Lincoln Pharmaceuticals Ltd.,, Ahmedabad v. The Income tax Officer, Ward-4(2),, Ahmedabad

ITA 1503/AHD/2004 | 2000-2001
Pronouncement Date: 31-03-2010 | Result: Partly Allowed

Appeal Details

RSA Number 150320514 RSA 2004
Bench Ahmedabad
Appeal Number ITA 1503/AHD/2004
Duration Of Justice 5 year(s) 10 month(s) 26 day(s)
Appellant Lincoln Pharmaceuticals Ltd.,, Ahmedabad
Respondent The Income tax Officer, Ward-4(2),, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 31-03-2010
Date Of Final Hearing 18-03-2010
Next Hearing Date 18-03-2010
Assessment Year 2000-2001
Appeal Filed On 05-05-2004
Judgment Text
ITA.1503-1810-04 1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI JM AND D.C.AGRAWAL A M LINCOLN PHARMACEUTICALS LTD. 2 ND FLOOR NIRAV COMPLEX NARANPURA AHMEDABAD. V/S . INCOME TAX OFFICER WARD-4(2) AHMEDABAD. PAN NO.AAACL2711N (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI A.C. SHAH RESPONDENT BY:- SHRI M.C.PANDIT SR.D.R. O R D E R PER SHERI D.C.AGRAWAL A.M . THESE ARE TWO CROSS APPEALS ONE FILED BY THE ASSES SEE AND OTHER FILED BY THE REVENUE ARISING FROM THE ORDER OF THE LD. CI T (A) DATED 30-3-2004. IN ASSESSEES APPEAL FOLLOWING GROUNDS ARE RAISED : - 1. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDI TION 20% OF AVERAGE REBATE OF RS.85 20 873 ON NOTIONAL BASIS TO THE TRADING PURCHASE OF RS.4 26 04 367/- AND ON THAT BASIS CALC ULATING PROFIT OF RS.30 06 164 FROM THE TRADING SALES AND THEREBY ERRED IN CONFIRMING THE REDUCTION OF PROFITS BY RS.30 06 164 FOR THE PURPOSE OF DEDUCTION U/S. 80IA. ITA NO. 1503/AHD/2004(BY ASSESSEE) AND ITA NO.1810/AHD/2004(BY DEPARTMENT) ASST. YEAR :2000-01 ITA.1503-1810-04 2 1.1. THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADD ITION OF 20% OF AVERAGE REBATE OF RS.79 32 000/- ON NOTIONAL BASIS ON THE PURCHASES OF RS.396.50 LACS FROM LINCOLN PARENTERAL S P. LTD. AND ON THAT BASIS CALCULATING INTEREST ELEMENT @ 12 % ON NOTIONAL BASIS OF RS.9 51 840/- ON SUCH REBATE AND THEREBY ERRED IN CONFIRMING THE REDUCTION OF RS.9 51 840/- AS INT EREST ELEMENT FROM THE PROFITS FOR THE PURPOSE OF DEDUCTION U/S. 80IA. 1.2. THE LD.CIT(A) HAS ERRED IN APPLYING PROVISION OF SEC. 80IA(10) FOR THE PURPOSE OF CONFIRMING THE ABOVE RE FERRED TWO ADDITIONS IN AS MUCH AS THE PROVISION OF SEC. 80IA( 10) ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE SINCE T HE TRANSACTION BETWEEN THE ASSESSEE COMPANY AND THAT OF THE OTHER COMPANY HAVING A CLOSE CONNECTION ARE ENTERED INTO AT ARMS LENGTH AND THAT THE ASSESSEE COMPANY HAS NOT EARNED MORE THAN ORDINARY PROFITS FROM THE ELIGIBLE BUSINESS. 1.3. THE APPELLANT SAYS AND SUBMITS THAT THE LD. AO WRONGLY TREATED THE REBATE EARNED ON PURCHASES MADE FROM LINCOLN PA RENDERALS P. LTD. AS INTEREST INCOME AND THEREBY REDUCED THE SAME FROM THE PROFITS OF THE BUSINESS. IN FACT THE REBATE EA RNED ON PURCHASES IS UNDER THE NORMAL BUSINESS TRANSACTION WHICH IS ALREADY REDUCED FROM THE PURCHASES AND THEREBY THE PROFITS ARE MORE TO THAT EXTENT AND TREATING THE SAME AS NOTION AL INTEREST AND GAIN REDUCING THIS NOTIONAL INTEREST FROM THE P ROFITS OF THE BUSINESS FOR THE PURPOSE OF DEDUCTION U/S. 80IA AMO UNTS TO DOUBLE DEDUCTION. 2. THE LD. CIT (A) HAS ERRED IN CONFIRMING THE REDU CTION OF INCOME OF RS.3 50 476/- BEING INTEREST ON DE POSITS WITH BANKS FROM MARGIN MONEY FROM THE PROFITS FOR THE PURPOSE OF DEDUCTION U/S. 80IA IN AS MUCH AS THE DEPOSITS WERE PLACED OUT OF BORROWINGS MADE FROM THE SAME BANK AND THEREFORE THE INTEREST EARNED IS REQUIRED TO BE ADJUSTED AGAINST THE INTEREST PAID TO THE BANK. 3. THE LD. CIT (A) HAS ERRED IN CONFIRMING THE REDUCTI ON OF DEPB CREDIT OF RS.4 89 376/- FROM THE PROFITS FOR THE PU RPOSE OF DEDUCTION U/S.80IA IN AS MUCH AS THE DEPB CREDIT IS REQUIRED TO BE SET-OFF AGAINST THE RAW MATERIAL PURCHASED AND T HEREFORE THE ITA.1503-1810-04 3 SAME CANNOT BE REDUCED FROM THE PROFIT OF THE BUSIN ESS FOR THE PURPOSE OF DEDUCTION U/S. 80IA. 3.1. THE APPELLANT SAYS AND SUBMITS THAT THE DEP B CREDIT AMOUNT IS ONLY AN ACCOUNTING ENTRY WHEREBY THE AMOUNT OF DUTY UTILIZED FOR IMPORT OF GOODS IS DEBITED TO RAW MATERIALS AND CREDITED TO DEPB CREDIT AND THUS THE AMOUNT OF DEPB CREDIT DOES NOT AFFECT THE PROFITS OF THE BUSINESS. 4. THE LD. CIT (A) HAS ERRED IN CONFIRMIN G ADDITION OF RS.87 216/- BEING THE FOREIGN TRAVEL EXPENSES OF MR S.VISHAKHA BUCH WIFE OF DR. PURNENDU BUCH ON THE GROUND THAT SHE IS NOT A DOCTOR AND THEREFORE SHE COULD NOT HAVE PLAYED ANY ROLE WHICH MAY BE BENEFICIAL TO THE BUSINESS OF THE ASSE SSEE COMPANY IN AS MUCH AS THE ENTIRE EXPENDITURE IS INC URRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THAT THE COMMERCIAL EXPEDIENCY IS TO BE SEEN FROM THE POINT OF VIEW OF BUSINESSMEN AND NOT FOR THE POINT OF VIEW OF REVENU E. 2. WHEREAS IN THE REVENUES APPEAL FOLLOWING GROUND S ARE RAISED :- 1. THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON F ACTS OF THE CASE IN DIRECTING TO EXCLUDE EXCISE DUTY SALES TAX AND CENTRAL SALES TAX AMOUNTING TO RS.3 82 75 812/- FROM THE FIGURE O F TOTAL TURNOVER WHILE CALCULATING THE DEDUCTION U/S. 80HHC . 2. THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON F ACTS OF THE CASE IN HOLDING THAT INTEREST OF RS.5 01 955/- IS INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING AND IS ELIGIBLE FOR DEDU CTION U/S. 80IA. 3. THE FACTS OF THE CASE ARE THAT ASSESSEE IS ENGAG ED IN THE BUSINESS OF MANUFACTURING MARKETING AND EXPORT OF PHARMACEUTIC AL PRODUCTS. THE FIRST GROUND COVERED IN GROUND NO.1 1.1. 1.2 AND 1.3 RE LATES TO REDUCTION IN THE CLAIM OF DEDUCTION U/S. 80IA BY INVOKING SUB SECTIO N 10 THEREOF ON THE GROUND THAT ASSESSEE HAS PURCHASED GOODS FROM SISTE R CONCERN NAMELY M/S. LINCOLN PARENTERALS PVT. LTD. AT REDUCED PRICE AS COMPARED TO MARKET RATES ITA.1503-1810-04 4 THEREBY INCREASING PROFITS IN THE ASSESSEE COMPANY AND CLAIM OF HIGHER DEDUCTION U/S. 80IA. FURTHER THE A.O. NOTED THAT T HE ASSESSEE COMPANY HAS MADE INTEREST FREE ADVANCES TO ONE OF THE GROUP COM PANY M/S. LINCOLN PARENTERALS PVT. LTD. IN SHORT (IPPL) FOR A SUM OF RS.2 56 00 000/- DURING F.Y. 1996-97. IT CONTINUED EVEN DURING THE PERIOD U NDER CONSIDERATION. THE A.O. NOTED THAT AS PER THE AGREEMENT WITH LPPL ASSE SSEE COMPANY IS ENJOYING REBATE AT AN AVERAGE OF 20% ON PURCHASES D EPENDING ON THE PRODUCTS. FROM THIS A.O. INFERRED THAT ASSESSEE COM PANY HAS DELIBERATELY GOT PURCHASES AT REDUCED RATES AND THUS EARNED HIGHER P ROFITS AS AGAINST NORMAL PROFITS WHICH MAY ARISE TO THE UNIT IN NORMAL CIRCU MSTANCES. THUS BY IGNORING THE REBATE OF 20% ON AN AVERAGE THE A.O. REDUCED THE NET PROFIT OF THE MANUFACTURING UNIT AT RS.80 50 258/- AND ACCORD INGLY REDUCED DEDUCTION U/S. 80IA. THE LD. C.I.T.(A) CONFIRMED THE ORDER OF THE A.O. ON THIS GROUND FOLLOWING THE SAME REASONING. 4. AGAINST THIS LD. AR SUBMITTED THAT THERE IS NO A GREEMENT WITH LPPL FOR GETTING ANY DISCOUNT AS CLAIMED BY THE A.O. THE AGREEMENT TO PAY SUM OF RS.2 56 00 000/- AS INTEREST FREE DEPOSIT DOES N OT REFER TO ANY DISCOUNT TO BE RECEIVED BY THE ASSESSEE IN LIEU OF INTEREST FRE E DEPOSITS. FURTHER FOR INVOKING SEC.80IA(10) THERE HAS TO BE SOME MATERIA L WHICH COULD SHOW THAT ASSESSEE HAS PURCHASED GOODS FROM LPPL AT LOWER RAT ES THAN THE MARKET RATES AND THAT WAS DONE WITH THE INTENTION OF TRANS FERRING THE PROFITS OF LPPL TO THE ASSESSEE COMPANY FOR THE PURPOSE OF CLAIMING HIGHER DEDUCTION U/S. 80IA. IN ANY CASE THE ASSESSEE COMPANY HAS GOT ONL Y 30% DEDUCTION U/S. 80IA AND REST OF 70% WAS OFFERED FOR TAX AND HENCE THERE IS NO BENEFIT TO THE ASSESSEE-COMPANY. ITA.1503-1810-04 5 5. AGAINST THIS DR SUBMITTED THAT HE RELIES ON THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE STAND OF THE AUTHORITIES BELOW CANNOT BE SUSTAINED. REASONS ARE THAT FIRSTLY THERE IS NO AGR EEMENT SHOWING THAT ASSESSEE-COMPANY WILL GET DEDUCTION IN PURCHASE PRI CE FROM WHOSE AVERAGE IS WORKED OUT AT 20% BY THE A.O. HENCE THE CLAIM OF THE A.O. THAT REDUCTION IN PURCHASE PRICE IS IN ACCORDANCE WITH AGREEMENT I S NOT SUPPORTED. SECONDLY THERE HAS TO BE MATERIAL ON RECORD TO SHO W THAT THE RATES ON WHICH SALES WERE MADE BY LPPL TO ASSESSEE-COMPANY WERE LO WER THAN THE MARKET RATE OR LOWER RATES AT WHICH SIMILAR GOODS WERE SUP PLIED BY LPPL TO OTHERS. IN ABSENCE OF SUCH MATERIAL IT CANNOT BE SAID THAT ASSESSEE-COMPANY RECEIVED GOODS FROM LPPL AT SUBSIDIZED RATES AND WERE NOT AT ARMS LENGTH PRICE. THIRDLY FOR INVOKING PROVISION OF SEC. 80IA(10) IN TENTION OF THE ASSESSEE- COMPANY AND SELLER HAS TO BE LOOKED INTO AND IT HAS TO BE SHOWN THAT THE PARTIES INTENDED TO TRANSFER PROFITS FROM SUPPLIER COMPANY TO ASSESSEE- COMPANY WITH A VIEW TO CLAIM HIGHER DEDUCTION U/S. 80IA. NOT ONLY THAT THERE IS NO MATERIAL TO SUPPORT INFERENCES BUT INTE NTION IS APPARENTLY CONTRARY IN THE SENSE THAT ASSESSEE-COMPANY HAS PROVIDED INT EREST FREE DEPOSIT TO THE LPPL AND LPPL IS PROVIDING DISCOUNT TO ASSESSEE-COM PANY IN LIEU OF NOT CHARGING OF INTEREST. THUS THERE IS APPARENT COMP ENSATION FOR NOT CHARGING OF INTEREST ON INTEREST FREE DEPOSITS. OF COURSE A CASE COULD HAVE BEEN MADE OUT IN FAVOUR OF REVENUE IF ASSESSEE WOULD HAVE REC EIVED INTEREST FROM LPPL WHICH WOULD NOT HAVE BEEN ELIGIBLE FOR DEDUCT ION U/S. 80IA AS IT IS NOT DERIVED FROM BUSINESS OF INDUSTRIAL UNDERTAKING WHEREAS DEDUCTION IN PURCHASE PRICE WOULD INCREASE ELIGIBLE PROFITS BUT WITHOUT THE COMPARISON OF ITA.1503-1810-04 6 MARKET RATES AND THE RATES AT WHICH GOODS WERE SUPP LIED TO THE ASSESSEE- COMPANY SUCH CASE ALSO CANNOT BE MADE OUT. THEREFO RE WE DELETE THE ADDITION MADE BY THE AUTHORITIES BELOW BY REDUCING THE CLAIM OF DEDUCTION U/S. 80IA. THIS GROUND OF THE ASSESSEE IS ALLOWED. 7. SECOND GROUND RELATES TO CLAIM OF DEDUCTION U/S. 80IA OF RS.3 50 476/- BEING INTEREST ON DEPOSITS WITH BANKS FROM MARGIN MONEY. THE AO DISALLOWED THE CLAIM ON THE GROUND THAT INTEREST INCOME ON WHICH DEDUCTION U/S. 80IA WAS CLAIMED WAS NOT DERIVED FRO M THE BUSINESS OF INDUSTRIAL UNDERTAKING EVEN THOUGH IT MIGHT BE ATTR IBUTABLE TO IT. THE LD. CIT(A) ALSO DID NOT ALLOW THE CLAIM BY OBSERVING AS UNDER :- THE CONTENTIONS RAISED HAVE BEEN CONSIDERED. AS PE R PROVISIONS OF SEC. 80IA THE DEDUCTION UNDER THIS SECTION IS ALLOW ED TO AN ASSESSEE FOR THE PROFITS AND GAINS DERIVED FROM THE BUSINESS OF AN INDUSTRIAL UNDERTAKING OR AN ENTERPRISE. THE WORD DERIVED HAS NOT BEEN DEFINED IN THE SECTION OR IN THE ACT. THE HONBLE SUPREME C OURT HAS HELD IN THE CASE OF CIT VS. STERLING FOODS LTD. (237 ITR-5 79) THAT USE OF THE WORD DERIVED WOULD MEAN THAT INCOME SHOULD BE DIR ECTLY OBTAINED FROM THE MANUFACTURING ACTIVITY AND SUCH MANUFACTUR ING ACTIVITY SHOULD BE THE IMMEDIATE SOURCE OF THE INCOME. THE H ONBLE SUPREME COURT ALSO HELD THAT A MERE COMMERCIAL CONNECTION B ETWEEN THE INCOME AND THE MANUFACTURING ACTIVITY WOULD NOT BE ADEQUATE FOR HOLDING THAT THE SAID INCOME IS DERIVED FROM THE MA NUFACTURING ACTIVITY. IN VIEW OF THE DECISION OF THE HONBLE SU PREME COURT IT HAS TO BE EXAMINED WHETHER THE IMMEDIATE SOURCE OF THE TWO INCOMES . CONSIDERED BY THE A.O. IS THE MANUFACTURING ACTIVI TY/INDUSTRIAL UNDERTAKING OF THE APPELLANT COMPANY OR NOT. THE IN TEREST OF RS.5 01 955/- HAS BEEN RECEIVED ON THE LATE PAYMENT S MADE BY THE CUSTOMERS AND IS THEREFORE ARISING FROM THE SALE P ROCEEDS OF WHICH THE IMMEDIATE SOURCE IS INDUSTRIAL UNDERTAKING. THE INT EREST OF RS.5 01 955/- IS THEREFORE DERIVED FROM THE INDUST RIAL UNDERTAKING AND IS ELIGIBLE FOR DEDUCTION U/S. 80IA. HOWEVER THE I NTEREST OF RS.3 50 476/- WAS ON THE DEPOSIT WITH THE BANK FOR MARGIN MONEY. ITA.1503-1810-04 7 THEREFORE THE IMMEDIATE SOURCE OF THE INTEREST IS THE DEPOSIT IN THE BANK AND NOT THE BUSINESS OF THE INDUSTRIAL UNDERTA KING. THEREFORE THE INTEREST OF RS./3 50 476/- IS NOT ELIGIBLE FOR DEDU CTION U/S. 80IA. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE FO R INTERFERENCE IN THE ORDERS OF THE AUTHORITIES BELOW ON THIS POINT. THE REASONS BEING THAT THE INTEREST INCOME ON FIXED DEPOSITS OPENED FOR OBTAINING LETTE R OF CREDIT HAS ONLY A DISTANT RELATIONSHIP AND NO DIRECT RELATIONSHIP WI TH THE BUSINESS OF THE ASSESSEE. WHEN IT COMES THE QUESTION OF TAXING SUCH INCOME UNDER THE HEAD BUSINESS U/S. 28 OF THE I.T.ACT 1961 THEN THE IS SUE WILL CERTAINLY GO IN FAVOUR OF THE ASSESSEE AS HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF KOSHIK TELCOM LTD. (SUPRA) REFERRED TO BY LD. A.R. OF THE ASSESSEE. BUT WHEN IT COMES THE QUESTION OF CONSIDERING SUCH INTE REST INCOME FOR ALLOWING DEDUCTION U/S. 80IB OF THE I.T. ACT 1961 THEN WORD S USED IN THAT SECTION HAS TO BE COMPARED WITH THE WORDS USED IN OTHER SECTION S UNDER CHAPTER VI-A OF THE I.T. ACT 1961 AND AUTHORITIES PRONOUNCED THEREO N HAS TO BE RELIED UPON. IN THIS REGARD WE REFER TO THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF K. RAVINDRANATHAN NAIR VS. DCIT (2003) 262 ITR-669 (KER.) WHEREIN IT HAS BEEN HELD THAT DEDUCTION U/S. 80HHC OF THE I.T.ACT 1961 WOULD NOT BE AVAILABLE ON INTEREST INCOME EARNED ON FIXED DEPOSITS MADE FOR OBTAINING LETTERS OF CREDIT. INTEREST FROM SUCH SH ORT TERM DEPOSITS RECEIVED BY THE ASSESSEE WAS NOT THE DIRECT RESULT OF ANY EX PORT OF ANY GOODS OR MERCHANDISE. THE F. DS WERE MADE ONLY FOR THE PURPO SES OF OBTAINING LETTERS OF CREDIT AND FOR GETTING OTHER BENEFITS. T HE INTEREST INCOME RECEIVED ON SUCH SHORT TERM DEPOSITS COULD BE ATTRIBUTED TO EXPORT BUSINESS BUT COULD NOT BE TREATED AS INCOME DERIVED FROM THE EXPORT BU SINESS. EVEN WHERE THE BANKS HAVE INSISTED FOR MAKING SUCH DEPOSITS FOR OB TAINING LETTERS OF CREDIT ITA.1503-1810-04 8 OR OTHER FACILITIES STILL IT CANNOT BE SAID THAT I NCOME WAS DERIVED FROM EXPORT BUSINESS. SIMILARLY VIEW WAS TAKEN BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. THE MADRAS MOTORS LTD. (2002) 2 57 ITR 60 (MAD.) AND IN THE CASE OF CIT VS. MENON IMPEX (P) LTD. (2003) 259 ITR-403 (MAD.). THE LANGUAGE USED IN SECTION 80-IB OF THE I.T. ACT 1961 IS THE SAME AS IN SECTION 80HHC OF THE I.T.ACT 1961. IT USES THE WOR DS ANY PROFIT AND GAINS DERIVED FROM ANY BUSINESS REFERRED TO IN SUB-SECTIO N (3).. SECTION 80HHC OF THE I.T. ACT 1961 USES WORDS IN SUB-SECTION (3) THE PROFITS DERIVED FROM SUCH EXPORT.. THUS INTEREST INCOME SHOULD HAVE D IRECT NEXUS WITH THE BUSINESS OF THE INDUSTRIAL UNDERTAKING AS REFERRE D TO IN SECTION 80IB OF THE I.T.ACT 1961 THE BUSINESS OF THE ASSESSEE IS MANUFA CTURING MEDICINES AND NOT OF EARNING INTEREST THEN INTEREST EARNED ON FI XED DEPOSITS MADE FOR OPENING LETTERS OF CREDIT OR FOR OBTAINING OTHER FA CILITIES CANNOT BE SAID TO BE DERIVED FROM BUSINESS OF MANUFACTURING OF MEDICINE S. THE CONNECTION IS REMOTE AND NOT PROXIMATE WHICH IS THE REQUIREMENT R ESULTING FROM THE WORDS DERIVED USED IN THIS SECTION. IN VIEW OF THIS WE CONFIRM THE ORDERS OF AUTHORITIES BELOW ON THIS POINT. AS A RESULT THIS G ROUND OF THE ASSESSEE IS REJECTED. 9. GROUND NO.3 RAISED BY THE ASSESSEE RELATES TO CL AIMOF DEDUCTION U/S. 80IA ON DEPB CREDIT OF RS.4 89 376/-. WE HEARD THE RIVAL PARTRIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. THIS IS C OVERED AGAINST THE ASSESSEE BY THE DECISION OF HONBLE SUPREME COURT IN LIBERTY INDIA VS. CIT (2009) 317 ITR-218 (SC) WHEREIN HONBLE APEX COURT HAS HEL D AS UNDER :- SECTIONS 80-I AND 80IB ARE TO BE READ AS HAVING A COMMON SCHEME. SUB-SECTION(5) OF SECTION 80-IA (WHICH IS REQUIRED TO BE READ INTO SECTION 80IB) PROVIDES FOR THE MANNER OF COMPUTATIO N OF THE PROFITS OF AN ELIGIBLE BUSINESS. SUCH PROFITS ARE COMPUTED AS IF SUCH ELIGIBLE ITA.1503-1810-04 9 BUSINESS IS THE ONLY SOURCE OF INCOME OF THE ASSESS EE. THEREFORE DEVICES ADOPTED TO REDUCE OR INFLATE THE PROFITS OF THE ELIGIBLE BUSINESS HAVE TO BE REJECTED IN VIEW OF THE OVERRIDING PROVI SIONS OF SECTION 80- IA (5). SECTIONS 80-I 80-IA AND 80-IB PROVIDE FOR INCENTIV ES IN THE FORM OF DEDUCTIONS WHICH ARE LINKED TO PROFITS AND NOT INVE STMENT. ON ANALYSIS OF SECTIONS 80-IA AND 80-IB IT BECOMES CLEAR THAT A NY INDUSTRIAL UNDERTAKING WHICH BECOMES ELIGIBLE ON SATISFYING SU B-SECTION (2) WOULD BE ENTITLED TO DEDUCTION UNDER SUB-SECTION (1 ) ONLY TO THE EXTENT OF PROFITS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING AFTER THE SPECIFIED DATE. APART FROM ELIGIBILITY SUB-SECTION (1) PURPO RTS TO RESTRICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF T HE PROFITS. THIS IS THE IMPORTANCE OF THE WORDS DERIVED FROM AN INDUST RIAL UNDERTAKING AS AGAINST PROFITS ATTRIBUTABLE TO AN INDUSTRIAL U NDERTAKING. DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM T HE SCHEMES FRAMED BY THE CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOMS ACT 1962. INCENTIVE PROFITS ARE NOT PROFITS DERIVE D FROM ELIGIBLE BUSINESS UNDER SECTION 80-IB : THEY BELONG TO THE C ATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKING. PROFITS DERIVED BY WAY OF INCENTIVES SUCH AS DEPB/DUTY DRAWBACK CANNOT BE CREDITED AGAINST TH E COST OF MANUFACTURE OF GOODS DEBITED IN THE PROFIT AND LOSS ACCOUNT AND THEY DO NOT FALL WITHIN THE EXPRESSION PROFIT DERIVED F ROM INDUSTRIAL UNDERTAKING UNDER SECTION 80-IB. 10. IN VIEW OF THIS AND RESPECTFULLY FOLLOWING ABOV E DECISION WE DECIDE THE ISSUE AGAINST THE ASSESSEE. THIS GROUND OF THE ASSESSEE IS ACCORDINGLY REJECTED. 11. GROUND NO.4 RELATES TO CONFIRMING THE ADDITION OF RS.87 216/- BEING FOREIGN TRAVEL EXPENSES OF MRS. VISHAKHA BUCH WIFE OF ONE DR. PURNENDU BUSH. THE DISALLOWANCE WAS MADE ON THE GROUND THAT MRS. VISHAKHA BUCH IS NOT A DOCTOR AND ACCORDINGLY SHE COULD NOT PLAY ANY ROLE WHICH MAY BE BENEFICIAL TO THE BUSINESS OF THE ASSESSEE-COMPANY. THE LD. CIT(A) ALSO CONFIRMED THE DISALLOWANCE FOR THE SAME REASONS. AG AINST THIS LD. A.R. ITA.1503-1810-04 10 SUBMITTED THAT IT IS NOT A CASE WHERE WIFE OF THE D IRECTOR VISITED ABROAD AND THEREFORE WAS NOT A BUSINESS EXPENDITURE FOR THE A SSESSEE. IN FACT MANY DOCTORS WERE ALLOWED TO GO FOR BUSINESS TRIP ALONG WITH THEIR SPOUSES. SOME SPOUSES WERE DOCTORS AND SOME OF THERE WERE NOT DOC TORS. SO FAR AS THE ASSESSEE-COMPANY IS CONCERNED IT WILL NOT MAKE ANY DIFFERENCE WHETHER A SPOUSE OF A DOCTOR IS A DOCTOR OR NOT. ONCE THE APP ELLATE AUTHORITY ALLOWS THE CLAIM ON FOREIGN TRAVEL OF SOME OF THE DOCTORS AND THEIR WIFE WHO ARE DOCTORS THEN THERE IS NO REASON TO DISALLOW THE CL AIM IN RESPECT OF FOREIGN TRAVEL EXPENSES INCURRED ON NON-DOCTOR SPOUSE AS IT DOES NOT MAKE ANY DIFFERENCE TO THE ASSESSEE-COMPANY AS TO WHETHER AN Y SPOUSE IS A DOCTOR OR NOT. THE BUSINESS PURPOSE OF THE ASSESSEE IS SERVED BY OTHER DOCTORS WHEN THEY CARRY THEIR NON DOCTOR SPOUSE IN THE SAME WAY AS BUSINESS PURPOSE OF THE ASSESSEE IS SERVED IF A DOCTOR CARRIES WITH HIM A DOCTOR SPOUSE. THERE IS NOTHING ON RECORD TO SUGGEST THAT DOCTORS FOR WHOM ASSESSEE COMPANY INCURRED FOREIGN TRAVEL EXPENSES AND WHO CARRIED WI TH HIM THEIR DOCTOR SPOUSE HAD NOT SERVED ANY BUSINESS PURPOSE OF THE A SSESSEE. 12. THE LD. DR ON THE OTHER HAND SUPPORTED THE ORDE RS OF THE AUTHORITIES BELOW. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE CLAIM CANNOT BE REASONABLY DISALLOWED. IT IS BECAUSE IT IS NO WHERE BROUGHT ON RECORD AS TO H OW A DOCTOR CARRYING WITH HIM A DOCTOR SPOUSE WOULD SERVE THE BUSINESS PURPOS E BETTER AS COMPARED TO A DOCTOR WHO CARRIES WITH HIM HIS NON DOCTOR SPOUSE . THERE IS NOTHING ON RECORD TO SUGGEST THAT DOCTORS FOR WHOM ASSESSEE-CO MPANY INCURRED FOREIGN TRAVEL EXPENSES AND WHO CARRIED WITH HIM THEIR DOCT OR SPOUSE HAD SERVED ITA.1503-1810-04 11 ANY BUSINESS PURPOSE OF THE ASSESSEE-COMPANY. IF WI THOUT BRINGING ANY MATERIAL ON RECORD AUTHORITIES BELOW COULD BE SATIS FIED THAT DOCTORS WHO CARRY WITH THEM THEIR DOCTOR SPOUSE CAN SERVE THE B USINESS PURPOSE OF THE ASSESSEE THEN WITHOUT THERE BEING ANY MATERIAL ON R ECORD IT CANNOT BE INFERRED THAT DOCTORS WHO ARE CARRYING WITH THEM TH EIR NON-DOCTOR SPOUSE HAS NOT SERVED THE BUSINESS PURPOSE OF THE ASSESSEE. DI STINCTION MADE BY AUTHORITIES IS ARTIFICIAL AND UNREASONABLE AND HENC E NOT SUSTAINABLE. ACCORDINGLY THE CLAIM OF THE ASSESSEE AS ALLOWED. 14. AS A RESULT APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA.NO.1810/AHD/2004. 15. IN THIS APPEAL OF THE REVENUE THE FIRST ISSUE IS REGARDING EXCLUSION OF EXCISE DUTY AND SALES TAX FROM TOTAL TURNOVER WHILE CALCULATING DEDUCTION U/S. 80HHC. WE HAVE HEARD THE PARTIES. IN OUR CONSI DERED VIEW THE ISSUE IS NOT COVERED AGAINST THE REVENUE BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. LAXMI MACHINE WORKS (2007) 290 ITR-667 (SC). AS A RESULT THIS GROUND OF THE REVENUE IS REJECTED. 16. GROUND NO.2 RELATES TO DEDUCTION U/S. 80IA ON I NTEREST INCOME RECEIVED BY THE ASSESSEE FROM CUSTOMERS AND LATE PA YMENT OF THE SALE PROCEEDS. THIS WAS HELD TO BE INCOME DERIVED FROM INDUSTRIAL UNDERTAKING BY LD. CIT(A). THE ISSUE IS NOW COVERED AGAINST THE REVENUE BY THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF NIRMA INDUSTRIES LTD. VS. DCIT (2006) 283 ITR-402 (GUJ.). ACCORDINGLY THI S GROUND OF THE REVENUE IS ALSO REJECTED. ITA.1503-1810-04 12 AS A RESULT APPEAL FILED BY THE REVENUE IS DISMISSE D. SD/- SD/- (BHAVNESH SAINI) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT M EMBER AHMEDABAD DATED :31- 03- 2010 PATKI. COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD ORDER PRONOUNCED IN OPEN COURT ON 31-03- 2010