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TMI Blog2012 (8) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... In the Appeal filed by the revenue against the order dated 8th April, 2010 of the CIT (A)-17, Mumbai, there are two grounds of appeal- "On the facts and in the circumstances of the case and in law, the learned that CIT(A) erred in holding that the expenditure on foreign tour of the director and his wife, who was also an employee is allowable for the purpose of business, without appreciating the facts of the case." "On the facts and in the circumstances of the case and in law, the learned that CIT(A) erred in holding that the storage charges received also from part of the eligible profits of the undertaking for the purpose of claiming deduction under section 80IB, without appreciating the facts of the case." 2. Ground No 1.is about deletion of disallowance that was made by the Assessing officer (AO) on account of foreign travel of the directors. Issue has been discussed by the CIT(A) as under- " .the AO noted that appellant had incurred foreign travelling expenses of Rs. 5,85,165/- in respect of director, Mr. Charul J Ghia and his wife, Mrs Smita Charul Ghia, who was also an employee of the appellant. As per the AO appellant could not explain the reason for the trave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act).The AO noted that the appellant had received storage charges amounting to Rs. 17.5 Lacs from Reliance industries Ltd. He held that store charges received by the assessee cannot be linked with the business of the assessee company. He further held that sum received on account of storage of goods did not arise out of the activity of manufacturing or production of article or thing. He was also of the opinion that receipt of Rs.17.5 Lacs was not eligible for deduction under section 80 IB. As per the appellant company, it had executed the order placed by Reliance industries Ltd. As per the terms if buyer could not give dispatch clearance for goods manufactured, and the seller had to stock the goods in warehouse seller would be paid an all inclusive storage charges at the rate of Rs. 3.5 Lacs per month. There was a delay of 5 months in dispatch clearance from the Reliance industries. Accordingly, the appellant company raised a debit note of Rs. 17.5 Lacs as storage charges. Appellant pointed out that it did not have a warehouse- hence, goods were kept in factory premises where the manufacturing activities were undertaken. The storage charges were directly related to the dispatc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial undertaking and not to other income which is incidental to the carrying of industrial undertaking. Thus, before any deduction is allowed under section 80-IB it must be established that the profits and gains have directly flowed from the functioning of the industrial undertaking. iv. Only 'operational profit' from the business of industrial undertaking is eligible for deduction u/s. 80 IB. In other words 'ancillary profits' of industrial undertakings are not entitled for deduction. v. In certain cases there could be sufficient nexus to establish that the income was incidental to the main business of the industrial undertaking of the assessee but that alone is not sufficient to say that it is income derived from the business of the industrial undertaking of the assessee within the expression used in Sec.80-IB. Expression derived from cannot include the incidental receipts earned in the course of such business. There must be direct link with the main activity of the business of industrial undertaking and the profits earned. Any other source, not falling within the first degree, could in a sense be described as ancillary to the business of the assessee. vi. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doc and soya oil. It entered into contracts for purchase of raw material with its suppliers as also for sale of finished products with its customers/purchasers. Due to non-performance of the contracts by the suppliers and purchasers, the assessee received Rs. 57.83 lacs from the defaulting supplier and purchasers pursuant to the terms in every individual contract. For the A.s. 1993-94 and 1994-95,the assessee claimed deduction u/s. 80HH and 80-I on the ground that the amount was in the nature of profits derived from its industrial undertaking. The AO held that the sum received from the defaulting parties was not profit within the meaning of sections 80HH and 80-I and he disallowed the deduction. CIT(A) upheld the view taken by the assessing authority. The Tribunal allowed the assessee's appeal and set aside the orders of the AO and the CIT(A). Revenue filed an appeal to the High Court, which was dismissed. This order of dismissal was set aside by the Supreme Court in an appeal filed by the Revenue and the matter was remanded back to the High Court for decision on the merits. Deciding the substantial question of law framed by the Supreme Court. High Court in the second round of hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, Hon'ble Punjab and Haryana HC in the case of CIT v. Malwa Cotton Spinning Mills Ltd. [2008] 302 ITR 53/166 Taxman 457 held that interest received from customers for delay in payment was not entitled to special deduction u/s.80HHC. 4. Now we would like to mention the facts and the issues of the cases relied upon by the CIT(A). In the case of CIT v. W heels India Ltd . [1983] 141 ITR 745 (Mad.) issue was about sale of scrap and accrued interest. 4.1 Hon'ble High Court of Madras in the case of Wheels India Ltd. ( supra ) decided the issue whether receipts from sale of scrap and service charges in respect of supplies would be entitled to relief under section 80I of the act. For the assessment year 1971 - 72 assessee claimed relief under section 80I for the sale of scrap and for services rendered to its customers in respect of supplies. The Hon'ble High Court relied upon the decision of Cambay Electric Supply Industrial Co. Ltd v. CIT [1978] 113 ITR 84 and reproduced observations of the Hon'ble Supreme Court as under: "it will be pertinent to observe that the legislature has deliberately used the expression attributable to and not expression derived from. It can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts attributable to its priority industry from machining charges for repairs to machinery and from interest on the unpaid sale proceeds of machinery manufactured by it. The ITO disallowed the claim of the assessee. Matter was decided by the Hon'ble HC in following words- "Section 80-I uses the words "attributable to", which had been deliberately used by the Legislature. The words are of wider import than the expression "derived from", and the Legislature intended to cover receipts from sources other than the actual conduct of the business. Section 80-I envisaged relief being granted in all cases where there was some direct nexus between the income and the priority industry. Since the manufacture of machinery by the assessee was a priority industry, the carrying out of repairs to machinery manufactured and sold by the assessee was an activity which had a direct nexus to the priority industry and the income derived therefrom must be held to be attributable to the priority industry. The income derived from interest paid by the buyers of machinery manufactured by the assessee on deferred payment also had a direct nexus to the assessee's priority industry and was attributable to it. Th ..... 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