9911796707
TMI Blog2010 (3) TMI 1175X X X X Extracts X X X X X X X X Extracts X X X X ..... rming the disallowance of ₹ 91,04,865/- made by the Assessing Officer in respect of reimbursement of marketing expenses to Gharda Chemicals Ltd., after invoking provisions of Section 40A(2)(b) of the Income Tax Act, 1961 and holding that the expenditure in question is unreasonable and excessive. 4. The Learned Commissioner of Income Tax (Appeals)-VI, Baroda has erred in law and on facts of the case by confirming disallowance of ₹ 39,20,000/- made by the Assessing Officer after holding that expenditure on ERP Software is of capital nature. 5. The Learned Commissioner of Income Tax (Appeals)-VI, Baroda has also erred in confirming disallowance of ₹ 10,80,000/- made by the Assessing Officer in respect of training expenses for operation of ERP System paid to the holding company. 6. The Learned Commissioner of Income Tax (Appeals)-VI, Baroda has erred in law and on facts of the case by confirming addition of notional interest of ₹ 38,81,250/- made by the Assessing Officer in respect of ICD placed with Nipun Investments Pvt Ltd. 7. The Learned Commissioner of Income Tax (Appeals)-VI, Baroda has erred in law and on facts of the case by confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at no details were maintained by the assessee for commission payment and there was no agreement or copies of accounts for such payment was produced before the AO. The Ld. CIT(A also erred in not appreciating the fact that the assessee had failed to establish the business expediency with justification for paying such commission. 3. The Learned CIT(A) has erred on facts and in law, the Ld.CIT(A) has erred in deleting the addition of ₹ 34,88,000/- made by the AO on account of lower sale price of giloquin. 4. The Learned CIT(A) has erred on facts and in law, the Ld.CIT(A) erred in not appreciating the fact that the assessee had directly sold giloquin at price lower than the price at which the giloquin was sold by the assessee through Gharda Chemicals. The direct sale was made at ₹ 121.72 per Kg as against the sale at ₹ 157.84 through Gharda Chemicals. 5. The Learned CIT(A) has erred on facts and in law in directing recomputation of deduction u/s 80IA. 6. On the facts and in the circumstances of the case and in law,the Learned CIT(A) erred in not appreciating the fact that the assessee was systematically manipulating the profits of separate unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he commission at the end of the year while the assessee adopted rate of R. 165 per kg./litre as against actual average sale rate of ₹ 259.75 as per product wise details submitted by the assessee and if 7% commission payable is deducted from the average rate, net average sales consideration per kg / ltr received by the assessee worked ou to ₹ 153.45, the AO doubted the genuineness of the claim and accordingly, disallowed. 2.1. As regards commission of ₹ 15,13,500/- to Nipun Finvest Pvt. Ltd.,on verification of credit note No.GIL/203/2000 dated 31.03.2000, the AO noticed that in the particulars column of credit note issued in favour of M/s Nipun Finvest Pvt Ltd, it was mentioned as under: Being amount of commission payable to you for the following business secured during the year in terms of letter No.GIL/101/99 dated 19th May 1999 . In the debit note dated 31.03.2000 the details of payments revealed as under: Chq 615706 20.4.99 5,00,000 Cr.No 615715 4.6.99 5,00,000 203/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the absence of any evidence of services rendered and genuineness of the claim. 2.3. In view of various discrepancies in payment commission as discussed above, the AO disallowed the claim for the aforesaid commission of ₹ 65,08,260/-, inter alia, relying upon the decision of the Hon ble Supreme Court in the case of McDowell Co Ltd 154 ITR 148 . 3. On appeal, the assessee submitted that they had paid commission @7% on base price to Household Remedies Pvt. Ltd whereas the total invoice value was inclusive of sales tax and excise duty and other incidental expenses, on which no commission is payable. Merely because the commission was accounted for by the year end by raising credit note, could not be a ground for disallowance of the commission amount, the assessee pleaded. In respect of commission of ₹ 15,13,500 to Nipun Finvest Pvt Ltd., it was stated that Nipun Finvest was a regular agent of appellant company and merely because the payment was made earlier than fixing of the term no disallowance can be made. As regards payment of ₹ 2,50,000 in March, 2000 it was stated that the sale were to Government of Gujarat and therefore, therefore no further details were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details were submitted to justify the commission. It is also seen that the appellant had given loan of ₹ 4.5 crores to Nipun Investment an associate company of Nipun Finvest Pvt Ltd. and the appellant had claimed its inability to recover loan alongwith interest from Nipun Investment Pvt Ltd. Thus under the facts and circumstances it appears doubtful that the commission payment to Nipun Finveest Pvt Ltd. are not genuine. I am also in agreement with Assessing Officer that while terms and conditions of commission payment was fixed by letter dated 19.05.1999, ₹ 5,00,000 was paid to Nipun Finvest vide letter dated 20.4.1999. Further all the commission payments were in round figures such as ₹ 5 lacs, ₹ 7 lacs, etc. whereas if it is worked out at percentage of sales it is not likely to be in round figures.Accordingly, the disallowance of commission of ₹ 17,63,500 is confirmed. 4. The assessee is now in appeal before us against the portion of amount confirmed by the ld. CIT(A) while the Revenue is in appeal against the amount deleted by him. The ld. AR on behalf of the assessee while reiterating their contentions in their appeal for the AY 1999-2000 invi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of payment of commission has been established, we are not inclined to interfere with the findings of the ld. CIT(A). Accordingly, the disallowance of commission of ₹ 17,63,500 is confirmed. 5.1 As regards payment of commission of ₹ 37,44,780/- to M/s Household Remedies , same party had beenpaid commission in the preceding year also. While deciding the appeal for the preceding assessment year, we have through our order dated 12.3.2010 in ITA no. 1438/Ahd./2007 dismissed the appeal of the Revenue in respect of payment of commission to the said party. Undisputedly, the facts and circumstances of the case in the year under consideration are similar to the facts in the preceding year. Therefore, following the reasoning given in the preceding assessment year, especially when no material has been placed before us by the Revenue in order to controvert the findings of the ld. CIT(A), the appeal of the Revenue on the issue of payment of commission to the aforesaid party is dismissed. 5.2 In respect of commission of 10,00,000/- paid to M/s Mercury Enterprises , we find that the same party had been paid commission in the preceding year also. While deciding the appeal for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Marketing Expenses 72,76,000 91,04,865 Travelling Expenses 760 0 Stores Packing Material 22,10,471 1,88,000 / 2,59,964 Import Licence Fees 0 15,02,074 ERP Software 0 50,00,000 The salary payments were stated to have been made to Dr. Bomi P Patel Mr. U.A.Maroo and were 45% of the similar salary payments to these persons in the preceding year. Relying upon his own findings for the AY 1999-2000 , the AO disallowed the claim in the absence of any evidence of services rendered by these two persons to the assessee. 7. On appeal, the ld. CIT(A) upheld the disallowance in the following terms: 5.3 I have gone through the contentions of the appellant as well as the argument of the Assessing Officer. It is true that the appellant has failed to furnish the details and substantiate specific services rendered by the two professionals to the appellant company in the year under consideration an that the onus has not been disch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, the assessee should have explained the justification of the services and advice received from these professionals. The Learned Commissioner of Income Tax (Appeals) also noted that assessee has not produced any details and substantiated specific services rendered by these two professionals. The assessee has thus, failed to discharge onus upon it to prove the genuineness of the payment of the salary. The same is the position before the Tribunal. Hon ble Karnataka High Court in the case of DCIT Vs. Mcdowell and Co. Ltd. 291 ITR 107 held that no evidence to prove commission against rendered services to the assessee, not entitled to deduction of the expenditure. Hon ble Punjab and Haryana High Court in the case of Smt. Bimlavanti 257 ITR 191 confirmed the disallowance of salary paid to the daughter in law of the assessee because no evidence of services rendered by daughter in law was filed. Considering the facts and circumstances of the case, we are of the view that assessee failed to discharge onus laid upon it to prove that the expenditure was incurred for the purpose of business, therefore, we do not find any justification even to remand the matter to the file of Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30% Vehicle maintenance 10% 6.3.2 It is also interesting to note that the expenditure of ₹ 91,04,865/- is exactly 10% of the total sale of ₹ 9.104 crores claimed to be effected through the holding company Gharda Chemicals Ltd. In case it is claimed that such expenditure are reimbursement it would be difficult to believe that the expenses under various heads would be exact percentage of total amount expended. It is also seen from the assessment records that no details of expenditure under various heads for sales effected through Gharda Chemicals Ltd. were available. Neither any details were submitted in appeal. The justification note was also perused by me and the document appears to be only self serving without containing exact details of such expenditure being incurred under various heads. In my view the Assessing Officer was fully justified in coming to a conclusion that such an agreement and handwritten debit note submitted reflected nothing but diversion of profit in favour of holding company. In view of the above the Assessing Officer s action of disallowing ₹ 91,04,865/- u/s 40A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the payment is made to the holding company. Learned Commissioner of Income Tax (Appeals) specifically noted the observation of the Assessing Officer that assessee is an independent company engaged in its manufacturing, sale and export of the products for which it has own marketing network. Learned Counsel for assessee did not dispute the above findings of the authorities below during the course of the argument. It is therefore, clear that assessee was doing the same marketing activities of its product which work was assigned to the holding company through the supplementary agreement. In the main agreement, no such payment was agreed for reimbursement of marketing expenses. Learned Counsel for assessee though referred to note on marketing commission PB-167, but no submissions are made as regards justifiability of the expenditure under the head sales promotion, travelling, conveyance, telephone etc. and vehicle maintenance, because these are the common expenditure, which is to be spent by the holding company for its business also. Therefore, assessee was required to file sufficient evidence before the authorities below to claim that some services are rendered by the holding com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were to be paid by GCL to RAMCO on behalf of the assessee company. Further a sum of ₹ 14 lac had been reimbursed as professional services rendered by RAMCO as per agreement dated 09-07-1997. The balance of ₹ 10.80 lakhs were found to be adhoc charges levied by GCL without any basis whatsoever. Since the assessee neither furnished any details/evidence of services rendered by GCL to assessee nor established the genuineness of expenditure to the tune of ₹ 10.80 lakhs, the AO disallowed the same. As regards remaining amount , since the expenditure was stated to have been incurred for developing software system for improving the in house management efficiencies and profitability of the assessee, the AO inferred that the said expenditure was for enduring benefit and, therefore, the expenditure cannot be treated as current revenue expenditure. Accordingly , the AO treated the expenditure capital in nature while allowing 1/4th of the expenditure, holding that that the expenditure conferred deferred capital benefit in the succeeding years also. Since the expenditure incurred was for developing system on professional basis, it was considered as deferred capital expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid findings the ld. CIT(A). The ld AR on behalf for the assessee while relying on the decisions in the case of Bank of Punjab Ltd vs Jt CIT (2002) 122 Taxmann 235 (Chd),Media Video Ltd vs Jt CIT (2002) 122 Taxmann 28 (Del),ITC Classic Finance Ltd vs Dy.CIT (2000) 112 Taxmann 155 (Cal)(Mag),Sumitoma Corp India P Ltd vs Addl CIT (2005) 1 SOT 91 (Del) submitted that aforesaid expenditure may be allowed. To a query by the Bench, though the ld. AR assured to submit as to how the expenditure on software has been treated in the case of Gharda Chemicals Ltd., no such reply has been submitted so far. On the other hand, the ld. DR supported the findings of the ld. CIT(A) while arguing that the said expenditure conferred enduring benefit on the assessee and is, therefore, capital in nature. 17. We have heard both the parties and gone through the facts of the case as also the decision relied upon. As regards claim for deduction of expenditure of ₹ 10,80,000, the AO found that these were adhoc charges levied by GCL without any basis whatsoever. Since the assessee neither furnished any details/evidence of services rendered by GCL to the assessee nor established the genuineness of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r findings in following terms: 59. Our conclusions on the issue under consideration thus can be summarized as under:- (i) When the assessee acquires a computer software or for that matter the license to use such software, he acquires a tangible asset and becomes owner thereof as held above relying on the decision of Hon'ble Supreme Court in the case of TCS. (ii) Having regard to the fact that software becomes obsolete with technological innovation and advancement within a short span of time, it can be said that where the life of the computer software is shorter (say less than 2 years), it may be treated as revenue expenditure. Any software having its utility to the assessee for a period beyond two years can be considered as accrual of benefit of enduring nature. However, that by itself will not make the expenditure incurred on software as capital in nature and the functional test as discussed above also needs to be satisfied. (iii) Once the tests of ownership and enduring benefit are satisfied, the question whether expenditure incurred on computer software is capital or revenue has to be seen from the point of view of its utility to a businessman and how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal of the assesse is disposed of. 19. Ground no. 6 in the appeal of the assessee relates to addition on account of notional interest of ₹ 38,81,250/- in respect of ICD given to Nipun Investments Pvt Ltd. The AO noticed that though the assessee in its accounts had provided interest income for FYs 1997-98 1998-99 in respect of the following inter corporate deposits placed with M/s Nipun Investment Pvt Ltd: Date of Deposit Amount of Deposit Rate of Interest Interest Amount for the AY 2000-01 20-08-1997 Rs.2,00,00,000 17.25% ₹ 34,50,000 23-01-1998 Rs.2,50,00,000 17.25% ₹ 4,31,250 Total Rs.4,50,00,000 ₹ 38,81,250 it did not provide any such interest income in the year under consideration. To a query by the AO, the assessee explained that neither interest nor capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pts is uncertain and on the ground of prudent accounting policies such income was not considered. It is also pertinent to note that out of total inter-corporate deposit of ₹ 4.5 crores placed with Nipun Investment Pvt Ltd. in A.Y. 1997- 98, ₹ 160 lacs has already been recovered towards principal as on 31.3.2006. There appears to be thus contradiction in the stand of appellant when on one hand it is argued that the recovery from Nipun Investment is uncertain on the other hand amounts have been received in the coming years. It would also be not out of place to mention here that a sister concern of Nipun Investment Pvt Ltd has been regularly credited with the sales commission income whereas it is admitted that the directors / holdings of both the companies are interrelated. Under the circumstances, it is not clear as to why it is decided by the appellant that there would be no recovery from Nipun Investment Pvt Ltd. In my humble view there does not appear to be any major change in circumstances to avoid declaring such accrual of interest income. 21. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. AR while inviting our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities nor even before us, suggesting that recovery of principal amount or interest accrued thereon was doubtful, we are of the opinion that income had accrued to the assessee and that the aforesaid amount was not a sticky debt, having already been recovered. This view which we have taken finds support from the decision of the Hon ble Delhi High Court in the case of Magnum Power generation Ltd. Vs. Addl. CIT,311 ITR 332(Delhi). In these circumstances, especially when there is no material before us for taking a different view in the matter, we are not inclined to interfere. Therefore, ground no. 6 in the appeal of the assessee is dismissed. 23. Ground no.7 in the appeal of the assessee relates to expenditure of ₹ 27,56,291/- on replacement of plant and machinery. The AO noticed that expenditure of ₹ 2.42.04.611/- on account of repairs to plant and machinery included expenses amounting to ₹ 36,75,055/- in respect of the following: i) Thermax Gas Burner assembly /- ₹ 2,00,909 ii) Gas Burner Gas Train Rs.14,90,849/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls Ltd (21 ITR 191)(Mad),CIT vs Mahalakshmi Textile Mills Ltd (66 ITR 710)(SC),CIT vs Atherton West Co Ltd (82 ITR 352)(All),Madras Cement Ltd vs CIT ITAT Madras (42 TTJ 175),CIT vs Sri Narsimha Textiles P Ltd (238 ITR 351)(Mad),CIT vs Tutocorin Spinning Mills Ltd (249 ITR 694) and Ambika Cotton Mills Ltd Vs. JCIT ITAT Madras-71 TTJ 871.It was further submitted that similar disallowance made by the AO in the AYs 1992-93, 1993-94 1994-95 had been deleted by holding that the expenditure of replacement of part of Plant Machinery is revenue expenditure and the ld. CIT(A), while deciding the appeals for Assessment Years 1995-96, 1996-97 and 1997-98, followed the ITAT Order and allowed the appeals. However, the ld. CIT(A) upheld the disallowance in the following terms: 9.3 I have carefully considered the submissions of the appellant and also perused the details of various expenditure. Whether a particular expenditure falls in the realm of capital or revenue field, it is to be evaluated in terms of the nature of the individual item. It is also to be seen whether an item is capable of functioning independently and providing enduring benefit. In the decisions of the Ahmedabad Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee incurred expenditure on imported Thermax Gas Burner assembly, Gas Burner-Gas Train, Control Panel, other accessories for Heat Resistance etc in order to replace oil based fuel system with the gas based fuel system . We find from the impugned orders that nowhere the asssessee claimed that the said expenditure amounted to 'current repairs' under s. 31 of the Act. Rather, the claim is that expenditure is revenue in nature. The issue before us is as to whether the replacement of oil based fuel system with the gas based fuel system ,amount to repair of plant and machinery, as contended on behalf of the assessee. In Ballimal Naval Kishore Another vs. CIT,224 ITR 414(SC), Hon ble Apex Court held 'current repairs' under the Act means expenditure on machinery, plant or furniture which is not for the purpose of renewal or restoration but which is only for the purpose of preserving or maintaining an already existing asset and that does not bring a new asset into existence or does not give to the assessee a new or different advantage. Again in CIT vs. Saravana Spinning Mills (P) Ltd.,293 ITR 201(SC) , Hon ble Apex Court laid down that in order to determine whether a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains to disallowance of ₹ 6,67,492 made out of sales promotion expenses. The AO noticed that the assessee incurred sales promotion expenses of ₹ 37,62,633/- vis- -vis ₹ 33,19,680/-in the preceding year. The said amount included expenditure of ₹ 26,69,968/- towards payment for purchase of silver coins and articles from M/s JK Jewellers M/s Pratap Jewellers, Mumbai for distributing the same to the customers. Since the assessee furnished same justification as in the preceding year ,relying upon his own findings in the AY 1999-2000, the AO disallowed 25% of the total expenditure resulting in an addition of ₹ 6,67,492/-. 28. On appeal, the ld. CIT(A) upheld the disallowance with the following observations: 12.3 I have gone through the contentions of the appellant and the argument of the Assessing Officer. It is common business practice to give incentive / gifts to customers to promote the business. The Assessing Officer has disallowed 1/4th of the expenses on the ground that the purchase was in December and in the remaining three months of the financial year entire stock might not have been exhausted. I find that this is a valid presumption and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d arrived at loss of ₹ 1.36 crore. Unit No.II This unit is not eligible for deduction u/s 80IA and the assessee has shown sales of ₹ 6.75 crore and arrived at loss of ₹ 0.72 crore Unit No.III this unit is not eligible for deduction u/s 80IA and the assessee has shown sales of ₹ 35.32 crore and arrived at loss of ₹ 3.77 crore Unit No.IV This unit is not eligible for deduction u/s 80IA and the assssee has shown sales of ₹ 30.90 crore and arrived at profit of ₹ 1.61 crore Unit No.V This unit is eligible for deduction u/s 80IA and the assessee has shown sales of ₹ 16.85 crore and arrived at profit of ₹ 1.15 crore Unit No.VI This unit is eligible for deduction u/s 80IA, and the assessee has shown sales of ₹ 4.80 crore and arrived at profit of ₹ 2.00 crore Unit No.VII This unit is not eligible for deduction u/s 80IA, and the assessee has shown sales of ₹ 14.63 crore and arrived at profit of ₹ 2.49 crore. In the light of aforesaid facts, the AO was of the view that the assessee tried to manipulate the profits of the industrial units-V VI by apportioning cost of production and net profit to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act as against the claim of ₹ 94,67,651/-. 32. On appeal, the assessee submitted that the deduction u/s 80IA has been claimed on the basis of detailed working duly certified by the Chartered Accountant in accordance with method accepted in earlier years. While pointing out that an identical issue involved in A.Y. 1985-86 has already been decided in favour of the assessee by the ITAT, the assessee contended that they did not effect sales of trading goods in Unit V and VI , eligible for deduction u/s 80IA. Therefore, the question of quantifying and excluding trading profit from eligible profit does not arise at all. Inter alia, the assessee relied upon decisions in the case of CIT Vs Ahmedabad Electricity Co Ltd 203 ITR 521 (Bom), Cambay Elect.Supply Indl. Co Ltd CIT 113 ITR 84 (SC),CIT vs Hindustan Antibiotics Ltd 137 ITR 42 (Bom) and Philips Carbon Black Ltd vs CIT 136 ITR 205 (Cal). In the light of these submissions, the ld. CIT(A) concluded as under: 15.3 I have gone through the contentions of the appellant carefully and also the arguments of the Assessing Officer. In view of the fact that in past the computation for 80IA deductions were accepted by the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not form part of the eligible profit for purposes of deduction under 80IA. The Assessing Officer is directed to recomputed the deduction under section 80IA in respect of Unit V VI after excluding the income from other sources and trading profits, if any relating to these units. The ground is thus partly allowed. 33. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A) in excluding income from other sources form the profits eligible for deduction u/s 80IA of the Act while the Revenue is in appeal against the findings of the ld. CIT(A) in directing the AO to exclude profit from trading activity while working out eligible profits for the purpose of deduction u/s 80IA of the Act. The ld. AR on behalf of the assessee while inviting our attention to page 20 of the third paper book and referring to order of the ITAT for the AY 1998-99 contended that their claim for similar deduction u/s 80IA has been allowed in respect of amount of notice pay and miscellaneous sales while in respect of dividend, profit on sale of assets, miscellaneous income and penalty from suppliers, had been rejected. As regards interest on FD , interest from others-ICD and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eded on the basis that the assessee was not maintaining separate books of accounts for each of its units while the ld. CIT(A) observed that the assessee maintained separate accounts in respect of all its units. Neither the ld. AR on behalf of the assessee nor the ld. DR threw any light on this aspect. The facts as revealed from pages 115 to 117 of the paper book are that other income has been allocated on the basis of sales income. The basis for allocating various expenses is not evident nor explained before us by the ld. AR. If separate accounts were maintained for each of the units, there could be no reason to allocate other income on the basis of sale income. Section 80IA of the Act grants deduction in respect of profits and gains derived from an industrial undertaking. Unless income is derived from the activities of the industrial undertaking units V VI of the assessee in the instant case, profits of these two units can not be eligible for deduction u/s 80IA of the Act as held in the case of CIT Vs. Sterling Foods,237 ITR 579(SC) , Pandian Chemicals Ltd. Vs. CIT,262 ITR 278(SC).Hon ble Delhi High Court in their decision dated 25.10.2007 in the case of Honda Siel Power Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble jurisdictional High Court in the case of Nirma Industries Ltd. Vs. DCIT,283 ITR 402(Guj) 34.3 In the year under consideration, 14 items of receipts amounting to ₹ 1,06,28,124/- are mentioned on page 20 of the third paper book filed on behalf of the assessee. Undisputedly , dividend income profit on sale of fixed assets, were not eligible or derived by the industrial undertaking in units-V VI from any business carried on by these industrial undertakings and therefore, these were not eligible for deduction u/s 80IA of the Act , as concluded by the ITAT in their aforesaid order for the AY 1998-99. Following this order, claim of the assessee for deduction u/s 80IA on the Act on the amount of dividend income profit on sale of fixed assets is rejected. 34.4 . As regards claim for deduction u/s 80IA of the Act in respect of bank interest on fixed deposits kept for margin money, the leading 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 placed for the purposes of obtaining loans for business cannot be treated as business income but only as income fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A 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, which means a direct nexus between the profits and industrial undertaking. The mere fact that such income was a business income would not entitle the assessee for deduction under s. 80- IA of the Act. Though the assessee may necessarily have to make the deposit with the bank for certain guarantees or warranties , the income on account of interest from such deposits with the bank cannot be said to have been derived from the business of the industrial undertaking. The immediate source of interest 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 the 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 Hon ble Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 262 ITR 278 and the question, which was posed for consideration before the apex court was whether the interest on deposits with the Tamil Nadu Electricity Board should be treated as income derived by the industrial undertaking for the purpose 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 gains 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 direct or immediate nexus with the assessee's industrial undertaking. The Supreme Court held that interest derived by the industrial undertaking of the assessee on deposits made with the Tamil Nadu Electricity Board for the supply of electricity 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 undertaking for the purpose of the said deduction under section 80HH. In G.T.N. Textiles 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of aforesaid items of receipts ( other than dividend , profit on sale of fixed assets sale of raw material) and restore the matter to the file of the AO with the directions to analyse each of the said items as to whether or not these were derived by the industrial undertakings unit-V VI from any business carried on in these undertakings and thereafter, adjudicate the issue in accordance with law the light of our aforesaid observations and various judicial pronouncements, including those referred to above and after allowing sufficient opportunity to the assessee. 34.9. In view of the foregoing, Ground no.9 in the appeal of the assessee and ground nos. 5 6 in the appeal of the Revenue are disposed of. 35. Ground no. 10 in the appeal of the assessee relates to depreciation on civil structure work for foundation of water pollution control equipment at 100%. Relying on his findings for the AY 1999-2000,the AO allowed depreciation @25% on the additions towards the pollution control equipments of ₹ 5,93,971/- as against 100% depreciation claimed by the assessee.. On appeal, the ld..CIT(A) following his predecessor s order for assessment year 1999-2000 , upheld t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for that purpose, the structure would fall within the definition of Plant . The extra structure which is in addition to such structure cannot be considered as Plant . Therefore, the massive reinforced concrete structure specially designed to take up loads constitutes plant within the meaning of section 43(3) of the Act. 3.3 Considering the facts of the case and material on record in the light of the above judgement, it is clear that the civil structure was part of water pollution equipment and energy saving device without which the above items could not have worked properly. The above items have foundation on civil structure, therefore, it being part and parcel of the same should be treated as within the definition of plant, and the authorities below should have allowed depreciation @ 100%. In this view of the matter, we set aside the orders of authorities below and delete the addition. Assessing Officer is directed to allow depreciation on civil structure also @ 100%. As a result, ground no.1 of the appeal of the assessee is allowed. 37. In the light of of our aforesaid decision, the AO is directed to allow depreciation @ 100% on the civil structure for the pollution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 121.72 per kg. was the gross realization price from sale of GILOQUIN product while as per company s own cost sheets, the cost of finished goods of this product without excise duty and sales tax was ₹ 113.68 per kg. and adding thereto excise duty at the rate of 16% and GST/CST at the rate of 4% the product, cost worked out to ₹ 137.14 per kg. and the assessee did not give any justification for selling their 226.20 MT of this material at a loss ₹ 15.42 per kg. Accordingly, the AO added a sum of ₹ 34,88,000/-to the gross profit, being the difference between the cost (without considering any profit element) of ₹ 137.14 and gross selling price purported to be realized by the co. of ₹ 121.72 per kg. 39. On appeal, the ld.CIT(A) called for a remand report from the AO on the submission of the assessee that the AO compared the cost price of the product, which was inclusive of excise duty and sales tax and that if the net cost price was compared to the net sale price, there was profit . It was pointed out that the direct sale price inclusive of excise duty was ₹ 146.85 per kg as against cost price of ₹ 137.14, inclusive of excise duty le ..... X X X X Extracts X X X X X X X X Extracts X X X X
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