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TMI Blog2016 (1) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... s had been made for AY 2007-08 and when the same was not required it was credited back in A.Y. 2008-09 and that such amount has been treated as part of the business income in accordance with provision of section 41 of the I.T. Act. It has been observed by the ld. CIT(A) that the provision has been made in respect of business expenditure and there is no reason why the same should be treated as anything but profit derived from business when part of such liability is returned back as the same is not required anymore.We, do not find any infirmity with the findings of the ld.CIT(A). We therefore uphold the action of the ld.CIT(A) in deleting the addition in respect of the miscellaneous income. Foreign Exchange Gain - Held that:- In reality there is no gain or loss. The cost of the purchase either goes up or goes down as the case may be. No doubt, the fluctuation in the cost of the purchase has the effect of reducing or enhancing the profit of business. The ld.CIT(A) held that such fluctuation is an essential and inextricable function of the business and the gain in question cannot be segregated from the profits derived from the business.We therefore uphold the action of the ld.CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for claiming deduction u/s 80IC of the Act. These are as under: i) Interest income amounting to ₹ 32,34,811/- earned on FDRs which was created to pledge with the bank as margin money for opening of letter of credit (LC) or issuing of bank guarantee. ii) Miscellaneous income/provision return back amounting to ₹ 51,14,800/-. iii) Gain on account of foreign exchange fluctuation amounting to ₹ 61,29,796/-. 3. The ld.AO made addition of the respective amount as not being eligible to be included for calculating the claim of deduction u/s 80IA of the Act. 4. Aggrieved by the order of the ld.AO, the assessee went into appeal before the ld. CIT(A) I. 5. The ld. CIT(A) after going through the arguments of the assessee observed that the interest on FDs given as security for LC s, is eligible for deduction u/s 80IC. However, the interest on FDs on bank guarantee was held to be not eligible. In respect of the remaining addition made by the ld.AO, in lieu of the miscellaneous income, the ld. CIT(A) held that, the assessee had made the provision in respect of the business expenditure and there is no reason why the same should not be treated as anything ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has direct or immediate nexus with the specified activity which in the present case means manufacture and sale of pre-engineered buildings. The expression derived from is a narrower expression, then the words attributable to , which includes direct as well as indirect receipts, which may not have immediate or direct nexus with the specified activity. In the present case, in view of the words derived from, we have to look at the immediate source which has generated or remitted in the said receipt/income. The meaning of derive from as explained by the Apex Court in the decision of Liberty India vs. CIT (2009) 317 ITR 218 also needs to be applied in the case of provisions for 80IC. 11. Ground no. 1 deals with the deletion of income from interest, miscellaneous income and income from foreign exchange fluctuation. Bank Interest: He ld.CIT(A) has observed that the assessee has to import raw materials for which it has to open letters of credit. Ld. CIT(A) in his order summarizes submissions of the assessee as under; The assessee has to import raw materials for which it has to open letters of credit(LC). The LC is an integral part of the business activity carried on by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy. In reality there is no gain or loss. The cost of the purchase either goes up or goes down as the case may be. No doubt, the fluctuation in the cost of the purchase has the effect of reducing or enhancing the profit of business. The ld.CIT(A) held that such fluctuation is an essential and inextricable function of the business and the gain in question cannot be segregated from the profits derived from the business. We, do not find any infirmity with the findings of the ld.CIT(A). We therefore uphold the action of the ld.CIT(A) in deleting the addition made by the ld. Assessing Officer in respect of foreign exchange fluctuation. Ground no. 2: 12. Hon ble Supreme Court in the case of Liberty India vs. CIT reported in (2009) 317 ITR 218 held as under; Analysing Chapter VI-A, we find that section 80-IB/80-IA are a code by themselves as they contain both substantive as well as procedural provisions. Therefore, we need to examine what these provisions prescribe for computation of profits of the eligible business . It is evident that section 80-IB provides for allowing of deduction in respect of profits and gains derived from the eligible business. The words derived from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neous expenses and Foreign exchange fluctuation gain, do not suffer from any infirmity, legal or factual and can be said to have a direct nexes with the business activity carried on by the assessee. 17. Cross Objection No. 197/Del/2012: The ground raised by the assessee is as under: 1. The ld. CIT(Appeals)-1, Dehradun erred in law and in facts in holding that the interest income earned on fixed deposits made with the banks for providing guarantee to its customers, in lieu of performance guarantee or advance payments received from them, is not a profit derived from the eligible business and consequently denying the benefit of deduction u/s 80IC of the Act on the said interest income. The Respondent craves for leave to add, amend, vary, omit or substitute any of the aforesaid grounds of cross objection at any time before or at the time of hearing of the appeal. 18. Ld. CIT(A) in his order summarizes submissions of the assessee as under; The assessee had earned interest in the fixed deposits made with the banks for providing bank guarantee. That customers of the assessee, generally releases 90 to 95% of the sale value and retain the balance 5 to 10% as perfor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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