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TMI Blog2011 (8) TMI 1214X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) is justified in rejecting the contention of the assessee that the net receipt of interest (interest receipt interest paid) should be taken into account. iii) Whether in the facts and circumstance of the case, the CIT(A) is justified in holding that the foreign exchange rate difference on opening debtors cannot be regarded as income derived from export activity. 2.1 For the Assessment Year 2003-04, the assessee has also raised three more grounds as under: a) Whether the CIT(A) is justified in upholding the common ground of deduction u/s 10A in respect of sale of scrap of ₹ 11,944/-. b)The CIT(A) erred in upholding the disallowance of software expenses to the extent of ₹ 34,37,478/- as capital expenditure. c)The CIT(A)ought to have held that the computation of book profit u/s 115JB of the Act an amount of ₹ 76,99,25,000/- ought to have been reduced under clause (ii) of the Explanation to sec. 115JB of the Act. d) The CIT(A) erred in upholding the increasing of book profits of the appellant by the amount of provision of leave encashment of ₹ 26,39,000/- 3. At the time of hearing, the ld AR of the assessee has stated that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est income as income from other sources. 6. Before us, the ld AR of the assessee has submitted that the assessee is a 100% export oriented unit. He has referred sub.sec. (4) of sec. 10A of the I T Act and submitted that post amendment sec 10A is no more an exemption but is in the nature of deduction. He has further contended that sub.sec.4 mentions the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking in proportion to export turnover in respect of the total turnover of the business carried by the undertaking. The ld AR of the assessee, thus, submitted that the term profit of the business of the undertaking is separate and different from the profit derived from the export of article or things. The assessee deposited the surplus funds in the fixed deposits instead of re payment of the borrowed funds. While doing so, the assessee reduced the interest liability/expenditure, which is otherwise allowable deduction. Thus, the ld AR has submitted that the interest earned on the FD shall be treated as profit of business of the undertaking, which is distinct from the profit derived fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) vi) CIT vs Tamil Nadu Development Corpn Ltd 175 ITR 361 (AP) vii) CIT vs AP Industrial Infrastructure Corpn Ltd 175 ITR 361(AP) viii) CIT vs Tirupati Woolen Mills ltd 193 ITR 252 (Cal) ix) Snam Progetti SAP v ACIT 132 ITR 70(Del) x) Everyday Industries India Ltd v CIT 323 ITR 312 (Cal) xi) CIT vs Producin P Ltd 290 ITR 598(Kar) 6.3 On the other hand, the ld DR has submitted that in the return of income, the assessee itself has offered to tax the interest income as income from other sources and thereafter the assessee claimed that the same should be treated as business income of the assessee, eligible for deduction u/s 10A. He has referee the assessment order as well as the impugned order of the CIT(A) and submitted that the expression used in sec. 10A derived from which is narrower in meaning than the expression attributable and incidental to. The assessee earned interest income out of surplus funds available with the assessee; therefore, by no stretch of imagination, interest earned on deposit on surplus funds in the bank can be treated as profits of business of the assessee. He has relied upon the decision of the Hon ble Supreme Court in the case of Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2005) 2 SCC 324 in the case of M. Janardhana Rao V/s Joint Commissioner of Income Tax has held at para 10 thus : 10. Some of the provisions of Section 260-A are in pari materia with various sub-sections of Section 100 CPC. The provisions are Sections 260-A(1), 260-A(2)(c), 260-A(3), 260-A(4) of the Act corresponding to Sections 100(1), 100(3), 100(4) and 100(5) CPC . 7. Hence, the question of fact arrived at by the authorities below cannot be interfered with in the present appeal under Section 260-A of the said Act as no perversity has been shown by the Appellant to the said findings. 8. The judgment of this Court in the case of Ravi Ratna Exports ( supra ) is not applicable to the facts of the present case as the authorities therein had come to the conclusion that monies on which the interest was earned was not in the course of the assessee s business. This is not the case in the present case. In the judgment relied upon by the learned Counsel appearing for the Respondent in the case of Alfa Laval India Ltd. ( supra ), the Division Bench of this Court has held at paras 15, 16 and 17 thus : 15. Before us, Mr. Inamdar, learned Counsel for the assessee submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the business profits while computing the deduction under section 80- HHC of the I.T. Act. Perusal of the assessment order clearly shows that the amounts in question have not been assessed under the head Income from other sources , but, the same have been assessed under the head profits grains of business or profession . Under section 80-HHC (3) relevant to AY 1989-90, the deduction was to be computed with reference to the profits of the business as computed under the head profits grains of business or profession . In the present case, the interest income from customers and sales tax set off have been computed and assessed under the head profits grains of business or profession as part of the operational income and not under the head income from other sources . Therefore, the said income could not be deducted from the business profits while computing the deduction under section 80-HHC of the I.T. Act. The decisions relied upon by the Tribunal have been distinguished in the case of Bangalore Clothing Co. (supra). In the case of Bangalore Clothing Co. (supra), it is held that the A.O. must ascertain the nature of receipt in each case independently. Interest income ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss undertaking of the assessee and particularly, the export articles or things and computer software. The decision relied upon by the ld AR of the assessee are on the facts when the interest earned on the deposits made in connection with the business of the assessee. Therefore, in view of the decision of the Hon ble Supreme Court in the case of Liberty India (supra), the receipts should come within first degree of source as to fall under the words derived from . The Hon ble Supreme Court has observed in para 14 as under: 14 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 are narrower in connotation as compared to the words attributable to . In other words, by using the expression derived from , Parliament intended to cover sources not beyond the first degree. In the present batch of cases, the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has held as under: Before concluding, it would be necessary to note that the Delhi High Court affirmed the judgment of a Special Bench of Income-tax Appellate Tribunal in the case of Lalsons. The Tribunal in the course of its decision, adverted to the deduction of ten per cent. allowed by Parliament in Explanation (baa) while legislating that only ninety per cent. of the receipts unrelated to export turnover would be excluded from the profits of business. The Tribunal, observed that the allowance of ten per cent. had been made by Parliament only for meeting common expenses, according to Circular 621 dated December 19, 1991* of the Central Board of Direct Taxes. In Lalsons, the Tribunal observed that in addition to such common expenses, there may be other expenses which have a direct bearing on excludible receipts. The Tribunal held that if such receipts were to be taken out of the business profits on the footing that they had no connection with the business profits or turnover, it would only be reasonable to hold that expenditure having nexus with such receipts should also be taken out of the business profits on the same footing. The Tribunal noted that the use of the word re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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