M/s Abhishek Industries Ltd.,, Ludhiana v. JCIT,, Ludhiana

ITA 321/CHANDI/2009 | 2004-2005
Pronouncement Date: 27-09-2011 | Result: Partly Allowed

Appeal Details

RSA Number 32121514 RSA 2009
Bench Chandigarh
Appeal Number ITA 321/CHANDI/2009
Duration Of Justice 2 year(s) 5 month(s) 18 day(s)
Appellant M/s Abhishek Industries Ltd.,, Ludhiana
Respondent JCIT,, Ludhiana
Appeal Type Income Tax Appeal
Pronouncement Date 27-09-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 27-09-2011
Date Of Final Hearing 22-09-2011
Next Hearing Date 22-09-2011
Assessment Year 2004-2005
Appeal Filed On 09-04-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI H.L.KARWA HON'BLE VICE PRESIDENT AND SHRI MEHAR SINGH ACCOUNTANT MEMBER ITA NO. 321/CHD/2009 ASSESSMENT YEAR: 2004-05 M/S ABHISHEK INDUSTRIES LTD. VS. THE JCIT RANGE- 1 LUDHIANA LUDHIANA & ITA NO. 259/CHD/2009 ASSESSMENT YEAR: 2004-05 THE DCIT CIRCLE-1 VS. M/S ABHISHEK INDUSTRIES L TD. LUDHIANA LUDHIANA (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJAY SHARMA RESPONDENT BY : SHRI ASHWANI KUMAR DATE OF HEARING : 22.09.2011 DATE OF PRONOUNCEMENT : 27.09.2011 ORDER PER H.L.KARWA VP THESE CROSS APPEALS BY THE ASSESSEE AND REVENUE AR E DIRECTED AGAINST THE ORDER OF CIT(A) JALANDHAR DATED 30.12. 2008 RELATING TO ASSESSMENT YEAR 2004.-05. 2. FIRSTLY WE WILL TAKE UP THE ASSESSEES APPEAL I .E. ITA NO. 321/CHD/2009 WHEREIN GROUND NO.1 RAISED BY THE ASS ESSEE READS AS UNDER:- 1. THAT ORDER PASSED U/S 250(6) BY THE LD. CIT(A) JALANDHAR IS AGAINST LAW AND FACTS ON THE FILE IN A S 2 MUCH AS HE WAS NOT JUSTIFIED TO HOLD THE ACTION OF THE ASSESSING OFFICER IN: I) DISALLOWING PRIOR PERIOD EXPENDITURE AMOUNTING TO RS. 45 44 691/- ON THE GROUND THAT THEY DO NOT RELATE TO THE PERIOD UNDER APPEAL. II) DENYING DEDUCTION U/S 80G OF THE AMOUNT OF DONATION OF RS. 1 25 000/- ON THE GROUND THAT THE RECEIPTS IS IN THE NAME OF SHRI RAJINDER GUPTA AND NOT IN THE NAME OF THE APPELLANT COMPANY. 3. GROUND NO.1 (I) RELATES TO DISALLOWANCE TO PRIOR PERIOD EXPENDITURE AMOUNTING TO RS. 45 44 691/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER ASKED THE ASSESS EE TO SUBMIT DETAILS OF THE LIABILITY WHICH HAD ARISEN DURING THE YEAR OUT OF THIS EXPENDITURE. HOWEVER NO DETAILS WERE FURNISHED BEFORE THE ASSES SING OFFICER. THE ASSESSING OFFICER HELD THAT THE CONCEPT OF MATCHING PRINCIPLES WAS TO BE APPLIED TO DETERMINE THE TOTAL INCOME OF THE ASSESS EE AND THAT ONLY INCOME AND EXPENDITURE RELEVANT TO PREVIOUS YEAR WAS REQUI RED TO BE CONSIDERED. HE THEREFORE HELD THAT NO DEDUCTION OF THE PRIOR PERIOD EXPENDITURE OF RS. 54 56 428/- WAS TO BE ALLOWED. HOWEVER THE A SSESSING OFFICER EXCLUDED A SUM OF RS. 9 11 737/- RELATING TO ASSESS MENT YEAR 2005-06. THE NET DISALLOWANCE OF RS. 45 44 691/- WAS MADE ON THIS ACCOUNT. 4. ON APPEAL THE CIT(A) CONFIRMED THE DISALLOWANCE STATING THAT THE ASSESSEE HAS NOT LEAD ANY EVIDENCE TO SHOW THAT THE EXPENDITURE AROSE IN THE RELEVANT PREVIOUS YEAR. ACCORDING TO HIM THE EXPENDITURE PERTAIN TO THE EARLIER YEARS. THE ONUS WAS ON THE ASSESSEE TO SHOW THAT THE LIABILITY FOR INCURRING THESE EXPENSES AROSE IN THE RELEVANT PREVIOUS YEAR. THE 3 CIT(A) HAS CATEGORICALLY STATED THAT NO EVIDENCE WA S PRODUCED BEFORE THE ASSESSING OFFICER OR BEFORE HIM IN SUPPORT OF THE A SSESSEES CLAIM. HE THEREFORE UPHELD THE DISALLOWANCE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. AT THE TIM E OF HEARING OF APPEAL SHRI ASHWANI KUMAR LD. COUNSEL FOR THE ASS ESSEE PRODUCED A COPY OF THE ORDER OF THIS BENCH OF THE TRIBUNAL DAT ED 31.3.2008 PASSED IN ASSESSEES CASE IN ITA NOS.837 & 311/CHANDI/2007 RE LATING TO ASSESSMENT YEARS 2002-03 AND 2003-04. THE TRIBUNAL HAS RESTOR ED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIO NS AND GUIDELINES. THE FINDINGS OF THE TRIBUNAL GIVEN IN PARA 20 OF THE AB OVE ORDER READ AS UNDER:- 20. WE HAVE EXAMINED THE PLEA OF THE ASSESSEE AND ALSO THE ORDERS OF THE LOWER AUTHORITIES IN THIS RE GARD. WE FIND THAT THE DISALLOWANCE HAS BEEN MADE WITHOUT RECORDING A FINDING OR EVEN REFERENCE TO ANY MATERI AL WHICH COULD ESTABLISH THAT THE LIABILITY REPRESENTE D BY THE IMPUGNED AMOUNTS HAS NOT CRYSTALLIZED DURING TH E ASSESSMENT YEAR UNDER CONSIDERATION. WE THEREFORE D EEM IT PROPER TO SET-ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE ISSUE FOR RE-EXAMINATION BY THE ASSESSI NG OFFICER. THE ASSESSEE SHALL FURNISH EVIDENCE IN SUP PORT OF THE PLEA THAT THE LIABILITIES REPRESENTED BY THE IMPUGNED AMOUNTS AROSE DURING THE YEAR UNDER CONSIDERATION SO AS TO JUSTIFY THEIR DEDUCTION IN COMPUTING THE INCOME OF THE YEAR UNDER CONSIDERATIO N. THUS ON THIS GROUND THE ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 6. THE FACTS OF THE PRESENT YEAR ARE SIMILAR TO THA T OF ASSESSMENT YEARS 2002-03 AND 2003-04 AND THEREFORE RESPECTFULLY FO LLOWING THE ORDER OF 4 TRIBUNAL DATED 31.3.2008 PASSED IN ASSESSEES OWN C ASE FOR ASSESSMENT YEARS 2002-03 AND 2003-04 WE SET ASIDE THE ORDER O F CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE AFRESH KEEPING IN VIEW THE DIRE CTIONS AND GUIDELINES GIVEN BY THE TRIBUNAL IN ITS ORDER DATED 31.3.2008 IN ASSESSEES OWN CASE IN ITA NOS. 837 & 311/CHANDI/2007 RELATING TO ASSES SMENT YEARS 2002-03 AND 2003-04. THE ASSESSING OFFICER SHALL PASS A SP EAKING ORDER AFTER AFFORDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO. 1(I) STANDS ALLOWED FOR STATISTICAL PURP OSES. 7. GROUND NO. 1 (II) REGARDING DENYING DEDUCTION U/ S 80G WAS NOT PRESSED BEFORE US AND ACCORDINGLY WE DISMISS THE S AME AS NOT PRESSED. 8. GROUND NO.2 OF THE APPEAL READS AS UNDER:- 2. THAT THE LD. CIT(A) WAS NOT JUSTIFIED TO HOLD TH E ACTION OF THE LD. ASSESSING OFFICER IN COMPUTING THE DEDUCTION U/S 80IA AFTER EXCLUDING A SUM OF RS. 2 69 96 242/- (COMPRISED OF MISCELLANEOUS INCOME OF RS. 2 32 124/- INTEREST RS. 67 03 027/- AND INSURA NCE CLAIM OF RS. 2 00 71 091/-). 9. THE ASSESSEE CLAIMED DEDUCTION U/S 80IA OF THE A CT AFTER EXCLUDING A SUM OF RS. 2 69 96 242/- (COMPRISING OF MISC. INC OME OF RS. 2 32 124/- INTEREST INCOME OF RS. 67 03 027/- AND INSURANCE CL AIM OF RS. 2 00 61 091/-). THE ASSESSING OFFICER DID NOT ALLO W THE ABOVE CLAIM OF THE ASSESSEE AND IN FURTHER APPEAL THE CIT(A) CONFI RMED THE ORDER OF ASSESSING OFFICER AND HENCE ASSESSEE IS IN APPEAL B EFORE THE TRIBUNAL. AT THE VERY OUTSET SHRI ASHWANI KUMAR LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE OF CLAIM OF DEDUCTION U/S 80IA OF THE INCOME TAX 5 ACT 1961 (IN SHORT THE ACT) OF MISC INCOME OF RS . 2 32 124/- IS COVERED AGAINST THE ASSESSEE BY THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS CIT (2009) 317 ITR 218 (SC ) WHEREIN IT HAS BEEN HELD THAT SECTION 80-I 80-IA AND 80-IB PROVIDE FOR INCENTIVE IN THE FORM OF DEDUCTIONS WHICH ARE LINKED TO PROFITS AND NOT I NVESTMENT. ON ANALYSIS OF SECTION 80-IA AND 80-IB IT BECOME CLEAR THAT ANY INDUSTRIAL UNDERTAKING WHICH BECOMES ELIGIBLE ON SATISFYING SUB-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 DAT E. APART FROM ELIGIBILITY SUB SECTION (1) PURPORTS TO RESTRICT T HE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF PROFITS. THIS IS THE IMP ORTANCE OF THE WORDS DERIVED FROM AN INDUSTRIAL UNDERTAKING AS AGAINST PROFITS ATTRIBUTABLE TO AN INDUSTRIAL UNDERTAKING. IN VIEW OF THE RA TIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT (SUPRA) WE HOLD THAT MISC. INCOME CLAIMED BY THE ASSESSEE IS N OT DERIVED FROM ANY INDUSTRIAL UNDERTAKING AND THEREFORE THE ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION U/S 80-IA OF THE ACT IN RESPECT OF MISC. INCOME. 10. AS REGARDS THE DEDUCTION U/S 80-IA IN RESPECT O F INTEREST INCOME OF RS. 67 03 027/- WE FIND THAT THE SAME IS ALSO NOT ALLOWABLE AS DEDUCTION U/S 80-IA IN VIEW OF THE JUDGMENT OF THE HON'BLE SU PREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD V CIT (2003) 262 ITR 278 (SC). IN VIEW OF THE ABOVE JUDGMENT OF THE HON'BLE SUPREME COURT WE HOLD THAT INTEREST INCOME EARNED BY THE ASSESSEE FROM OTHERS COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSEL F AND WAS NOT PROFIT OR GAINS DERIVED BY THE UNDERTAKING FOR THE PURPOSE OF DEDUCTION U/S 80-IA. IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF 6 PANDIAN CHEMICALS VS. CIT (SUPRA) THE ISSUE IS DEC IDED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. 11. THE ASSESSEE ALSO CLAIMED DEDUCTION OF RS. 2 00 61 091/- U/S 80-IA OF THE ACT. THIS AMOUNT WAS RECEIVED BY THE ASSESS EE COMPANY ON ACCOUNT OF INSURANCE CLAIM FOR LOSS OF PROFIT POLIC Y. THE ASSESSING OFFICER HAS NOTED THAT THIS CLAIM WAS A ONE TIME RE CEIPT WHICH ACCRUES ONLY ON THE HAPPENING OF CERTAIN MISHAP LIKE BREAK DOWN OR LOSS DUE TO FIRE ETC. IT WAS RECEIVED BY THE ASSESSEE SINCE TH E ASSESSEES PLANT WAS SHUT DOWN FOR A SPECIFIC PERIOD. THE ASSESSING OF FICER TOOK THE VIEW THAT THE SOURCES OF INSURANCE CLAIM RECEIVED ON ACC OUNT OF SHUT DOWN IS NOT THE INDUSTRIAL UNDERTAKING ITSELF BUT AN INSURA NCE POLICY TAKEN TO COVER CERTAIN LOSSES ARRIVING ON CONTINGENCIES. HE FURT HER HELD THAT INSURANCE CLAIM THOUGH RELATED AND ATTRIBUTABLE TO THE INDUST RIAL UNDERTAKING AROSE OUT OF RISK COVERABLE POLICY OF THE INSURANCE COMPA NY AND CANNOT NOT BE SAID TO BE DERIVED FROM INDUSTRIAL UNDERTAKING. 12. ON APPEAL THE CIT(A) UPHELD THE ORDER OF ASSES SING OFFICER RELYING ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V KHEMKA CONTAINER (P) LTD (2005) 275 ITR 559 (P&H) W HEREIN THE HON'BLE COURT UPHELD THE STAND OF THE REVENUE THAT INSURANCE CLAIM DID NOT ARISE FROM THE INDUSTRIAL UNDERTAKING OF THE A SSESSEE. THE CIT(A) OBSERVED THAT IN THE PRESENT CASE THE ASSESSING OFF ICER HAS HIMSELF NOT EXCLUDED THE INSURANCE CLAIM RECEIVED IN RESPECT OF MACHINERY BREAK DOWN SINCE IT WAS ON THE REIMBURSEMENT. THE SUM OF RS. 200.61 LACS IS HOWEVER NOT A REIMBURSEMENT AND ALL EXPENSES HAVE ALREADY BEEN DEBITED IN THE ACCOUNTS OBSERVED THE CIT(A). THE CIT(A) H AS ALSO REFERRED TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F LIBERTY INDIA V CIT 7 (SUPRA). THE CIT(A) FOLLOWING THE RATIO OF THE JUD GMENT IN THE CASE OF LIBERTY INDIA (SUPRA) AND KHEMKA CONTAINERS (SUPRA) UPHELD THE ORDER OF ASSESSING OFFICER. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE AL SO PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE HAS CL AIMED DEDUCTION U/S 80- IA OF THE ACT FOR A SUM OF RS. 200.61 LACS WHICH WA S RECEIVED ON ACCOUNT OF INSURANCE CLAIM FROM ORIENTAL INSURANCE COMPANY LTD DUE TO LOSS ON PROFIT POLICY. ACCORDING TO ASSESSING OFFICER INS URANCE CLAIM RECEIVED OF RS. 200.61 LACS IS NOT THE RECEIPT FROM COGENERA TION OF POWER WHICH IS THE ELIGIBLE BUSINESS FOR CLAIM OF DEDUCTION U/S 80 IA OF THE ACT. ACCORDING TO HIM THE RECEIPT IS ONLY INCIDENTAL TO THE ELIGIBLE BUSINESS. ACCORDINGLY DEDUCTION U/S 80IA OF THE ACT WAS NOT ALLOWED ON THE SAME. 14. SHRI ASHWANI KUMAR LD. COUNSEL FOR THE ASSESSEE RELIED UPON ON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF CIT V SPORTKING INDIA LTD (2010) 324 ITR 283(DEL.) AND SUBMITTED T HAT THE AMOUNT RECEIVED FROM THE INSURANCE COMPANY BY THE ASSESSEE HAD TO BE TAKEN INTO ACCOUNT IN DETERMINING THE PROFITS AND GAINS OF AN INDUSTRIAL UNDERTAKING OF THE TYPES PRESCRIBED U/S 80IA OF THE ACT. ON TH E OTHER HAND THE SHRI AJAY SHARMA LD. DR FOR THE REVENUE HEAVILY RELIED U PON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. KHEMKA CONTAINERS (SUPRA) AND SUBMITTED THAT THE AMOUNTS O F INSURANCE CLAIM RECEIVED BY THE ASSESSEE COULD NOT BE HELD TO BE IN COME DERIVED FROM INDUSTRIAL UNDERTAKING SO AS TO QUALIFY FOR DEDUCTI ON U/S 80IA OF THE ACT. 15. IN THE CASE OF CIT V M/S SPORTKING INDIA LTD (S UPRA) IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 1998-99 ON ACCOUNT OF LOSS OF 8 GOODS WHICH WAS DESTROYED BY FIRE THE ASSESSEE COM PANY RECEIVED AN INSURANCE CLAIM OF RS. 39 35 841/- THE ASSESSING O FFICER DENIED BENEFIT OF SECTION 80IA OF THE ACT TO THE ASSESSEE HOLDING THAT THE AMOUNT RECEIVED FROM THE INSURANCE COMPANY WAS NOT DERIVE D FROM THE MANUFACTURING ACTIVITY OF THE ASSESSEE COMPANY. ON APPEAL THE CIT(A) REVERSED THE ORDER OF ASSESSING OFFICER AND THE ORD ER OF THE CIT(A) WAS CONFIRMED BY THE TRIBUNAL. THE REVENUE WENT IN APPE AL BEFORE THE HON'BLE DELHI HIGH COURT. THE HON'BLE DELHI HIGH C OURT AT PAGE 288 HELD AS UNDER:- THE CASE OF PANDIAN CHEMICALS (2004) 270 ITR 448 (SC) HAS HELD THAT SALE OF SCRAP IS NOT A REVENUE R ECEIPT DERIVED FROM BUSINESS THOUGH THE SAME WAS HELD ELIG IBLE BY THE MADRAS HIGH COURT IN THE EARLIER CASES OF CIT V . SUNDARAM CLAYTON LTD. (1982) 133 ITR 34 AND CIT V. WHEELS INDIA LTD. (1983) 141 ITR 745 (MAD). SO FAR AS THE JUDGMENT OF PANDIAN CHEMICALS (2004) 270 ITR 448 (SC) HOLDS THAT THE PROFIT AMOUNT RECEIVED FROM THE INSURANCE COMPANY I S NOT A REVENUE RECEIPT THE SAME WOULD BE AT DIVERGENCE WI TH THE VIEW OF THE SUPREME COURT IN THE CASE OF RAGHUVANSI MILLS LTD. (1952) 22 ITR 484. WE NOTE THAT THE PANDIAN CH EMICALS CASE DOES NOT REFER TO THE DECISION OF THE SUPREME COURT IN RAGHUVANSHI MILLS LTD. V. CIT (1952) 22 ITR 484 WHI CH CLEARLY HOLDS THAT THE AMOUNT RECEIVED FROM AN INSU RANCE COMPANY ON ACCOUNT OF LOSS OF PROFIT IS VERY MUCH A REVENUE RECEIPT. SO FAR AS THE SUPREME COURT DECISION IN THE CASE OF VANIA SILK MILLS P. LTD. (1991) 191 ITR 647 THE SA ME CANNOT BE APPLIED TO THE FACTS OF THE PRESENT CASE INASMUC H AS THE SAID DECISION TURNED UPON THE MEANING OF THE WORD TRANSFER AS OCCURRING IN SECTION 45 OF THE ACT FO R THE PURPOSE OF DETERMINING CAPITAL GAINS. THE DECISION DEALT WITH THE ISSUE THAT IF THE MACHINERY IS DAMAGED BY FIRE THEN IT 9 CANNOT BE SAID THAT THERE IS TRANSFER WITHIN THE ME ANING OF SECTION 45 OF THE ACT MERELY BECAUSE THE SCRAP HAS TO BE GIVEN TO THE INSURANCE COMPANY WHICH REALIZES PROCE EDS FROM THE SALE OF THE SCRAP. ON THE FACTS OF THE CASE IT WAS THEREFORE HELD THAT THE MONEY RECEIVED UNDER THE I NSURANCE POLICY IN SUCH CASE WAS NOT A CONSIDERATION FOR TRA NSFER OF THE PROPERTY AND HENCE WAS NOT A CAPITAL GAIN WITHI N THE MEANING OF SECTION 45 OF THE ACT. IN VIEW OF THE ABOVE WE ACCEPT THE CONTENTION OF THE ASSESSEE AND REJECT THE CONTENTION OF THE REVENUE A ND ANSWER THE QUESTION OF LAW FRAMED BY HOLDING THAT THE INCO ME-TAX APPELLATE TRIBUNAL/COMMISSIONER OF INCOME-TAX (APPE ALS) DID NOT ERR IN DELETING THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER ON ACCOUNT OF THE ASSESSEES CLAI M FOR DEDUCTION UNDER SECTION 80-IA IN RESPECT OF THE INS URANCE CLAIM RECEIPT. THE APPEAL IS ACCORDINGLY DISMISSED. 16. IN THE ABOVE DECISION THE HON'BLE DELHI HIGH C OURT HAS CATEGORICALLY HELD THAT SUM RECEIVED FROM INSURANCE COMPANY IS COMPENSATION OF GOODS DESTROYED BY FIRE SHOULD BE T AKEN INTO ACCOUNT IN DETERMINING THE PROFITS AND GAINS OF INDUSTRIAL UND ERTAKING OF THE TYPES SPECIFIED U/S 80-IA OF THE ACT. 17. IN THE CASE OF KHEMKA CONTAINERS (SUPRA) THE A SSESSEE RECEIVED AN AMOUNT OF RS. 1 50 733/- TOWARDS INSURANCE CLAIM ON ACCOUNT OF LOSS OF RAW MATERIAL IN THE FIRM. THE ASSESSEE INCLUDED TH E SAID AMOUNT IN PROFITS AND CLAIMED DEDUCTION U/S 80I OF THE INCOME TAX ACT . IN THIS CASE THE ASSESSING OFFICER AS WELL AS THE CIT(A) REJECTED TH IS CLAIM BUT THE 10 TRIBUNAL ON FURTHER APPEAL HELD THIS AMOUNT AS CLO SE CONNECTION WITH THE PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING. IT WAS OBSERVED THAT RAW MATERIAL WHICH WAS LOST IN FIRE WOULD HAVE BEEN USE D IN GENERATING INCOME FOR THE INDUSTRIAL UNDERTAKING AND THEREFOR E COMPENSATION RECEIVED FOR SUCH RAW MATERIALS COULD BE HELD AS PR OFIT DERIVED FROM THE INDUSTRIAL UNDERTAKING. ON A REFERENCE THE HON'BL E JURISDICTIONAL HIGH COURT FOLLOWING THE DECISION OF THE HON'BLE APEX CO URT IN PANDIAN CHEMICALS (2003) 262 ITR 278 AND STERLING FOODS [19 99 237 ITR 579 AT PAGE 562 HELD AS UNDER:- WE ARE CLEARLY OF THE VIEW THAT THE AMOUNT OF INSURANCE CLAIM RECEIVED BY THE ASSESSEE CANNOT BE HELD TO BE INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING S O AS TO QUALIFY FOR DEDUCTION UNDER SECTION 80-I OF THE ACT . WE HOWEVER MAKE IT CLEAR THAT THE AMOUNT OF RS. 1 50 733 IS THE AMOUNT RECEIVED FROM THE INSURANCE COMPANY IN RESPE CT OF THE CLAIM OF RAW MATERIAL DESTROYED IN FIRE. HOWEVE R WHILE COMPUTING THE PROFITS OF THE INDUSTRIAL UNDERTAKING FOR THE PURPOSES OF DEDUCTION UNDER SECTION 80-I WHAT HAS TO BE EXCLUDED IS NOT THE GROSS RECEIPT BUT THE INCOME AR ISING OUT OF THIS RECEIPT. SUCH INCOME CAN ONLY BE COMPUTED B Y DEDUCTING THE COST OF RAW MATERIAL DESTROYED IN FIR E FROM THE GROSS RECEIPT OF INSURANCE CLAIMS. THE RAW MATERIAL HAD BEEN ADMITTEDLY PURCHASED DURING THE YEAR UNDER CONSIDER ATION AND ITS COST DEBITED IN THE PURCHASE ACCOUNT OF THE YEAR. ACCORDINGLY THE QUESTION IS ANSWERED IN THE NEGATI VE I.E. IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. HOW EVER IN VIEW OF THE OBSERVATIONS MADE ABOVE THE TRIBUNAL W ILL COMPUTE THE PROFIT ATTRIBUTABLE TO THE RECEIPT OF I NSURANCE CLAIM AND EXCLUDE ONLY SUCH PROFIT OUT OF THE TOTAL INCOME FOR WORKING OUT THE DEDUCTION UNDER SECTION 80-I OF THE ACT. 11 18. NO DOUBT THE DECISION OF THE HON'BLE DELHI HIG H COURT IN THE CASE OF SPORTKING INDIA LTD (SUPRA) IS IN FAVOUR OF THE ASSESSEE HOWEVER THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF KHEMKA CONTAINERS (SUPRA) IS IN FAVOUR OF THE REVENUE. CON SIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS SETTLED LEGAL POSITION OF LAW AND PRECEDENTS WE ARE BOUND TO FOLLOW THE RATIO LAID D OWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF KHEMKA CON TAINERS (SUPRA) PARTICULARLY WHEN THERE IS NO DIRECT AUTHORITY OF THE SUPREME COURT ON THIS POINT. RESPECTFULLY FOLLOWING THE RATIO LAID D OWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF KHEMKA CON TAINERS (SUPRA) WE UPHOLD THE ORDER OF CIT(A) AND HELD THAT THE INSURA NCE CLAIM OF RS. 2 00 61 01/- IS NOT ALLOWABLE AS DEDUCTION U/S 80IA OF THE ACT. 19. GROUND NO.3 RAISED OF THE APPEAL IS AS UNDER:- THAT THE LD. CIT(A) WAS FURTHER GRAVELY ERRED IN UP HOLDING THE ACTION OF THE LD. ASSESSING OFFICER IN THE MATTERS OF CALCULATION OF DEDUCTION U/S 80HHC ON THE FOLLOWING GROUNDS:- A) EXCLUDING THE SCRAP SALE OF RS. 1 33 19 595/- FROM THE PROFITS OF THE BUSINESS. B) HOLDING THAT SALES TAX SUBSIDY AMOUNTING TO RS. 6 80 61 977/- IS TO BE TREATED AS BUSINESS INCOME B UT AT THE SAME TIME 90% OF SUCH RECEIPT IS TO BE EXCLUDIN G FROM THE PROFITS OF THE BUSINESS. C) REDUCING 90% OF MISCELLANEOUS INCOME OF RS. 1 27 60 909/- INSURANCE CLAIM OF RS. 2 00 61 091/- PROFITS OF THE BUSINESS. D) DISALLOWING DEDUCTION U/S 80HHC IN RESPECT OF WHOLE AMOUNT OF DEPB ENTITLEMENT AMOUNTING TO RS. 19 45 46 911/- BY NOT CONSIDERING IT AS AN EXPERT B ENEFIT. 12 E) TREATING INTEREST RECEIPT AMOUNTING TO RS. 1 66 76 874/- AS INCOME FROM OTHER SOURCES AND DENYING DEDUCTION U/S 80HHC IN RESPECT THEREOF. 20. THIS GROUND OF APPEAL HAS FIVE PARTS. FIRSTL Y WE WILL ADJUDICATE GROUND NO.3 (A) IN SUCCEEDING PARAS. 21. AT THE TIME OF HEARING OF THE APPEAL SHRI AS HWANI KUMAR LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS FOR THIS GR OUND I.E GROUND NO. 3(A) OF APPEAL AND ACCORDINGLY WE DISMISS THE SAME AS NO T PRESSED. 22. AS REGARDS THE ISSUE RAISED BY THE ASSESSEE VIDE GROUND NO. 3(B) OF THE APPEAL LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT V ABHISHEK INDUSTRIES LTD (2006) 286 IT R 1(P&H) WHEREIN IT HAS BEEN HELD THAT SALES TAX SUBSIDY RECEIVED BY TH E ASSESSEE IS HELD TO BE REVENUE RECEIPT AND NOT CAPITAL IN NATURE. LD. COU NSEL FOR THE ASSESSEE SUBMITTED THAT THIS AMOUNT SHOULD NOT BE EXCLUDED F OR THE PURPOSE OF COMPUTING PROFITS OF THE BUSINESS U/S 80HHC OF THE ACT BECAUSE THIS INCOME DOES NOT FALL UNDER THE PARAMETERS PROVIDED IN CLAUSE (BAA) TO SECTION 80HHC (4C) 23 WE HAVE HEARD THE RIVAL SUBMISSIONS. IN VIE W OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V ABHI SHEK INDUSTRIES LTD (SUPRA) WE HOLD THAT SALES TAX SUBIDY AMOUNTING TO RS. 6 81 61 977/- TO BE TREATED AS REVENUE INCOME. AS REGARDING THE PLEA O F LD. COUNSEL FOR THE ASSESSEE THAT 90% OF SUCH RECEIPTS SHOULD NOT BE EX CLUDED FOR THE PURPOSE 13 OF PROFITS OF THE BUSINESS U/S 80HHC OF THE ACT IS CONCERNED WE FIND MERIT IN THE SAME BECAUSE THE AMOUNT OF SALES TAX S UBSIDY DOES NOT FALL IN CLAUSE (BAA) BELOW SECTION 80HHC(4C). CLAUSE (BAA) BELOW SECTION 80HHC (4C) READS AS UNDER:- [(BAA) PROFITS OF THE BUSINESS MEANS THE PROFITS OF BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BU SINESS OR PROFESSION: AS REDUCED BY (1) NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSES (IIIA) (IIIB) (IIIC) (IIID) AND (IIIE) OF SECTION 28 OR OF ANY RECEIPTS BY WAY OF BROKERAGE COMMISSION INTEREST RENT CHARGES OR ANY OTHER RECEIPT OF A SI MILAR NATURE INCLUDED IN SUCH PROFITS; AND (2) THE PROFITS OF ANY BRANCH OFFICE WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATE OUTSIDE INDIA: 24. IN VIEW OF THE ABOVE WE DIRECT THE ASSESSING OFFICER NOT TO EXCLUDE 90% OF AMOUNT OF SALES TAX SUBSIDY FROM PROFITS O F THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE AC T. 25. AT THE TIME OF HEARING OF THE APPEAL LD. C OUNSEL FOR THE ASSESSEE DID NOT PRESS FOR GROUND NO. 3 (C ) OF THE APPEAL R EGARDING THE MISC. INCOME OF RS. 1 27 60 909/-. WE THEREFORE REJE CT THE GROUND REGARDING MISC. INCOME OF RS. 1 27 60 909/-. 26. AS REGARDS THE INSURANCE CLAIM OF RS. 2 00 6 1 091/- WE HAVE HELD THAT THE AMOUNT OF INSURANCE CLAIM RECEIVED BY THE ASSESSEE COULD NOT BE HELD TO BE INCOME DERIVED FROM INDUSTRIAL UNDERTAKI NG TO QUALIFY FOR DEDUCTION U/S 80-IA OF THE ACT. IN THAT VIEW OF T HE MATTER INSURANCE 14 CLAIM OF RS. 2 00 61 091/- CANNOT BE CONSIDERED AS PROFITS OF THE BUSINESS AND HENCE SUCH RECEIPTS IS TO BE EXCLUDED FROM THE PROFITS OF THE BUSINESS. WE THEREFORE DISMISS THE GROUND NO. 3(C ) OF THE APPEAL. 27. AS REGARDS GROUND NO. 3(D) WE FIND THERE IS AS DIRECT DECISION OF HON'BLE BOMBAY HIGH COURT ON THIS ISSUE. THE HON'B LE BOMBAY HIGH COURT IN THE CASE OF CIT V KALAPATARU COLOURS AND C HEMICALS (2010) 328 ITR 451 (BOM.) WHILE DECIDING A SIMILAR ISSUE HELD AS UNDER:- UNDER SUB-SECTION (1) OF SECTION 80HHC OF THE INCOME-TAX ACT 1961 A DEDUCTION IS ALLOWED TO THE EXTENT OF PROFITS DERIVED BY THE ASSESSEE FROM THE EXPORT O F GOODS. SINCE THE DEDUCTION IS IN RESPECT OF PROFITS DERIVE D FROM EXPORT SUB-SECTION (3) LAID DOWN A FORMULA ON THE BASIS OF WHICH EXPORT PROFITS HAVE TO BE COMPUTED. UNDER CLA USE (A) OF SUB-SECTION (3) THE EXPRESSION PROFITS DERIVED FROM IS DEFINED TO BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS THE SAME PROPORTION AS THE EXPORT TURNOVE R IN RESPECT OF SUCH GOODS BEARS TO THE TOTAL TURNOVER O F THE BUSINESS CARRIED ON BY THE ASSESSEE. HOWEVER WHER E AN ASSESSEE CARRIES ON THE BUSINESS OF EXPORT OF TRADI NG GOODS CLAUSE (B) DEFINES EXPORT PROFITS TO BE THE EXPOR T TURNOVER IN RESPECT OF SUCH TRADING GOODS WHICH IS TO BE RED UCED BY THE DIRECT AND INDIRECT COSTS ATTRIBUTABLE TO THE E XPORT. IN THE APPLICATION OF THE FORMULA TO A MANUFACTURER EX PORTER CLAUSE (A) REFERS TO THE PROFITS OF THE BUSINESS. THE EXPRESSION PROFITS OF THE BUSINESS IN EXPLANATION (BAA) TO SECTION 80HHC MEANS PROFITS AS COMPUTED UNDER THE HEAD OF PROFITS AND GAINS OF BU SINESS OR PROFESSION UNDER SECTIONS 28 TO 44D AND THEY ARE T HEREUPON TO BE REDUCED TO THE EXTENT PROVIDED BY CLAUSES (1) AND (2). SECTION 28 ELUCIDATES INCOMES WHICH SHALL BE CHA RGEABLE TO 15 INCOME-TAX UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. CLAUSES (IIIA) (IIIB) AND (IIIC) W ERE INSERTED INTO THE SECTION BY THE FINANCE ACT OF 1990. BY TH E FINANCE ACT OF 2005 PARLIAMENT INSERTED A SPECIFIC CLAUSE NAMELY CLAUSE (IIID) IN SECTION 28 TO THE EFFECT THAT PROF ITS ON TRANSFER OF DEPB I.E. THE AMOUNT RECEIVED ON TRAN SFER OF DEPB IS INCOME CHARGEABLE TO TAX UNDER THE HEAD PR OFITS AND GAINS OF BUSINESS OR PROFESSION. AS REGARDS THE DEDUCTION UNDER SECTION 80HHC THE LEGISLATURE SUBSTITUTED EXPLANATION (BAA) IN SECTIO N 80HHC SO AS TO EXCLUDE 90 PER CENT OF THE PROFITS RECEIVE D ON TRANSFER OF DEPB FROM THE PROFITS OF BUSINESS FOR T HE PURPOSES OF SECTION 80HHC AND INSERTED THE SECOND A ND THIRD PROVISOS TO SECTION 80HHC(3). THE SECOND PROVISO P ROVIDED THAT IN THE CASE OF AN ASSESSEE HAVING AN EXPORT TU RNOVER NOT EXCEEDING RS. 10 CRORES THE PROFITS COMPUTED UNDER SECTION 80HHC(3) SHALL BE INCREASED BY 90 PER CENT OF THE SUM REFERRED TO IN SECTION 28 (IIID). THE THIRD PROVIS O PROVIDED THAT IN THE CASE OF ASSESSEE HAVING AN EXPORT TURNO VER EXCEEDING RS. 10 CRORES THE PROFITS COMPUTED UNDER SECTION 80HHC(3) SHALL BE INCREASED BY 90 PER CENT. OF THE SUM REFERRED TO IN SECTION 28 (IIID) SUBJECT TO THE TWO CONDITIONS SET OUT THEREIN. WHAT CONSTITUTES PROFITS UNDER SEC TION 28(IIID) IS THE AMOUNT RECEIVED ON TRANSFER OF THE DEPB CREDIT AND NOT THE AMOUNT OF CREDIT WHICH THE ASSES SEE WAS ENTITLED TO UNDER THE DEPB SCHEME. IN OTHER WORDS THE AMOUNT EQUIVALENT TO THE FACE VALUE OF DEPB AS WELL AS THE AMOUNT RECEIVED IN EXCESS OF THE DEPB WOULD CONSTIT UTE PROFITS OF BUSINESS UNDER SECTION 28(IIID) AND MERE LY BECAUSE A PART OF SUCH PROFITS OF BUSINESS (FACE VALUE) WAS OFFERED TO TAX IN THE YEAR IN WHICH THE CREDIT ACCRUED TO THE ASSESSEE WOULD NOT BE A GROUND TO HOLD THAT SUCH PROFIT WAS NOT COVERED UNDER SECTION 28(IIID). WHERE THE FACE VALU E OF DEPB CREDIT IS OFFERED TO TAX AS BUSINESS PROFITS U NDER SECTION 28(IIID) IN THE YEAR IN WHICH THE CREDIT AC CRUED TO THE ASSESSEE THEN ANY FURTHER PROFIT ARISING ON TRANSF ER OF THE 16 DEPB CREDIT WOULD BE TAXED AS PROFITS OF BUSINESS U NDER SECTION 28(IIID) IN THE YEAR IN WHICH THE TRANSFER OF THE DEPB CREDIT TOOK PLACE. THERE IS ANOTHER PERSPECTIVE FROM WHICH THE ISSUE C AN BE LOOKED AT. THE DEPB CREDIT TO WHICH AN EXPORTER IS ENTITLED IS A FORM OF AN EXPORT INCENTIVE. NO PART OF THE CREDIT THAT IS AVAILABLE UNDER THE DEPB SCHEME CAN FALL FO R CLASSIFICATION UNDER CLAUSE (IIIB) OF SECTION 28 WH ICH DEALS WITH CASH ASSISTANCE RECEIVED OR RECEIVABLE AGAINS T ANY SCHEME OF THE GOVERNMENT OF INDIA. CLAUSE (IIIB) WA S ENACTED AT A TIME WHEN THE EXPORT INCENTIVES THAT WERE AVAI LABLE WERE (I) IMPORT ENTITLEMENT LICENCES; (II) CASH COMPENSA TORY SUPPORT; AND (III) DUTY DRAWBACK. THE DEPB SCHEME WAS NOT IN EXISTENCE WHEN CLAUSE (IIIB) CAME TO BE ENACTED INTO SECTION 28 BY THE FINANCE ACT OF 1990. THE DEPB SC HEME WAS BROUGHT INTO EXISTENCE WITH EFFECT FROM APRIL 1 1998. THE VALUE OF THE DEPB CREDIT CANNOT BE REGARDED AS A CASH ASSISTANCE WHICH IS RECEIVED OR RECEIVABLE BY A PER SON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA. IT CANNOT BE INFERRED FROM THE SPEECH OF THE FINANC E MINISTER THAT THE INSERTION OF CLAUSE (IIID) IN SEC TION 28 WAS MADE WITH A VIEW TO TAX ONLY THE AMOUNT WHICH HAS B EEN RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB CR EDIT. DEPB CREDIT INTRODUCED WITH EFFECT FROM APRIL 1 19 97 WHICH WAS AFTER THE INSERTION OF CLAUSE (IIIB) IN SECTION 28; SECTION 28(IIIB) REFERS TO CASH ASSISTANCE RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT PURSUANT TO A SCHEME OF THE GOVERNMENT WITHIN THE MEANING OF CLAUSE (IIIC); AND WHEN SECTION 28(IIID) SPECIFICALLY DEALS WITH PROFITS RE ALIZED ON THE TRANSFER OF THE DEPB CREDIT IT WOULD BE IMPERMISSI BLE AS A MATTER OF FIRST PRINCIPLE TO BIFURCATE THE FACE VAL UE OF THE DEPB AND THE AMOUNT RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB. THE ENTIRETY OF THE SALE CONSIDERATION W OULD FALL WITHIN THE PURVIEW OF SECTION 28(IIID). 17 28. SINCE THE ISSUE IS SQUARELY COVERED BY THE D ECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V KALAPATARU C OLOURS AND CHEMICALS (SUPRA) THEREFORE RESPECTFULLY FOLLOWI NG THE SAME WE HOLD THAT DEDUCTION IN RESPECT OF 90% OF DEPB AND DFRC B ENEFITS ARE NOT ALLOWABLE U/S 80HHC OF THE ACT. WE THEREFORE DIS MISS GROUND NO.3(D) OF THE APPEAL. 29. GROUND NO.3(E) OF THE APPEALS IS DISMISSE D AS NOT PRESSED. ITA NO. 259/CHD/2009 30. IN THIS APPEAL GROUND NO.1 RAISED BY THE REVENUE IS AS UNDER:- 1. THAT THE LD. CIT(A) HAS ERRED IN CONSIDERING THE SO FTWARE EXPENDITURE AMOUNTING TO RS. 58 82 239/- AS REVENU E EXPENDITURE INSTEAD OF CAPITAL EXPENDITURE CONSIDER ED BY THE ASSESSING OFFICER. 31. WHILE FRAMING THE ASSESSMENT THE ASSESSING OF FICER HELD THAT COMPUTER SOFTWARE EXPENDITURE AMOUNTING TO RS. 58 8 2 239/- WAS CAPITAL EXPENDITURE. THE ASSESSING OFFICER AFTER TREATING THE COMPUTER SOFTWARE AS PLANT AND MACHINERY ALLOWED DEPRECIATION @ 60% O N THE SAME AS APPLICABLE TO THE COMPUTERS. ON APPEAL THE CIT(A ) HELD THAT COMPUTER SOFTWARE EXPENDITURE TO BE REVENUE EXPENDITURE FOLL OWING THE ORDER OF THE TRIBUNAL PASSED IN THE CASE OF ASSESSEE FOR ASY 2001-02 BY THE TRIBUNAL. THE CIT(A) HAS ALSO STATED THAT HON'BLE PUNJAB & HARYANA HIGH COURT HAVE CONCURRED WITH THAT DECISION OF THE TRIBUNAL. HE THEREFORE ALLOWED THE GROUND OF APPEAL AND HENCE THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 18 32. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAI NST THE REVENUE BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT V VARINDER AGRO CHEMICALS LTD (2009) 309 ITR 272 (P&H ). IN THE SAID CASE THE HON'BLE HIGH COURT HELD AS UNDER:- HELD THAT THERE WAS NOTHING TO SHOW THAT THE SOFTWARE USED BY THE ASSESSEE WAS OF ENDURING NATUR E AND WOULD NOT BECOME OUTDATED. SINCE TECHNOLOGY IS FAST CHANGING AND DAY-BY-DAY SYSTEMS ARE BEING DEVELOPED IN A NEW WAY SOFTWARE MAY BE NEEDED LIKE RAW MATERIAL. COMPUTER SOFTWARE EXPENSES WERE REVENUE EXPENDITURE AND DEDUCTIBLE AS SUCH. 33. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V VARINDER AGRO CHEMI CALS LTD (SUPRA) WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL AND ACCORDINGLY WE DISMISS THE SAME. 34. GROUND NO.2 OF THE APPEAL READS AS UNDER:- 2. THAT THE LD. CIT(A) HAS ERRED IN TREATING SALE TAX SUBSIDY AS INCOME FROM BUSINESS AND PROFESSION INSTEAD OF INCOME FROM OTHER SOURCES AND DIRECTING THE ASSES SING OFFICER TO REDUCE 90% OF THE SALE TAX SUBSIDY FROM PROFITS OF BUSINESS FOR THE PURPOSE OF COMPUTING OF DEDUCTI ON U/S 80HHC. 35. WHILE DECIDING THE GROUND NO. 3(B) IN ITA NO. 321/CHD/2009 WE HAVE HELD THAT SALES TAX SUBSIDY IS A REVENUE RECEI PT IN VIEW OF THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD (SUPRA). FURTHER WE HAV E HELD THAT THE AMOUNT 19 OF SALES TAX SUBSIDY IS TO BE EXCLUDED FOR THE PURP OSE OF COMPUTING PROFITS OF BUSINESS U/S 80HHC OF THE ACT. WE THEREFORE D O NOT FIND ANY MERIT IN THIS GROUND OF APPEAL AND DISMISS THE SAME. 36. GROUND NO.3 OF THE APPEAL READS AS UNDER:- 3. THE LD. CIT(A) HAS ERRED IN DIRECTING TO REDUCE ONL Y 90% OF DISCOUNT RECEIVED FROM CUSTOMERS FROM PROFITS O F BUSINESS FOR COMPUTATION OF DEDUCTION U/S 80HHC AS THE DISCOUNT RECEIVED IS NOT LINKED WITH EXPORT BUSINES SMAN. 37. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD . DR STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND LD . COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. THE CIT(A) HAS DISCUSSED THIS ISSUE IN PARA 12.4 OF THE ORDER WHICH READS AS UNDER:- 12.4 HOWEVER AS REGARDS DISCOUNT OF RS. 31.92 LAC SINCE THIS IS STATED TO BE RECEIVED ON EARLY PAYMENT BY T HE APPELLANT FOR GOODS PURCHASED IT IS INEXTRICABLY L INKED TO THE EXPORT TURNOVER OF THE ASSESSEE AND IS THEREFORE HELD BY ME NOT TO BE INDEPENDENT INCOME OF THE NATURE OF BROKE RAGE COMMISSION ETC. HENCE THE ASSESSING OFFICER IS D IRECTED NOT TO EXCLUDE 90% OF DISCOUNT RECEIVED OF RS. 31.9 2 LAC FROM PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTIN G DEDUCTION U/S 80HSHC. THIS GROUND IF PARTLY ALLOWE D. 38. IN OUR VIEW THE DECISION GIVEN BY THE CIT(A ) ON THIS ISSUE DESERVES TO BE UPHELD. THE AMOUNT OF RS. 31.42 LACS HAS BEE N RECEIVED ON EARLY PAYMENT MADE BY THE ASSESSEE FOR THE GOODS PURCHASE D WHICH IS DIRECTLY LINKED TO THE EXPORT TURN OVER OF THE ASSESSEE. THE AMOUNT IN QUESTION IS NOT COVERED BY THE PROVISIONS OF CLAUSE (BAA) BELOW EXPLANATION TO 20 SECTION 80HHC (4C). IN THAT VIEW OF THE MATTER TH E CIT(A) HAS CORRECTLY DIRECTED THE ASSESSING OFFICER NOT TO EXCLUDE 90% O F DISCOUNT RECEIVED I.E. RS. 31.92 LACS FROM PROFITS OF THE BUSINESS F OR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT. ACCORDIN GLY WE UPHOLD THE ORDER OF CIT(A) ON THIS ISSUE AND DISMISS THE GROUN D NO.3 OF THE APPEAL. 39. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED PARTLY AND PARTLY FOR STATISTICAL PURPOSES WHILE THE APPEAL OF THE RE VENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF SEPTEMBER 2011. SD/- SD/- (MEHAR SINGH) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 27 TH SEPTEMBER 2011 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT CHANDIGARH