M/s. Pine Packaging Pvt. Ltd, New Delhi v. ITO, New Delhi

ITA 4084/DEL/2010 | 2007-2008
Pronouncement Date: 14-01-2011 | Result: Dismissed

Appeal Details

RSA Number 408420114 RSA 2010
Assessee PAN AAACP1832G
Bench Delhi
Appeal Number ITA 4084/DEL/2010
Duration Of Justice 4 month(s) 10 day(s)
Appellant M/s. Pine Packaging Pvt. Ltd, New Delhi
Respondent ITO, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 14-01-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 14-01-2011
Assessment Year 2007-2008
Appeal Filed On 03-09-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH F DELHI ] BEFORE SHRI R. P. TOLANI JM & SHRI K. D. R ANJAN AM I. T. APPEAL NO. 4084 (DEL) OF 2010. ASSESSMENT YEAR : 200708. M/S. PINE PACKAGING PVT. LTD. THE INCO ME-TAX OFFICER B6 25/1 SAFDARJUNG ENCLAVE VS. W A R D : 14 (2) N E W D E L H I. N E W D E L H I. P A N / G I R NO. AAA CP 1832 G. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI PRADEEP DINODIA F. C. A.; & SHRI R. K. KAPOOR C. A.; DEPARTMENT BY : SHRI H. K. LAL SR. D. R.; O R D E R. PER K. D. RANJAN AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 20 07-08 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)-XVII NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE RE AD AS UNDER :- 1. THAT THE LD. CIT (APPEALS) HAS GROSSLY ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT CASE IN CONFIRMI NG THE ADDITION OF RS.1 05 09 877/- ON ACCOUNT OF CLAIM UNDER SECTION 80-IC OF THE INCOME-TAX ACT MADE BY THE APPELLANT; 2. THAT THE LD. CIT (APPEALS) HAS GROSSLY E RRED IN MISUNDERSTANDING AND WRONGLY APPLYING THE PROVISIONS OF LAW FOR THE PURP OSES OF SECTION 80-IC OF THE INCOME-TAX ACT MADE BY THE APPELLANT; 3. THAT THE LD. CIT (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE MAXIMUM AMOUNT OF DISALLOWANCE OF CLAIM UNDER SECTION 80-IC COULD NOT EXCEED THE AMOUNT OF CLAIM MADE BY THE APPELLANT UNDER THAT SECTION A MOUNTING TO RS.10 79 096/-; 2 I. T. APPEAL NO. 4084 (DEL) OF 2010 . 4. THAT THE CONFIRMATION OF THE ORDER OF TH E ASSESSING OFFICER BY THE CIT (APPEALS) IN DISALLOWING A SUM OF RS.1 05 09 877/- AS AGAINST THE ACTUAL CLAIM OF RS.10 79 096/- IS BASED ON MISAPPLICATION OF MIND B Y THE CIT (APPEALS) AND GROSSLY WRONG IN LAW AND ON FACTS; 5. THAT THE CIT (APPEALS) OUGHT TO HAVE HEL D THAT THE SUM OF RS.1 05 09 877/- HAS BEEN DERIVED FROM THE BUSINESS OF MANUFACTURING ACTIVITIES AND THEREFORE WAS ELIGIBLE FOR COMPUTING THE CLAIM UNDER SECTION 80-I C OF THE INCOME-TAX ACT; 6. THAT THE RELIANCE BY THE CIT (APPEALS) O N THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD. VS. CIT IS ERRONEOUS AND IN FACT THE DECISION OF THE SUPREME COURT SHOULD HAVE BEEN INTERPRETED IN FAVOUR OF THE ASSESSEE; 7. THAT THE LD. CIT (APPEALS) HAS GROSSLY E RRED IN UPHOLDING THE CHARGING OF INTEREST UNDER SECTION 234-B OF THE INCOME-TAX ACT. 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO CON FIRMING THE ADDITION OF RS.1 05 09 877/- ON ACCOUNT OF CLAIM UNDER SECTION 80-IC OF THE I. T. A CT 1961. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR WAS ENGAGED IN THE BUSINESS OF MANUFACTURING PLASTIC BOTTLES CAPS AND CLOSURES FO R HINDUSTAN LIVER LTD. [HLL] FROM ITS FACTORY SITUATED AT PLOT NO. 6 SECTOR 1-A IIE RANIPUR HA RIDWAR. DURING THE YEAR UNDER CONSIDERATION MADE THE ASSESSEE SALES OF RS.9 81 75 513/- AND EAR NED MISC. INCOME OF RS.1 78 461/- AND NET PROFIT WAS SHOWN AT RS.86 95 402/- WHICH WAS ADJUS TED AGAINST BROUGHT FORWARD UN-ABSORBED DEPRECIATION OF RS.45 26 020/- AND BALANCE AMOUNT W AS CLAIMED AS DEDUCTION UNDER SECTION 80- IC OF THE ACT. THE TOTAL RECEIPTS OF RS.9 81 75 513 /- INCLUDES MISC. INCOME OF RS.1 05 09 877/- ON ACCOUNT OF STANDING CHARGES PAID BY HLL. THE AO REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY DEDUCTION UNDER SECTION 80-IC OF THE ACT SHOULD BE ALLOWED ON THIS MISC. INCOME OF RS.1 05 09 877/-. IT WAS EXPLAINED BY THE ASSESSEE THAT M/S. HINDUSTAN LIVER LTD. MUMBAI [HLL] ENTERED INTO AGREEMENT WITH THE ASSESSEE ON 2 3 RD JUNE 2004 FOR SETTING UP A MANUFACTURING UNIT AT HARIDWAR TO UNDERTAKE THE MAN UFACTURE / PROCESSING AND PACKAGING AND SALE OF PLASTIC BOTTLES CAPS AND ENCLOSURES ETC. T O HLL AS PER THE SPECIFICATIONS PRESCRIBED BY THE COMPANY. M/S. PINE PACKAGING PVT. LTD. PURSUANT TO AGREEMENT WITH HLL SET UP A MANUFACTURING UNIT AT HARIDWAR. AS PER AGREEMENT T HE ASSESSEE WAS TO MANUFACTURE THE PRODUCTS ON THE NORMATIC FIXED LEVEL FIXED BY HLL AND IN THE EVENTUALITY OF DOWNWARD CHANGE OF VOLUME AND PRODUCTION LEVELS BASED ON HLL THE ASSESSEE WAS TO BE COMPENSATED FOR IDLE TIME AND 3 I. T. APPEAL NO. 4084 (DEL) OF 2010 . CONVERSION COST WHICH REMAINED UN-COVERED. CONSID ERING THE BUSINESS MODEL HLL AGREED TO PAY IN SUCH EVENTUALITY STANDING CHARGES EQUAL TO S ALARIES AND WAGES DEPRECIATION INTEREST ON TERM LOAN 50 PER CENT OF RETURN OF EQUITY FIXED P ORTION OF REPAIRS AND MAINTENANCE INSURANCE RENT IF ANY. IN CASE OF OVER-PRODUCTION FROM NORM ATIC PRODUCTION THE CHARGES PAYABLE WOULD BE REVISED DOWN-WARD. DURING THE YEAR UNDER CONSIDERA TION THE ASSESSEE RECEIVED RS.1 05 09 877/- ON ACCOUNT OF STANDING CHARGES ON WHICH DEDUCTION U NDER SECTION 80-IC OF THE ACT HAS BEEN CLAIMED. 4. AS REGARDS ELIGIBILITY OF DEDUCTION UNDER SECTIO N 80-IC IT WAS SUBMITTED BY THE ASSESSEE THAT THE STANDING CHARGES ARE MECHANISM OF BALANCING THE PRODUCTION COST IN RELATION TO NORMATIC PRODUCTION AGREED BY HLL. SINCE THE STAND ING CHARGES WERE PAYABLE ONLY WHEN SALE DECREASED FROM NORMATIC LEVEL AND SELLING PRICES RE DUCED WHEN SALE INCREASED THAN THE NORMATIC PRODUCTION. THEREFORE THE STANDING CHARGES ARE PA ID UNDER A MECHANISM TO INCREASE AND DECREASE THE SELLING PRICE TO COVER THE FIXED EXPEN SES. HENCE THE NATURE OF STANDING CHARGES COULD BE SAID AS PART OF SELLING PRICE OF THE PRODU CT MANUFACTURED TO COVER THE FIXED COST INCURRED BY THE COMPANY WHILE THERE WAS DROP IN NORMATIC PRO DUCTION VOLUME. IT WAS ALSO SUBMITTED THAT STANDING CHARGES WERE IN THE NATURE OF REIMBURSEMEN T OF FIXED COST OF PRODUCTION IN RELATION TO UNIT WHICH COULD NOT BE RECOVERED DUE TO DROP IN PR ODUCTION VOLUME FROM STIPULATED NORMATIC LEVEL AND THEREFORE THE AMOUNT RECEIVED ON THIS AC COUNT AMOUNTS TO REDUCTION OF EXPENSES AND INSTEAD OF SHOWING IN THE INCOME SIDE IT COULD HAV E BEEN CREDITED TO RESPECTIVE EXPENSES ACCOUNT BUT ON THE BASIS OF ACCOUNTING PRINCIPLE A ND PRACTICE IT HAS BEEN SHOWN ON THE INCOME SIDE IN THE PROFIT AND LOSS ACCOUNT. THEREFORE TH E ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 80-IC OF THE ACT. THE AO WAS HOWEVER OF THE OPINION THAT STANDING CHARGES WERE NOT ON ACCOUNT OF SALE BUT WERE ON ACCOUNT OF COMPENSA TION FOR LESS THAN MINIMUM GUARANTEE OF BUYING GOODS FROM ELIGIBLE UNDERTAKING. THEREFORE THE PROFIT BELONGED TO CATEGORY OF ANCILLARY PROFITS WHICH COULD NOT BE TREATED AS SALE CONSIDER ATION. THE AO RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA 317 ITR 218 (SC) FOR THE PROPOSITION THAT THE PROFIT DERIVED FROM UNDERTAKING WOULD MEAN THE PROFIT OF FIRST DEGREE AS AGAINST THE PROFITS ATTRIBUTABLE TO INDUSTRIAL UNDERTAKING. ACCORDINGL Y THE ASSESSEE WAS NOT ENTITLED FOR DEDUCTION UNDER SECTION 80-IC OF THE ACT. 4 I. T. APPEAL NO. 4084 (DEL) OF 2010 . 5. ON APPEAL IT WAS SUBMITTED THAT THE ASSESSEE WAS ENTITLED FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. THE ASSESSEE COMPANY WAS ENGAGED IN NO OTHER ACTIVITY THEN RUNNING THE PRODUCTION FACILITIES AT HARIDWAR THE PROFITS FROM WHICH WERE ELIGIBLE UNDER SECTION 80-IC. THE WHOLE OF THE INCOME RECEIVED BY THE ASSESSEE WAS WH OLLY AND EXCLUSIVELY DERIVED FROM MANUFACTURING OPERATIONS SET UP AT HARIDWAR. IT WA S SUBMITTED THAT EVEN IF THE AO TREATS THE RECEIPTS BY THE ASSESSEE COMPANY OF RS.1 05 09 877/ - AS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IC AT THE BEST HE COULD DISALLOW THE DEDUCTION AT RS.10 79 096/- WHICH WAS CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME. THE AO HAS MISTA KENLY ADDED THE WHOLE AMOUNT OF STANDING CHARGES TO THE TAXABLE INCOME WITHOUT REALIZING THA T THE SAME HAS BEEN INCLUDED IN THE GROSS TOTAL INCOME OF RS.86 95 402/-. THEREFORE IT AMOUNTED T O DOUBLE TAXATION OF RS.94 30 731/-. THE LD. CIT (APPEALS) AFTER CONSIDERING THE VARIOUS DECISIO NS CITED BY THE ASSESSEE HELD THAT THE ASSESSEE WAS NOT ENTITLED FOR DEDUCTION UNDER SECTION 80-IC ON THE GROUND THAT STANDING CHARGES RECEIVED BY THE ASSESSEE WERE NOT DERIVED FROM THE FIRST DEG REE INCOME WHICH IS DIRECTLY DERIVED FROM MANUFACTURING. WHILE CONFIRMING THE ORDER HE HELD AS UNDER :- 4. I HAVE CAREFULLY CONSIDERED THE SUBMISSION MAD E BY THE APPELLANT AND PERUSED THE ASSESSMENT ORDER PASSED BY THE AO. IT IS SEEN THAT THE RECEIPT OF STANDING CHARGES RECEIVED BY THE APPELLANT FROM HIN DUSTAN LEVER LIMITED IS ON ACCOUNT OF COMPENSATION FOR LESS THAN MINIMUM GUARA NTEE OF BUYING OF GOODS FROM THE ELIGIBLE UNDERTAKING. THE PROFITS BELONG TO THE CATEGORY OF ANCILLARY PROFIT OF SUCH UNDERTAKING. THE STANDING CHARGES C ANNOT BE TREATED AS SALE CONSIDERATION AND ARE TREATED AS SEPARATE ITEMS OF INCOME AND ARE ACCOUNTED FOR ACCORDINGLY IN THE PROFIT AND LOSS ACCOUNT. THEREF ORE THE PROFIT BELONGS TO THE CATEGORY OF ANCILLARY PROFIT AND NOT A DIRECT PROFI T FROM THE MANUFACTURING WHICH IS ENVISAGED UNDER SECTION 80-IC. IN THE CASE UNDE R CONSIDERATION IT IS AN ADMITTED FACT THAT THE APPELLANT WAS RECEIVING STAN DING CHARGES FROM HINDUSTAN LEVER LTD. WHICH ARE IN THE NATURE OF COMPENSATION FOR IDLE TIME AND CONVERSION COST. THUS THE PAYMENT RECEIVED ON A CCOUNT OF STANDING CHARGES BY NO STRETCH OF IMAGINATION CAN BE SAID TO BE DERI VED FROM MANUFACTURING. THE 5 I. T. APPEAL NO. 4084 (DEL) OF 2010 . AO HAS GIVEN COGENT REASON FOR MAKING THE DISALLOWA NCE. THE HONBLE APEX COURT IN THE CASE OF LIBERTY INDIA VS. CIT (SUPRA) HAS HELD THAT IN ORDER TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IA / 80-IB THERE HAS TO BE FIRST DEGREE INCOME WHICH IS DIRECTLY DERIVED FROM THE MANUFACTU RING. THE ITAT JODHPUR BENCH IN THE CASE OF INCOME TAX OFFICER VS. VJ HOME (P) LTD. (SUPRA) HAS HELD THAT ANY INCENTIVE CANNOT BE TREATED AS HAVING BEEN DERIVED FROM ELIGIBLE UNDERTAKING. THE DECISION IN THE CASE OF CIT VS. A RVIND CONSTRUSTION LTD. AND CIT VS. SPORTKING INDIA LTD. (SUPRA) CITED BY THE L D. AR ARE NOT APPLICABLE TO THE FACTS OF THE APPELLANTS CASE AS THEY WERE DECIDED ON ALTOGETHER DIFFERENT FACTS. IN VIEW OF THE FACTS OF THE CASE AND LEGAL POSITION ON THE ISSUE I HOLD THAT THE AO WAS FULLY JUSTIFIED IN DISALLOWING THE CLAIM OF THE APP ELLANT UNDER SECTION 80-IC OF THE ACT. THEREFORE I CONFIRM THE ADDITION MADE BY THE AO. THESE GROUNDS OF APPEALS ARE REJECTED. 6. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE STANDING CHARGES RECEIVED AT RS.1 05 09 877/- WERE IN RESPECT OF COMPENSATION ON ACCOUNT OF IDLE TIME OF THE MACHINERY. THE SELLING PRICE OF THE PRODUCT MANUFACTURED BY THE AS SESSEE IS DETERMINED IN TERMS OF COST MODEL. IT WAS ALSO SUBMITTED THAT THE ASSESSEE IS A CAPTIV E UNIT OF HLL. THEREFORE WHENEVER THE MACHINERY WAS NOT USED FOR THE MANUFACTURING PURPOS ES HLL HAD AGREED TO REIMBURSE THE SALARY AND WAGE INTEREST ON TERM LOAN 50 PER CENT RETURN ON EQUITY FIXED PORTION OF REPAIRS AND MAINTENANCE INSURANCE RENT IN THE FORM OF STANDIN G CHARGES. THE MONEY WAS RECEIVED BY THE ASSESSEE FROM ITS CUSTOMER AS PER THE AGREEMENT AL READY SIGNED AT THE TIME OF COMMENCEMENT OF PRODUCTION AND THEREFORE THE PAYMENTS RECEIVED AR E WHOLLY AND EXCLUSIVELY RELATED TO THE ACTUAL PRODUCTION OF THE ASSESSEE WHICH IS BASED ON ORDER S RECEIVED FROM THE CUSTOMERS. THEREFORE WHATEVER STANDING CHARGES HAVE BEEN RECEIVED ARE WH OLLY AND EXCLUSIVELY DERIVED FROM THE MANUFACTURING OPERATIONS AND ARE FULLY ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IC OF THE ACT. HE SUBMITTED THAT STANDING CHARGES ARE IN THE NATURE O F FIRST DEGREE INCOME ACCRUING TO THE ASSESSEE FROM THE BUYERS BASED ON PRICE FIXATION OF PRODUCTS MANUFACTURED AND SOLD BY THE ASSESSEE AND IS NOTHING BUT COMPENSATION OF EXPENSES WHICH ARE IN CURRED FOR RUNNING THE PRODUCTION FACILITY. THEREFORE IT HAS BEEN PLEADED THAT THE ASSESSEE WA S ENTITLED FOR DEDUCTION UNDER SECTION 80-IC. 6 I. T. APPEAL NO. 4084 (DEL) OF 2010 . ON THE OTHER HAND THE LD. SR. DR SUBMITTED THAT ST ANDING CHARGES ARE NOT IN THE NATURE OF FIRST DEGREE INCOME BUT ARE IN THE NATURE OF ANCILLARY P ROFITS AND THEREFORE DEDUCTION UNDER SECTION 80-IC IS NOT ALLOWABLE. 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. UNDER SECTION 80-IC WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB SECTION (2) THE ASSESSEE WILL BE ELIGIBLE FOR DEDUCTION FROM SUCH P ROFITS AND GAINS TO THE EXTENT SPECIFIED IN SUB SECTION (3) OF SECTION 80-IC OF THE ACT. THE CONTE NTION OF THE ASSESSEE IS THAT STANDING CHARGES RECEIVED ARE IN THE NATURE OF FIRST DEGREE INCOME A ND THEREFORE IN VIEW OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA) THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IC OF THE ACT. THERE IS NO DISPUTE THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IC. THE ONLY DISPUTE IS WHETHER THE STA NDING CHARGES HAVE BEEN DERIVED FROM ANY BUSINESS REFERRED TO IN SUB SECTION (2) OF SECTION 80-IC. SUB SECTION (2) APPLIES TO ANY UNDERTAKING OR ENTERPRISE WHICH HAS BEGUN TO MANUF ACTURE OR PRODUCE ANY ARTICLE OR THING NOT BEING ANY ARTICLE OR THING SPECIFIED IN THIRTEENTH SCHEDULE OR WHICH MANUFACTURES OR PRODUCES ANY ARTICLE OR THING NOT BEING ANY ARTICLE OR THIN G SPECIFIED IN THE SAID SCHEDULE AND UNDERTAKES SUBSTANTIAL EXPANSION DURING THE PERIOD SPECIFIED I N SUB-CLAUSES (I) (II) AND (III) OF CLAUSE (A) OF SUB SECTION (2) OF SECTION 80-IC OF THE ACT. CLAUS E (B) OF SUB SECTION (2) APPLIES TO INDUSTRIAL UNDERTAKING OR ENTERPRISE WHICH HAS BEGUN OR BEGIN S TO MANUFACTURE OR PRODUCE ANY ARTICLE OR THING SPECIFIED IN FOURTEENTH SCHEDULE OR COMMENCES ANY OPERATION SPECIFIED IN FOURTEENTH SCHEDULE AND UNDERTAKE SUBSTANTIAL EXPANSION DURING THE PERIOD WHICH HAS BEEN SPECIFIED IN SUB- CLAUSE (I) (II) AND (III) OF CLAUSE (B) OF SECTION 80-IC(2) OF THE ACT. ON PLAIN READING OF SUB SECTION (2) IT IS CLEAR THAT DEDUCTION UNDER SECTIO N 80-IC WILL BE AVAILABLE IN RESPECT OF ANY PROFITS AND GAINS DERIVED FROM MANUFACTURE OR PRODUCTION OF ARTICLE OR THING WHICH IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IC OF THE ACT. THEREFOR E THE INCOME SHOULD BE DERIVED FROM INDUSTRIAL UNDERTAKING FROM MANUFACTURING OR PRODUC TION ACTIVITIES. IN THE CASE OF ASSESSEE THE STANDING CHARGES HAVE BEEN RECEIVED AS IDLE CHARGES INCLUDING RETURN ON CAPITAL. THEY REPRESENT THE REIMBURSEMENT OF CERTAIN EXPENSES WHICH CANNOT BE TREATED AS DERIVED FROM THE MANUFACTURING OF OR PRODUCTION OF A ARTICLE OR THIN G. THEREFORE THE STANDING CHARGES WHICH ARE 7 I. T. APPEAL NO. 4084 (DEL) OF 2010 . RECEIVED BY THE ASSESSEE FOR COMPENSATION ON ACCOUN T OF IDLE CHARGES CANNOT BE TREATED AS INCOME DERIVED FROM INDUSTRIAL UNDERTAKING FROM MAN UFACTURE OR PRODUCTION OF A ARTICLE OR THING ON SIMPLE REASON THAT THEY ARE REIMBURSEMENT OF EXP ENSES WHICH THE ASSESSEE HAS TO INCUR BEING A CAPTIVE UNIT OF HLL AND COULD NOT MANUFACTURE THE PRODUCTS FOR OTHERS. THE STANDING CHARGES ARE RECEIVED BECAUSE OF LOWER PRODUCT DEMANDS FROM HLL THOUGH THE SAME HAVE BEEN PAID UNDER THE AGREEMENT TO COMPENSATE THE ASSESSEE IN S UCH EVENTUALITIES. THUS THE STANDING CHARGES CANNOT BE TREATED AS DERIVED FROM MANUFACTURING ACT IVITIES SINCE IT HAS NO NEXUS BETWEEN THE GOODS MANUFACTURED OR PRODUCED WITH THE PROFITS DER IVED. THE STANDING CHARGES AT THE BEST CAN BE TREATED AS ATTRIBUTABLE TO INDUSTRIAL UNDERTAKING. 8. HONBLE SUPREME COURT IN THE CASE OF PANDIAN CHE MICALS LTD. VS. CIT 262 ITR 278 (SC) HAS HELD THAT THE WORDS DERIVED IN SECTION 80-HH OF INCOME TAX ACT MUST BE UNDERSTOOD AS SOMETHING WHICH HAS A DIRECT AND IMMEDIATE NEXUS WI TH THE ASSESSEES INDUSTRIAL UNDERTAKING. ALTHOUGH ELECTRICITY MAY BE REQUIRED FOR THE PURPOS E OF INDUSTRIAL UNDERTAKING THE DEPOSIT REQUIRED FOR ITS SUPPLY IS A STEP REMOVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING. IT WAS HELD BY THE HONBLE COURT THAT THE INTEREST DERIVED BY T HE INDUSTRIAL UNDERTAKING OF THE ASSESSEE ON DEPOSITS MADE WITH THE ELECTRICITY BOARD FOR SUPPLY OF ELECTRICITY FOR RUNNING THE INDUSTRIAL UNDERTAKING COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF AND WAS NOT PROFIT OR GAINS DERIVED BY UNDERTAKING FOR THE PURP OSE OF SPECIAL DEDUCTION UNDER SECTION 80-HH OF THE ACT. 9. IN THE CASE OF LIBERTY INDIA VS. CIT (SUPRA) HO NBLE SUPREME COURT HELD THAT SECTION 80- IB PROVIDES FOR ALLOWING OF DEDUCTION IN RESPECT OF PROFITS AND GAINS DERIVED FROM ELIGIBLE BUSINESS. THE CONNOTATION OF WORDS DERIVED FROM IS NARROWER AS COMPARED TO THAT OF WORDS ATTRIBUTABLE TO. BY USING THE EXPRESSION DERIVE D FROM PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. 10. APPLYING THE RATIO OF DECISIONS OF HONBLE SUP REME COURT REFERRED TO ABOVE TO PRESENT CASE WE FIND THAT THE STANDING CHARGES RECEIVED BY THE ASSESSEE ARE REIMBURSEMENT OF EXPENSES INCURRED BY THE ASSESSEE DURING IDLE PERIOD AND TH EREFORE IT CANNOT BE SAID TO HAVE BEEN DERIVED FROM MANUFACTURE OF AN ARTICLE OR A THING OF ELIGIB LE BUSINESS CARRIED ON BY THE INDUSTRIAL 8 I. T. APPEAL NO. 4084 (DEL) OF 2010 . UNDERTAKING. THE STANDING CHARGES ARE IN THE NATUR E OF ANCILLARY PROFITS WHICH AT THE BEST CAN BE TREATED AS ATTRIBUTABLE TO THE BUSINESS OF INDUSTRI AL UNDERTAKING. RESPECTFULLY FOLLOWING THE PRECEDENTS IT IS HELD THAT STANDING CHARGES WILL N OT BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IC OF THE ACT. ACCORDINGLY WE DO NOT FIND ANY INFIRM ITY IN THE ORDER PASSED BY THE LD. CIT (A) CONFIRMING THE DISALLOWANCE. 11. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON : 14 TH JANUARY 2011. SD/- SD/- [ R. P. TOLANI ] [ K. D. RA NJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 14 TH JANUARY 2011. * MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT (APPEALS) 5. DR ITAT NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR ITAT.