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TMI Blog2012 (12) TMI 783X X X X Extracts X X X X X X X X Extracts X X X X ..... he deduction under Section 80-IB erred in excluding the gross receipt of Rs.4,64,265 pertaining to processing charges without deducting there from the expenses / costs incurred to earn the same." 3. The learned Counsel for the assessee contended that these additional grounds involve certain legal issues and therefore the same should be admitted. The learned Departmental Representative, on the other hand, opposed the admission of these additional grounds. A bare perusal of the above additional grounds indicate that only legal issue is involved therein and the decision thereon will not required investigation of fresh facts. Respectfully following the judgment of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [(1998) 229 ITR 383 (SC)] we admit these two grounds. 4. Ground no.1 of the assessee's appeal and additional ground no.1 are against the denial of deduction u/s 80-IB on the sale proceeds of DEPB licenses amounting to Rs.3,26,78,524. Briefly stated the facts of these grounds are that the assessee received sale proceeds of DEPB licenses amounting to Rs.3,26,78,524. Deduction was claimed u/s 80-IB on such amount. The Assessing Officer refused su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace value of DEPB should be out rightly taken out of the net of taxation. The question before the Hon'ble Supreme Court was to quantify the amount which falls u/s 28(iiid) for the purposes of deduction u/s 80HHC. There is hardly any need to accentuate that the provisions of section 80HHC are materially different in form of substance when compared with the provisions of section 80-IB. Be that as it may, the Hon'ble Supreme Court in Topman Exports (supra), has primarily dealt with section 80HHC and secondly, it has nowhere held that the face value of DEPB should not be recognized as income. On the other hand, we are concerned with a situation in which the question is whether the sale proceeds of DEPB should be considered as eligible for deduction u/s 80-IB in which the expression used is "derived from" in relation to income vis-à-vis the eligible undertaking. The said issue has been squarely decided by the Hon'ble Supreme Court in the case of Liberty India (supra) by holding that the amount of DEPB is not eligible for deduction. In view of the fact that the judgment of the Hon'ble Supreme Court in the case of Topman Exports (supra) is not applicable to the fact situation pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction u/s 80-HH as it cannot be characterized as having been derived from industrial undertaking. In that case also such a plea was raised that the making of deposit with the electricity board from which interest income emanated, was necessary to carry on the business. Rejecting such contention, the Hon'ble Supreme Court that since such interest income was not derived from the industrial undertaking, the same would not qualify for deduction. It is observed that in the language of section 80-IB also, similar expression - Rs.derived from'- has been employed which is there in section 80-HH. As the interest on fixed deposits from bank cannot be held to be Rs.derived from' eligible undertaking, in our considered opinion, the same cannot qualify for deduction u/s 80-IB. We uphold the impugned order to this extent. 9. Now turning to the allowability of deduction of interest income u/s 80HHC, it is relevant to note that we have held supra that such interest income falls under the head Rs.Profits and gains of business or profession'. Explanation (baa) below section 80HHC(4C) defines the expression Rs.profits of the business' to mean the profits of the business as computed under the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B in respect of fluctuation gain arising from the exports effected by it. The AO refused to grant deduction on this amount. The learned CIT(A) echoed the assessment order on this point. 11. Having heard the rival submissions and perused the relevant material on record we find that this issue is directly covered in favour of the assessee by the judgment of the Hon'ble jurisdictional High Court in CIT v. United Riceland Ltd. (IT Appeal No.6997 of 2010). Vide this judgment dated 31st March, 2012, a copy of which is available on record, Their Lordships have held that the foreign exchange gain is eligible for deduction u/s 80-IA. While reaching this conclusion, Their Lordships took note of another judgment of the Hon'ble jurisdictional High Court in the case of CIT v. Rachna Udyog [(2010) 230 CTR (Bom.) 72] in which the assessee was held to be eligible for deduction in respect of foreign exchange gain. No contrary judgment has been brought to our notice by the ld. DR. Respectfully following the precedent, we allow this ground of appeal. 12. Ground nos.5 and 6 of the assessee's appeal are against not allowing deduction u/s 80HHC on processing charges amounting to Rs.4,64,265 and scrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing charges are not eligible for deduction u/s 80HHC. In reaching this conclusion, the Hon'ble jurisdictional High Court relied on the judgment of the Hon'ble Supreme Court in the case of CIT v. K.Ravindranathan Nair [(2007) 295 ITR 228 (SC)] in which it has been unequivocally laid down that 90% of processing charges are required to be reduced from the eligible profit. In our considered opinion the later judgment in the case of Pfizer Ltd. (supra) does not advance the case of the assessee for the reason that in that case the question was about insurance claim for loss of stock-in-trade, which was found to be not covered within the receipts of a nature similar to brokerage, commission, interest, rent or charges etc. There is no reference whatsoever of the processing charges in the case of Pfizer Ltd. (supra). Respectfully following the judgment of the Hon'ble Supreme Court in the case of K.Ravindranathan Nair (supra), the judgment of the Hon'ble jurisdictional High Court in the case of Dresser Rand India Pvt. Ltd. (supra) and the order passed by the co-ordinate Bench in assessee's own case, we hold that the processing charges are not liable to be considered as eligible for deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1213/Mum/2007 & Ors. "Profits and gains of business or profession" shall be in accordance with the method of accounting regularly employed by the assessee and further adjusted to include the amount of any tax, duty, cess etc. paid or incurred by the assessee to bring the goods to the place of its location as on the date of valuation. According to the prescription of this section, which is applicable to the year under consideration, the amount of tax, duty, cess etc. is liable to be included in the value of purchases, sales, opening and closing stock. It is not appropriate to include the closing Modvat in the figure of closing stock without modifying the figures of purchases, sales and opening stock. The Hon'ble jurisdictional High Court in CIT Vs. Mahalaxmi Glass Works Pvt. Ltd. [(2009) 318 ITR 116 (Bom.)] and the Hon'ble Delhi High Court in CIT Vs. Mahavir Alluminium [(2008) 297 ITR 77 (Del.)] have held to this extent. As the authorities below have not adjusted other figures with the amount of tax, duty, cess etc., we set aside the impugned order and restore the matter to the file of A.O. for deciding it afresh in accordance with the afore-noted judgements and the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we agree in principle that the amount of interest is liable to be included under the head Rs.Profits and gains of business or profession' and as such 90% of such net interest is to be deducted as per Explanation (baa) to section 80HHC. The basis on which amount is liable to be reduced from the gross interest has been restored by us to the file of AO in the appeal for assessment year 2003-2004. Following the same view, we direct the AO to work out deduction 80HHC in accordance with our direction given for assessment year 2003-2004. 27. Ground nos. 4 and 5 are against eligibility of deduction u/s 80HHC on the amount of processing charges and scrap sales. Following the view taken for assessment year 2003-2004, we reject the assessee's claim insofar as the processing charges are concerned. However the assessee's claim for deduction u/s 80HHC on scrap sale is accepted. We want to make it clear that there is no question of netting off of processing charges insofar as deduction u/s 80HHC is concerned. 28. Ground nos.7 to 9 are against not allowing deduction u/s 80HHC on DEPB license. This issue has already been dealt with by us for assessment year 2003-2004. Following the view taken her ..... X X X X Extracts X X X X X X X X Extracts X X X X
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