICH ARE ALLOWABLE AS DEDUCTION FROM INCOME ASSESS ABLE UNDER SECTION 56. IT IS NOT THE CASE OF THE ASSESSEE THAT THE INTEREST PAYA BLE BY IT ON TERM LOANS IS ALLOWABLE AS DEDUCTION UNDER SECTION 57 OF THE ACT. . THE DECISION IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. [1997] 227 ITR 172 WHICH WAS RENDERED IN THE CONTEXT OF SECTIONS 56 AND 57 HAS BEEN FOLLOWE D IN CIT V. AUTOKAST LTD. [2001] 248 ITR 110 (SC). LIKEWISE IN CIT V. DR. V. P. GOPINATHAN [20 01] 248 ITR 449 (SC) INTEREST ON FIXED DEPOSITS WAS HELD NOT TO QU ALIFY FOR SETTING OFF AGAINST INTEREST ON LOANS BORROWED. THE OTHER DECISIONS ON THE SAME LINES IN THE CONTEXT OF SECTION 80HHC ARE CIT V. STERLING FOODS [1999] 237 ITR 579 (SC) AND PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 (SC). IN THESE DECISIONS THE HON'BLE SUPREME COURT REITERATED THE NEXUS THEORY A ND DECLINED TO TREAT SUCH INTEREST EARNED AS BUSINESS INCOME. THE DECISION OF THE MADRAS HIGH COURT IN SOUTH INDIA SHIPPING CORPORATION LTD. V. CIT [1999] 240 ITR 24 WAS ALSO RENDERED IN THE CONTEXT OF TREATING CERTAIN RECEIPT S NOT AS BUSINESS INCOME BUT ITA 2641/AHD/2004 ITA 1618/AHD/2005 10 INCOME FROM OTHER SOURCES FOR THE PURPOSES OF SECTI ON 56 READ WITH SECTION 57(III) OF THE ACT. IN CASES WHERE THE ASSESSEE IS REQUIRED TO MANDATORILY KEEP MONIES IN FIXED DEPOSIT IN ORDER TO AVAIL OF CREDIT FACILI TY THE ARGUMENT ON BEHALF OF THE ASSESSEE IS THAT BUT FOR SUCH A STIPULATION BY THE BANK THERE WAS NO NEED FOR THE ASSESSEE TO KEEP THE MONEY IN FIXED DEPOSIT AND THE REFORE THE INCOME EARNED FROM SUCH FIXED DEPOSITS BEARS A DIRECT NEXUS TO TH E BUSINESS ACTIVITY ITSELF. GIVEN THE REPEATED AFFIRMATION BY THE HON'BLE SUPREME COU RT IN THE VARIOUS CASES WE ARE OF THE OPINION THAT INTEREST EARNED FROM HE BAN K DOES NOT HAVE AN IMMEDIATE NEXUS WITH THE BUSINESS OF THE INDUSTRIAL UNDERTAK ING AND THEREFORE CAN NOT BE SAID TO BE DERIVED FROM THE BUSINESS OF THE INDUST RIAL UNDERTAKING . 11.1 BEFORE THE AO THE ASSESSEE CLAIMED THA T INTEREST FROM BANK WAS DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING . HOWEVER THE AO AND THE LD. CIT(A) RELIED UPON CERTAIN DECISIONS OF HONBLE SUPREME COURT AND DECLINED TO ALLOW DEDUCTION U/S 80IB OF THE ACT . THERE IS NO M ATERIAL BEFORE US SUGGESTING THAT INTEREST RECEIVED FROM THE BANK WAS DERIVED FR OM THE BUSINESS OF INDUSTRIAL UNDERTAKING. IN THE CASE OF CIT V. STERLING FOODS [1999] 237 ITR 579 THE ASSESSEE ENGAGED IN PROCESSING PRAWNS AND OTHER SEA FOOD WHICH WAS EXPORTED EARNED SOME INCOME FROM THE IMPORT ENTITL EMENTS GRANTED BY THE CENTRAL GOVERNMENT UNDER THE EXPORT PROMOTION SCHEM E. THE ASSESSEE WAS ENTITLED TO USE THE IMPORT ENTITLEMENTS ITSELF OR S ELL THE SAME TO OTHERS. THE ASSESSEE CLAIMED RELIEF UNDER SECTION 80HH IN RESPE CT OF THE SALE PROCEEDS OF THE IMPORT ENTITLEMENTS. THE TRIBUNAL HELD THAT THE RELIEF COULD NOT BE GRANTED. THE HON'BLE APEX COURT REVERSING THE DECISION OF TH E HIGH COURT WHILE INTERPRETING THE WORDS 'DERIVED FROM' HELD THAT THERE MUST BE FOR THE APPLICATION OF THE WORDS 'DERIVED FROM' A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING. AS THE NEXUS WAS ONLY INCIDENTAL AND N OT DIRECT THE RECEIPTS FROM THE SALE OF IMPORT ENTITLEMENTS COULD NOT BE INCLUD ED IN THE INCOME OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING THE RELIEF UN DER SECTION 80HH OF THE ACT. SIMILAR VIEWS WERE EXPRESSED BY THE HON'BLE APEX CO URT IN THE CASE OF PANDIAN ITA 2641/AHD/2004 ITA 1618/AHD/2005 11 CHEMICALS LTD. V. CIT [2003] 262 ITR 278 . AND RECENTLY IN THE CASE OF M/S LIBERTY INDIA VS. CIT IN A CIVIL APPEAL ARISING OUT OF SLP NO. 5827 OF 2007. 11.2 IN THE CASE OF AHMEDABAD MANUFACTURING AND CALICO PRINTING CO. LTD. VS.CIT 137 ITR 616(GUJ) HONBLE JURISDICTIONAL HIGH COURT HELD WE ARE IN FULL AGREEMENT WITH THE VIEW TAKEN BY TH E BOMBAY HIGH COURT AND TO SOME EXTENT WITH THE VIEW TAKEN BY THE KERALA HIGH COURT. PROFITS AND GAINS CAN BE SAID TO HAVE BEEN ' DERIVED ' FROM AN ACTIVITY C ARRIED ON BY A PERSON ONLY IF THE SAID ACTIVITY IS AN IMMEDIATE AND EFFECTIVE SOURCE OF THE SAID PROFIT OR GAIN. THERE MUST BE A DIRECT NEXUS BETWEEN THE ACTIVITY AND THE EARNING OF THE PROFITS AND GAINS. IN OTHER WORDS WHAT WE HAVE TO CONSIDER IS THE PROXIMATE SOURCE AND NOT THE SOURCE TO WHICH THE PROFIT OR GAIN MAY IN A REM OTE INDIRECT WAY BE REFERABLE. THE VIEW TO THIS EFFECT OF THE PRIVY COUNCIL IN CIT V. KAMAKHYA NARAYAN SINGH [1948] 16 ITR 325 WAS APPROVED BY THE SUPREME COURT IN MRS. BACHA F. GUZDAR V. CIT [1955] 27 ITR 1 AND FOLLOWED BY THE KERALA HIGH COURT IN COCHIN CO MPANY V. CIT [1978] 114 ITR 822 AND BY THE BOMBAY HIGH COURT IN HINDUSTAN LEVER LTD. V. CIT [1980] 121 ITR 951 . IN OUR OPINION THE WORD ' DERIVE ' TO BE FOUND I N S. 2(5)(A)(I) OF THE RELEVANT FINANCE ACT WILL HAVE TO BE GIVEN A MEANING CONSISTENT WITH WHAT WAS DECIDED IN THE ABOVE DECIS IONS. THE WORDS 'DERIVED FROM EXPORTS' CANNOT BE ACCEPTED AS EQUIVALENT TO ' REFERABLE TO EXPORTS ' OR EVEN INDIRECTLY OR REMOTELY CONNECTED WITH THE EXPORTS B Y A NEBULOUS LINK. 11.3 HONBLE PUNJAB AND HARYANA HIGH COURT IN TH E CASE OF NAHAR EXPORTS VS. CIT 288 ITR 494 UPHELD DISALLOWANCE OF CLAIM FOR DE DUCTION U/S 80IB OF THE ACT ON THE INTEREST INCOME IN THE LIGHT OF AFORESAID DECISIONS OF THE APEX COURT . 11.4 FOR THE PURPOSE OF CLAIMING DEDUCTION UNDE R S. 80-IB OF THE ACT THE ASSESSEE IS NOT ONLY REQUIRED TO ESTABLISH THAT IT WAS BUSINESS PROFIT OF THE INDUSTRIAL UNDERTAKING BUT ALSO TO ESTABLISH THAT THIS WAS A PROFIT 'DERIVED FROM' THE BUSINESS ACTIVITY OF AN INDUSTRIAL UNDERTAKING WH ICH MEANS A DIRECT NEXUS BETWEEN THE PROFITS AND INDUSTRIAL UNDERTAKING. THE MERE FACT THAT SUCH INCOME WAS A BUSINESS INCOME WOULD NOT ENTITLE THE ASSESSE E FOR DEDUCTION UNDER S. 80- IB OF THE ACT. THOUGH THE ASSESSEE MAY NECESSARILY HAVE TO MAKE TH E DEPOSIT WITH THE BANK FOR CERTAIN GUARANTEES OR WARRANTIE S THE INCOME ON ACCOUNT OF INTEREST FROM SUCH DEPOSITS WITH THE BANK CANNOT B E SAID TO HAVE BEEN DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. TH E IMMEDIATE SOURCE OF INTEREST ITA 2641/AHD/2004 ITA 1618/AHD/2005 12 IS THE DEPOSIT ITSELF AND THE EFFECTIVE SOURCE OF THE GENEALOGY OF THE SOURCE OF THE INTEREST INCOME IS THE DEPOSIT AND NOT BUSINESS AS THE INDUSTRIAL UNDERTAKING IS REMOVED BY ONE STEP FROM THE SOURCE OF INCOME FOR T HE INTEREST. IN OTHER WORDS THE IMMEDIATE AND EFFECTIVE SOURCE OF THE INTEREST IS THE DEPOSIT AND NOT THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. AS HELD BY THE HONBLE SUPREME COURT IN CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT [ 1978] 113 ITR 84 THE PROFITS OR GAINS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE ACT MUST BE DERIVED FROM THE ACTUAL CONDUCT OF THE BUSINESS AND UNLESS THE PROFITS OR GAINS ARE DERIVED FROM THE ACTUAL CONDUCT OF THE BUSINESS IT CANNOT BE STATED THAT THE INTEREST IS DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTA KING. IN OTHER WORDS THE INDUSTRIAL UNDERTAKING MUST DIRECTLY YIELD THE PROF IT AND IT CANNOT BE THE MEANS TO YIELD THE INCOME. THE DEPOSIT MIGHT BE AN INCIDENTA L INVESTMENT WITH THE BUSINESS OF THE INDUSTRIAL UNDERTAKING AND THAT WOU LD NOT BE SUFFICIENT TO RENDER THE INTEREST INCOME AS PROFITS AND GAINS DERIVED FR OM THE INDUSTRIAL UNDERTAKING. THE FACT THAT THE AMOUNT WAS ASSESSED AS BUSINESS I NCOME ITSELF WOULD NOT BE SUFFICIENT TO HOLD THAT THE INTEREST INCOME WAS DER IVED FROM THE ACTUAL CONDUCT OF THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. IN OTHE R WORDS IT IS NOT ALL BUSINESS RECEIPTS THAT WOULD QUALIFY FOR THE DEDUCTION AND T HE LEGISLATURE HAS APPARENTLY NOT INTENDED TO GIVE THE BENEFIT OF DEDUCTION TO AL L BUSINESS INCOME. IF THE INTENTION OF THE LEGISLATURE WAS TO GRANT RELIEF TO ALL BUSINESS INCOME IT COULD HAVE USED THE EXPRESSION 'PROFITS AND GAINS OF IND USTRIAL UNDERTAKING' THE FACT THAT THE LEGISLATURE HAS USED THE EXPRESSION 'PROFI TS AND GAINS DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING' HAS SOME SIGNI FICANCE AND IT CONNOTES THAT THE IMMEDIATE AND EFFECTIVE SOURCE OF INCOME ELIGIB LE FOR GRANT OF RELIEF UNDER SECTION 80IB OF THE ACT MUST BE THE INDUSTRIAL UNDE RTAKING ITSELF AND NOT ANY OTHER SOURCE. THE MANDATE OF LAW IS THAT UNLESS THE SOURC E OF THE PROFIT IS THE UNDERTAKING THE ASSESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 80IB OF THE ACT. MERE COMMERCIAL CONNECTION BETWEEN THE INC OME AND THE INDUSTRIAL UNDERTAKING WOULD NOT BE SUFFICIENT. THE DERIVATION OF THE INCOME MUST BE DIRECTLY CONNECTED WITH THE BUSINESS IN THE SENSE THAT THE I NCOME IS GENERATED BY THE ITA 2641/AHD/2004 ITA 1618/AHD/2005 13 BUSINESS. IT WOULD NOT BE SUFFICIENT IF IT IS GENER ATED BY THE EXPLOITATION OF A BUSINESS ASSET. 11.5 HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS.GASKETS AND RADIATORS DISTRIBUTORS 296 ITR 440(GUJ) IN THE CON TEXT OF DEDUCTION U/S 80HHC OF THE ACT IN RESPECT OF INCOME ON ACCOUNT OF INTER EST ON FIXED DEPOSITS HELD IDENTICAL QUESTION CAME TO BE CONSIDERED BY THE HO N'BLE SUPREME COURT IN PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 AND THE QUESTION WHICH WAS POSED FOR CONSIDERATION BEFORE THE APEX COURT WAS W HETHER THE INTEREST ON DEPOSITS WITH THE TAMIL NADU ELECTRICITY BOARD SHOU LD BE TREATED AS INCOME DERIVED BY THE INDUSTRIAL UNDERTAKING FOR THE PURPO SE OF SECTION 80HH OR NOT AND THE HON'BLE SUPREME COURT HAS OBSERVED THAT SECTION 80HH OF THE INCOME-TAX ACT GRANTS DEDUCTION IN RESPECT OF PROFITS AND GAIN S 'DERIVED FROM' AN INDUSTRIAL UNDERTAKING AND THE WORDS 'DERIVED FROM' IN SECTION 80HH OF THE INCOME-TAX ACT 1961 MUST BE UNDERSTOOD AS SOMETHING WHICH HAS A D IRECT OR IMMEDIATE NEXUS WITH THE ASSESSEE'S INDUSTRIAL UNDERTAKING. THE SUP REME COURT HELD THAT INTEREST DERIVED BY THE INDUSTRIAL UNDERTAKING OF THE ASSESS EE ON DEPOSITS MADE WITH THE TAMIL NADU ELECTRICITY BOARD FOR THE SUPPLY OF ELEC TRICITY FOR RUNNING THE INDUSTRIAL UNDERTAKING COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF AND WAS NOT PROFITS OR GAINS DERIVED BY THE UNDERTA KING FOR THE PURPOSE OF THE SAID DEDUCTION UNDER SECTION 80HH. IN G.T.N. TEXTIL ES LTD. V. DY. CIT [2005] 279 ITR 72 THE KERALA HIGH COURT HELD THAT INTEREST ON BANK DEPOSITS WAS NOT PROFIT DERIVED FROM EXPORT OF GOODS. THE KERALA HIGH COURT HAS FURTHER HELD THAT THE INTEREST EARNED BY THE ASSESSEE ON FIXED DEPOSITS COMMISSION RECEIVED ON SALE OF MACHINERY ETC. WERE NOT BUSINESS INCOME AND CO NSEQUENTLY THE ASSESSEE WAS NOT ENTITLED TO COMPUTATION OF ELIGIBLE DEDUCTI ON UNDER SECTION 80HHC OF THE ACT BY INCLUDING THOSE RECEIPTS UNDER BUSINESS INCO ME. THEREFORE CONSIDERING THE AFORESAID TWO DECISIONS WE MUST HOLD THAT THE TRIBUNAL AS WELL AS THE COMMISSIONER OF INCOME-TAX (APPEALS) BOTH COMMITTE D AN ERROR IN TREATING THE INTEREST ON DEPOSITS AS 'BUSINESS INCOME' AND GRANT ING THE ASSESSEE THE DEDUCTION UNDER SECTION 80HHC OF THE ACT.. 12. IN VIEW OF THE FOREGOING ESPECIALLY WHEN TH ERE IS NOTHING TO ESTABLISH THE NEXUS OF EARNING OF INTEREST INCOME WITH THE ACTIVI TIES OF THE INDUSTRIAL UNDERTAKING IN THE LIGHT OF THE AFORESAID JUDICIAL PRONOUNCEMENTS INCLUDING THE JUDGMENTS IN CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT [1978] 113 ITR 84 (SC) CIT V. COCHIN REFINERIES LTD. [1982] 135 ITR 278 (KER.) AND PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 (SC) AS ALSO OF JURISDICTIONAL HIGH COURT IN THE CASE OF GASKETS AND RADIATORS DISTRIBU TORS(SUPRA) WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE CONCLUSION OF THE LD . CIT(A). THUS GROUND NO. 6 IN ITA 2641/AHD/2004 ITA 1618/AHD/2005 14 THE APPEAL FOR THE AY 2001-02 & GROUND NO. 2 IN THE APPEAL FOR THE AY 2002-03 RELATING TO CLAIM FOR DEDUCTION U/S 80IB OF THE ACT ON THE INTEREST INCOME ARE DISMISSED. 13. GROUND NO. 7 IN THE APPEAL FOR THE AY 2001-02 R ELATES TO DEDUCTION U/S 80IB OF THE ACT IN RESPECT SCRAP SALES OF RS. 4 50 270/- WHILE GROUND NO.8 IN THE PERTAINS TO LEVY OF INTEREST U/S 234B AND 234C OF T HE ACT WHILE DETERMINING BOOK PROFITS IN TERMS OF PROVISIONS OF SEC. 115JB OF THE ACT. THE AO IN THE ASSESSMENT ORDER HELD THAT THE INCOME ON ACCOUNT OF SCRAP SAL ES OF CARBOY CARTONS PLASTIC WASTAGE OTHER ETC. WAS NOT DERIVED FROM THE MANUFA CTURING ACTIVITIES AND THEREFORE NOT ELIGIBLE FOR DEDUCTION U/S 80IB OF T HE ACT. MOREOVER WHILE DETERMINING COMPUTING BOOK PROFITS U/S 115JB OF THE ACT THE AO CHARGED INTEREST U/S 234B & 234C OF THE ACT . INITIALLY THE ASSESSE E DID NOT RAISE ANY GROUND IN THEIR APPEAL AGAINST EXCLUSION OF INCOME ON ACCOUNT OF SCRAP SALES WHILE DETERMINING PROFITS ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT OR IN RESPECT OF CHARGING OF INTEREST U/S 234B & 234COF THE ACT. HOW EVER DURING THE APPELLATE PROCEEDINGS THE ASSESSEE RAISED TWO ADDITIONAL GRO UNDS MENTIONING THAT DUE TO INADVERTENCE THESE GROUNDS WERE NOT RAISED IN THEI R APPEAL. SINCE NO OTHER REASON WAS GIVEN BY THE ASSESSEE THE LD. CIT(A) RE JECTED THE REQUEST FOR ADMISSION OF ADDITIONAL GROUND OF APPEAL. 14. THE ASSESSEE IN THEIR WRITTEN SUBMISSIONS T HOUGH REFERRED TO DECISIONS IN THE CASE OF DCIT VS. CORE HEALTH CARE LTD. 308 ITR 263(GUJ) IN RESPECT OF THEIR CLAIM FOR DEDUCTION U/S 80IB ON INCOME ON ACCOUNT O F SCRAP SALES AND DECISIONS IN THE CASE OF SNOWCEM INDIA LTD. VS. DIT 313ITR 17 0(BOM.) ITO VS. EAGLE SYNTHETICS P LTD. ITA NO. 2755/AHD./2003 ACIT VS. NAVNIDHI DYG. & PTG. MILLS PVT. LTD. IN ITA NO. 1458/AHD./2003 & DCIT VS. MADH USUDAN IND. LTD. 218 CTR(GUJ) 493 IN RESPECT OF LEVY OF INTEREST U/S 234 B & 234C OF THE ACT AND STATED THAT DECISION OF THE TM IN THE CASE OF KANEL OIL & EXPORT INDUSTRIES LTD. IS NOT APPLICABLE HAVING BEEN RENDERED IN THE CONTEX T OF PROVISIONS OF SEC. 115JA OF THE ACT. ON THE OTHER HAND THE LD. DR SUBMITTED THAT ISSUE REGARDING LEVY OF ITA 2641/AHD/2004 ITA 1618/AHD/2005 15 INTEREST U/S 234B & 234C HAS TO BE ADJUDICATED IN T HE LIGHT OF PROVISIONS OF SEC. 115JB(5) READ WITH CIRCULAR NO. 13 OF 2001 DATED 9 TH NOVEMBER 2001OF THE CBDT AND THE DECISIONS IN THE CASE OF CIT V. ANJUM M. H. GHASWALA AND OTHERS. 252 ITR 1 (SC) AFFIRMED BY HON'BLE APEX CO URT IN THE CASE OF CIT V. HINDUSTAN BULK CARRIERS [2003] 259 ITR 449 (SC) AND IN THE CASE OF CIT V. SANT RAM MANGAT RAM JEWELLERS [2003] 264 ITR 564 (SC) JINDAL THERMAL POWER COMPANY LTD. VS. DCIT & ANOTHER 286 ITR 182(KAR) C IT VS. GEETHA RAMAKRISHNA MILLS P .LTD. 288 ITR 489(MAD) AS ALSO VIEW TAKEN BY THE ITAT AHMEDABAD BENCHES IN THEIR DECISION DATED 7.5.2009 CASE OF M/S GUJRAT STATE FERTILIZERS & CHEMICALS LTD VS. DCIT IN ITA NO. ITA .NO.3689/AHD/2008 AND DECISION IN THE CASE OF SUZLON ENERGY LTD. IN ITA NO. 3912/AHD./2003 FOR THE AY 2001-02.AS REGARDS DEDUCTION U/S 80IB ON SCRAP SALE S THE LD. DR ADDED THAT SUCH SCRAP WAS NOT DERIVED FROM THE MANUFACTURING A CTIVITIES AND THEREFORE IS NOT ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. 15 WE HAVE HEARD THE LD. DR AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE LD. CIT(A) HAS NOT ADJUDICATED THE AFORESA ID TWO GROUNDS ON MERITS NOR RECORDED ANY FINDINGS AS TO WHETHER OR NOT OMISSIO N OF THESE GROUNDS FROM THE FORM OF APPEAL WAS WILFUL OR UNREASONABLE. SUB-S. ( 5) OF S. 250 OF THE ACT ARMS THE FIRST APPELLATE AUTHORITY TO PERMIT THE APPELL ANT TO RAISE ADDITIONAL GROUND DURING THE COURSE OF HEARING OF THE APPEAL. THE ONL Y RESTRICTION IS WHERE THERE IS 'WILFUL OMISSION' OR 'UNREASONABLE' TO PERMIT THE A SSESSEE TO RAISE ADDITIONAL GROUND. THE SUB-S. (5) OF S. 250 OF THE ACT READS A S UNDER: '(5) THE CIT(A) MAY AT THE HEARING OF AN APPEAL A LLOW THE APPELLANT TO GO INTO ANY GROUND OF APPEAL NOT SPECIFIED IN THE GROUNDS O F APPEAL IF THE CIT(A) IS SATISFIED THAT THE OMISSION OF THAT GROUND FROM THE FORM OF APPEAL WAS NOT WILFUL OR UNREASONABLE.' 15.1. THE LD. CIT(A) HAS NOT EVEN MADE A WHISPER IN THE IMPUGNED ORDER THAT IT IS 'WILFUL OMISSION' OR 'UNREASONABLE' TO ALLOW THE APPELLANT TO RAISE ADDITIONAL GROUND. HOWEVER LD. CIT(A) HAS OBSERVED THAT MERE INADVERTENCE TO INCLUDE THE GROUNDS IN THE MEMORANDUM OF APPEAL WAS NOT A GENUI NE AND VALID REASON. ITA 2641/AHD/2004 ITA 1618/AHD/2005 16 APPARENTLY THE LD. CIT(A) HAS NOT APPLIED ITS MIND AS TO WHETHER THERE WAS ANY 'WILFUL DEFAULT' OR UNREASONABLENESS' ON THE PART O F THE APPELLANT IN NOT RAISING SUCH GROUND EARLIER. IN THESE CIRCUMSTANCES ESPECI ALLY WHEN NO FINDING HAS BEEN RECORDED BY THE LD. CIT(A) IN TERMS OF PROVISI ONS OF SECTION 250(5) OF THE ACT WE VACATE THE FINDINGS OF THE LD. CIT(A) WIT H THE DIRECTIONS TO ACT IN TERMS OF THE PROVISIONS OF THE SAID SECTION AND OBSERVATI ONS MADE ABOVE AND THEN TO PROCEED IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFI CIENT OPPORTUNITY TO BOTH THE PARTIES. WITH THESE DIRECTIONS GROUND NOS. 7 & 8 I N THE APPEAL FOR THE AY 2001-02 ARE DISPOSED OF. 16. GROUND NO.4 IN THE APPEAL FOR THE AY 2002 -03 PERTAINS TO LEVY OF INTEREST U/S 234B OF THE ACT. THE AO IN THE ASSESSMENT ORD ER LEVIED INTEREST U/S 234B OF THE ACT. ON APPEAL THE LD. CIT(A) DIRECTED TO CHAR GE INTEREST AS PER LAW. THE ASSESSEE IN THEIR WRITTEN SUBMISSIONS PLEADED THAT NO INTEREST CAN BE CHARGED BECAUSE OF DISALLOWANCES MADE BY THE AO AND RELIED UPON DECISIONS IN THE CASE OF CIT VS. RAINBOW INDUSTRIES P LTD. 277 ITR 507(GU J) AND CIT VS. SEDCO FOREX INTERNATIONAL DRILLING CO. LTD. 264 ITR 320(UTTARAN CHAL). ON THE OTHER HAND THE LD. DR SUPPORTED THE FINDINGS OF THE LOWER AUTHORIT IES. WE FIND THAT THE LD. CIT(A) MERELY DIRECTED TO CHARGE INTEREST AS PER LAW. WE F AIL TO UNDERSTAND ANY MISTAKE IN THESE DIRECTIONS OF THE LD. CIT(A). THE LEVY OF INTEREST U/S 234B OF THE ACT BEING MANDATORY [COMMISSIONER OF INCOME TAX.VS ANJU M M. H. GHASWALA AND OTHERS 252 ITR 1(SC) AFFIRMED BY HON'BLE APEX COUR T IN THE CASE OF CIT V. HINDUSTAN BULK CARRIERS [2003] 259 ITR 449 (SC) AND IN THE CASE OF CIT V. SANT RAM MANGAT RAM JEWELLERS [2003] 264 ITR 564 (SC) ] THIS GROUND IS DISMISSED. 17. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERM S OF THE RESIDUARY GROUND NO. 9 IN THE APPEAL FOR THE AY 2001-02 & GROUND NO. 5 IN THE APPEAL FOR THE AY 2002-03 ACCORDINGLY THESE GROUNDS ARE DISMISSED. ITA 2641/AHD/2004 ITA 1618/AHD/2005 17 18. IN THE RESULT BOTH THESE APPEALS ARE PARTLY AL LOWED BUT FOR STATISTICAL PURPOSES. . ORDER PRONOUNCED ON 29TH JANUARY 20 10. SD/- SD/- (T.K. SHARMA) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD DATED 29TH JANUARY 2010 PK/- COPY TO: 1. THE ASSESSEE 2. ITO WARD.-4(1) SURAT 3. CIT(A)-III SURAT 4. CIT-II SURAT 5. DR C BENCH BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD