THE DY CIT 10(2), MUMBAI v. M/S. E.A. INFRASTUCTURE OPERATIONS. PVT. LTD, MUMBAI

ITA 887/MUM/2008 | 2004-2005
Pronouncement Date: 09-07-2010 | Result: Dismissed

Appeal Details

RSA Number 88719914 RSA 2008
Assessee PAN AAACE8218R
Bench Mumbai
Appeal Number ITA 887/MUM/2008
Duration Of Justice 2 year(s) 5 month(s) 2 day(s)
Appellant THE DY CIT 10(2), MUMBAI
Respondent M/S. E.A. INFRASTUCTURE OPERATIONS. PVT. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-07-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 09-07-2010
Date Of Final Hearing 08-12-2009
Next Hearing Date 08-12-2009
Assessment Year 2004-2005
Appeal Filed On 07-02-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI BEFORE SHRI R.S.SYAL AM AND SHRI V.DURGA RAO JM ITA NOS.887 & 4555/MUM/2008 : ASST.YEARS 2004-2005 & 2005-2006 ITA NO.5337/MUM/2009 : ASST.YEAR 2006-2007 THE INCOME TAX OFFICER WARD 10(2)(1) MUMBAI. VS. M/S.E.A.INFRASTRUCTURE OPERATIONS PVT.LTD. IPWT HOUSE PLOT NO.34 DEONAR ANCILLARY INDS. COMPLEX GOVANDI (WEST) MUMBAI 400 083. PA NO.AAACE8218R. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MAYANK PRIYADARSHI RESPONDENT BY : S/SHRI ARUN SATHE & S.S.PHADKAR O R D E R PER R.S.SYAL AM : THESE THREE APPEALS BY THE REVENUE ARISE OUT OF TH E ORDERS PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) IN RELATION TO THE ASSESSMENT YEARS 2004- 2005 2005-2006 AND 2006-2007. SINCE ONE ISSUE RAI SED IN THESE THREE APPEALS IS COMMON WE ARE THEREFORE PROCEEDING TO DISPOSE TH EM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ONLY ISSUE PROJECTED THROUGH THE SOLITARY GR OUND IN ASSESSMENT YEARS 2004-2005 2005-2006 AND THE FIRST GROUND IN ASSESS MENT YEAR 2006-2007 IS AGAINST THE DIRECTION OF THE LEARNED CIT(A) FOR ALL OWING DEDUCTION U/S.80-IA(4) IN RESPECT OF COMPENSATORY PAYMENT RECEIVED BY THE UND ERTAKING. THIS ISSUE HAS BEEN DISCUSSED AT LENGTH IN THE ASSESSMENT ORDER FOR ASS ESSMENT YEAR 2004-2005 WHICH ARE TAKING UP ON REPRESENTATIVE BASIS. THE FACTUAL MATRIX OF THIS GROUND IS THAT THE ASSESSEE WAS AWARDED THE PROJECT FOR BIOMEDICAL WAS TE TREATMENT (BMW FOR SHORT) AT G.T.B. HOSPITAL ON BOOT BASIS BY THE MUNI CIPAL CORPORATION OF GREATER ITA NOS.887 & 4555/M/08 & 5337/M/09 M/S.E.A.INFRASTRUCTURE OPERATIONS PVT.LTD. 2 MUMBAI (MCGM FOR SHORT). THE ASSESSEE CLAIMED DED UCTION U/S.80-IA OF THE INCOME-TAX ACT 1961 SIMILAR TO THAT CLAIMED IN EA RLIER YEARS. THE ENTIRE PROFIT OF THE BUSINESS AMOUNTING TO RS.1 47 25 111 WAS CLAIME D AS DEDUCTIBLE. THE ASSESSING OFFICER SENT A LETTER DATED 14.8.2006 TO THE DIRECTOR (ES&P) MCGM REQUESTING TO FURNISH CERTAIN INFORMATION. IN REPLY THE CHIEF ENGINEER (SOLID WASTE MANAGEMENT) REPLIED VIDE LETTER DATED 29.8.2006 ST ATING THAT THE ASSESSEE WAS AWARDED CONTRACT TO SET UP THE REQUISITE BMW FACILI TY LIKE INCINERATOR AND AUTOCLAVE SYSTEM AT SEWREE IN THE PREMISES OF G.T.B . HOSPITAL OF MCGM ON BUILT OWN OPERATE & TRANSFER (BOOT) BASIS. AS PER THE TE RMS OF CONTRACT MCGM WAS TO MAKE PAYMENT TOWARDS THE WEIGHT OF BMW TREATED A T THEIR PLANT WITH MINIMUM GUARANTEED CHARGE FOR 5000 KG. WHICH INCLUDED 3500 KG. OF NON-ANATOMICAL WASTE (TREATED BY AUTOCLAVE) AND 1500 KG. OF ANATOMICAL W ASTE (BURNT BY INCINERATOR). THE RATE AGREED FOR THE ABOVE GUARANTEED LOAD WAS RS.10 .50 PER KG. WITH FIXED ESCALATION OF 10% COMPOUNDED ANNUALLY EFFECTIVE AFT ER 24 MONTHS FROM THE DATE OF SUBMISSION OF BID (NOVEMBER 1999) TILL THE PLANT IS HANDED OVER TO MCGM AFTER THE COMPLETION OF BOOT PERIOD. IT WAS FURTHER INFOR MED BY THE CHIEF ENGINEER THAT WORK ORDER TO ASSESSEE WAS ISSUED IN 2000 AND THE P LANT STARTED ITS OPERATION IN NOVEMBER 2001. FROM THE REPLY SUBMITTED BY THE CHIE F ENGINEER THE ASSESSING OFFICER NOTED THAT THE ASSESSEE WAS NOT GETTING THE PAYMENTS FOR ACTUAL WORK CARRIED OUT OF TREATMENT OF BMW ONLY BUT ALSO AGAINST THE G UARANTEED SUPPLY OF BMW FOR TREATMENT. INFORMATION WAS CALLED FROM MUNICIPAL CO RPORATION ABOUT THE ACTUAL BMW TREATED BY THE ASSESSEE WHICH HAS BEEN TABULAT ED ON PAGES 4 AND 5 OF THE ASSESSMENT ORDER. IT WAS NOTED BY THE A.O. THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION FOR A SUM OF RS.40 46 173 FOR THE ACTUAL WORK DONE BY IT TOWARDS TREATMENT OF ANATOMICAL WASTE WHEREAS THE ASSESSEE WAS ACTUALLY PAID A SUM OF RS.57 91 200. SIMILARLY FOR NON-ANATOMICAL WASTE TR EATMENT THE ASSESSEE WAS ENTITLED TO DEDUCTION FOR A SUM OF RS.47 90 112 WHE REAS THE ACTUAL PAYMENT WAS MADE TO IT TO THE TUNE OF RS.1 35 12 800. THE TOTAL EXCESS AMOUNT RECEIVED BY THE ITA NOS.887 & 4555/M/08 & 5337/M/09 M/S.E.A.INFRASTRUCTURE OPERATIONS PVT.LTD. 3 ASSESSEE CAME TO RS.1 04 67 715 REPRESENTING DI FFERENCE BETWEEN THE MINIMUM GUARANTEED WORK AND ACTUAL WORK CARRIED ON. ON BEI NG SHOW CAUSED AS TO WHY DEDUCTION U/S.80-IA(4) BE NOT DENIED ON SUCH EXCESS AMOUNT THE ASSESSEE FURNISHED ITS REPLY WHICH HAS BEEN REPRODUCED ON PA GES 5 TO 8 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER NOTED THAT SECTION 80- IA(1) TALKS OF DEDUCTION FOR PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN E NTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (4). RELYING ON SOME JU DGEMENTS INCLUDING THAT OF THE HONBLE SUPREME COURT IN PANDIAN CHEMICALS LTD. VS. CIT [(2003) 262 ITR 278 (SC)] THE ASSESSING OFFICER NOTED THAT THE DEDUCTION IS AVAILABLE IN RESPECT OF PROFITS AND GAIN DERIVED FROM BUSINESS AS REFERRED TO IN SUB-SECTION (4). SINCE THE EXPRESSION DERIVED FROM HAS A NARROWER MEANING TH AN THE EXPRESSION ATTRIBUTABLE TO THE ASSESSING OFFICER OPINED THA T THE EXCESS RECEIPTS COULD NOT BE CONSIDERED AS DERIVED FROM THE ELIGIBLE BUSINESS. H E THEREFORE EXCLUDED THE EXCESS RECEIPT OF RS.1.04 CRORE FROM THE ELIGIBLE PROFIT F OR DEDUCTION U/S.80-IA(4) IN ASSESSMENT YEAR 2004-2005. IN THE SAME MANNER HE DI D NOT ALLOW DEDUCTION U/S.80- IA(4) IN THE OTHER TWO ASSESSMENT YEARS UNDER CONSI DERATION AMOUNTING TO RS.1 55 19 246 FOR ASSESSMENT YEAR 2005-2006 AND R S.88 84 565 FOR ASSESSMENT YEAR 2006-2007. THE LEARNED CIT(A) CONCURRED WITH THE SUBMISSION ADVANCED ON BEHALF OF THE ASSESSEE AND HELD THAT THE ENTIRE MIN IMUM GUARANTEED CHARGES RECEIVED BY THE ASSESSEE WERE ELIGIBLE FOR DEDUCTIO N U/S.80-IA. THE REVENUE IS IN APPEAL AGAINST SUCH ORDER. 3. BEFORE US THE LEARNED DEPARTMENTAL RE PRESENTATIVE CONTENDED THAT THE LD. FIRST APPELLATE AUTHORITY WAS NOT JUSTIFIED IN GRAN TING DEDUCTION ON THE EXCESS AMOUNT WHICH WAS NOT DERIVED FROM THE ELIGIBLE BUSI NESS. HE ARGUED THAT THE USE OF EXPRESSION DERIVED FROM IN THE LANGUAGE OF SECTI ON 80IA SHOWS THAT THE INCOME MUST DIRECTLY RESULT FROM THE ELIGIBLE BUSINESS AND HENCE IT SHOULD HAVE A DIRECT ITA NOS.887 & 4555/M/08 & 5337/M/09 M/S.E.A.INFRASTRUCTURE OPERATIONS PVT.LTD. 4 NEXUS WITH THE ELIGIBLE BUSINESS. HE MADE UP THE C ASE THAT SINCE THE EXCESS RECEIPTS WAS NOT DERIVED FROM THE ELIGIBLE BUSINESS THE DE DUCTION OUGHT NOT TO HAVE BEEN ALLOWED. IN SUPPORT OF THE CONTENTION THAT EXCESS R EALIZATION ON ACCOUNT OF GUARANTEED CLAUSE OF CONTRACT COULD NOT BE TREATED AS DERIVED FROM THE ELIGIBLE BUSINESS HE RELIED ON THE JUDGEMENT OF THE HONBL E SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT [(2009) 317 ITR 218 (SC)] AND THAT OF THE HONBLE MADHYA PRADESH HIGH COURT IN CIT VS. ALPINE SOLVEX LTD. [(2005) 276 ITR 92 (MP)] . 4. IN THE OPPOSITION THE LEARNED A.R. SUPPORTE D THE IMPUGNED ORDER. HIS SUBMISSIONS WERE THE REITERATION OF THE REASONING ADOPTED BY THE LD. CIT(A) IN ACCEPTING THE ASSESSEES CASE. TO BOLSTER HIS SUBMI SSION THAT DEDUCTION WAS RIGHTLY ALLOWED ON THE EXCESS REALIZATION HE RELIED ON SEV ERAL JUDGEMENTS INCLUDING FENNER (INDIA) LTD. VS. CIT (NO.2) [(2000) 241 ITR 803 (MAD.)] AND CIT VS. RATNAGIRI DISTRICT CENTRAL CO-OPERATIVE BANK LTD. [ (2002) 254 ITR 697 (BOM.)] FOR BRINGING HOME THE POINT THAT EXCESS RECEIPT W AS VERY MUCH PROFIT DERIVED FROM THE ELIGIBLE BUSINESS AND HENCE THE LEARNED CIT(A) WAS JUSTIFIED IN ALLOWING THE DEDUCTION. ON A SPECIFIC QUERY HE ADMITTED THAT TH ERE WAS NO DIRECT PRECEDENT AVAILABLE ON THE ISSUE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS IN THE LIGHT OF MATERIAL PLACED ON RECORD AND PRECEDENTS RELIED UPON. IT IS AN ADMITTED POSIT ION THAT THE ISSUE INVOLVED IN THIS BATCH OF APPEALS IS VIRGIN INASMUCH AS THERE IS NO DIRECT PRECEDENT AVAILABLE ON IT IN THE PUBLIC DOMAIN. THERE IS NO DISPUTE ON THE FACT THAT THE ASSESSEE HAS OTHERWISE SATISFIED OTHER NECESSARY CONDITIONS ENTITLING IT T O DEDUCTION U/S.80-IA(4). THE CONTROVERSY CENTERS AROUND ONLY ON THE AMOUNT WHICH WAS RECEIVED BY THE ASSESSEE REPRESENTING THE EXCESS AMOUNT OVER AND ABOVE THE A CTUAL WORK DONE UP TO THE ITA NOS.887 & 4555/M/08 & 5337/M/09 M/S.E.A.INFRASTRUCTURE OPERATIONS PVT.LTD. 5 MINIMUM GUARANTEED AMOUNT IN RESPECT OF TREATMENT O F BMW PURSUANT TO CONTRACT WITH MCGM ASSURING MINIMUM 5000 KG. OF BMW LOAD. IT HAS NOT BEEN CONTROVERTED THAT IN THE EARLIER YEAR THE ASSESSEE CLAIMED DEDUCTION ON THE ENTIRE MINIMUM GUARANTEED AMOUNT INCLUDING SUCH EXCESS REA LIZATION WHICH WAS PROMPTLY ALLOWED BY THE ASSESSING OFFICER WITHOUT A NY FUSS. WITHOUT ANY DIFFERENCE IN THE FACTS OF THIS YEAR VIA-A-VIS THE EARLIER YEAR THE PRINCIPLE OF CONSISTENCY SHOULD HAVE COME TO PLAY INHIBITING THE AO FROM GOING AHEAD WITH THIS DISALLOWANCE. BE THAT AS IT MAY WE WILL DECIDE THE ISSUE ON MERITS AS WELL. 6. IN THE INSTANT YEARS THE CONTENTION OF THE REVENUE IS THAT THE EXCESS REALIZATION OVER AND ABOVE THE ACTUAL WORK DONE SHO ULD NOT BE CONSIDERED AS ELIGIBLE FOR DEDUCTION U/S.80-IA(4). BEFORE WE PROC EED TO EXAMINE AND EVALUATE THE RIVAL CONTENTIONS IT WILL BE BEFITTING TO NOTE DOW N THE PROVISIONS OF SECTION 80- IA(1) AS UNDER:- 80-IA(1) WHERE THE GROSS TOTAL INCOME OF AN ASSESS EE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (4) (SUCH BUSINESS BEIN G HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS) THERE SHALL IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF TH IS SECTION BE ALLOWED IN COMPUTING THE TOTAL INCOME OF THE ASSES SEE A DEDUCTION OF AN AMOUNT EQUAL TO HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIVE ASSESSMENT Y EARS. 7. ON CIRCUMSPECTION OF THIS PROVISION IT IS DISCE RNIBLE THAT DEDUCTION U/S 80IA IS ALLOWABLE TO AN ENTERPRISE ON THE PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINESS. THE CASE OF THE REVENUE IS THAT THE EXCES S AMOUNT OF REALIZATION ON ACCOUNT OF GUARANTEE CLAUSE OF THE CONTRACT CANNOT BE HELD AS PROFIT DERIVED FROM THE ELIGIBLE BUSINESS. THE POINT OF DEBATE IS THE I NTERPRETATION OF THE EXPRESSION DERIVED FROM SUCH BUSINESS WHICH HAS BEEN USED I N THIS SECTION. IN CONTRAST TO ITA NOS.887 & 4555/M/08 & 5337/M/09 M/S.E.A.INFRASTRUCTURE OPERATIONS PVT.LTD. 6 THAT SOME PROVISIONS EMPLOY THE EXPRESSION ATTR IBUTABLE TO. IT IS FAIRLY SETTLED THAT AMBIT OF THE EXPRESSION DERIVED FROM IS MUC H NARROWER THAN `ATTRIBUTABLE TO. IN ORDER TO BE COVERED WITHIN ITS PURVIEW TH ERE MUST BE A DIRECT NEXUS BETWEEN TWO ENDS PRECEDED AND SUCCEEDED BY THIS EXPRESSION. SUCH NEXUS SHOULD BE OF FIRST DEGREE. ON THE OTHER HAND THE EXPRESSION `ATTRIBUTA BLE TO HAS A WIDER SCOPE AND BRINGS WITHIN ITS FOLD NOT ONLY THE ITEMS HAVING DI RECT NEXUS OF ONE WITH THE OTHER BUT ALSO HAVING INDIRECT NEXUS. IN THE CASE OF CIT VS. STERLING FOODS [(1999) 237 ITR 579 (S.C.)] IT HAS BEEN HELD THAT THE SALE CONSIDERATION OF IM PORT ENTITLEMENTS WOULD NOT BE HELD TO CONSTITUTE PROFITS AND GAINS D ERIVED FROM ASSESSEES INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HH AS THE SOURCE OF IMPORT ENTITLEMENTS WAS THE EXPORT PROMOT ION SCHEME OF THE CENTRAL GOVERNMENT AND NOT THE INDUSTRIAL UNDERTAKING. SIMI LARLY IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT [(2003) 262 ITR 278 (S.C.)] THEIR LORDSHIPS DID NOT ACCEPT THE ARGUMENT ON BEHALF OF THE ASSESSEE THAT THE INT EREST EARNED BY THE INDUSTRIAL UNDERTAKING ON DEPOSITS WITH THE ELECTRICITY BOARD QUALIFIED FOR RELIEF UNDER SECTION 80HH FOR THE REASON THAT SECTION 80HH CONTAINS THE WORDS DERIVED FROM. IT WAS OBSERVED THAT THOUGH ELECTRICITY MAY BE REQUIRED FO R THE PURPOSES OF INDUSTRIAL UNDERTAKING BUT THE DEPOSIT REQUIRED FOR THE PURPO SE OF SUPPLY OF ELECTRICITY WAS A STEP AWAY FROM THE BUSINESS OF THE INDUSTRIAL UNDER TAKING AND HENCE THE INTEREST ON THE DEPOSITS COULD NOT BE SAID TO FLOW DIRECTLY FRO M THE INDUSTRIAL UNDERTAKING ITSELF. IT WAS EMPHASIZED THAT THE WORDS DERIVED FROM MU ST BE UNDERSTOOD AS SOMETHING WHICH HAS DIRECT OR IMMEDIATE NEXUS WITH THE ASSESS EES INDUSTRIAL UNDERTAKING. HOWEVER WHERE THE WORDS ATTRIBUTABLE TO HAVE BE EN USED THE COURTS HAVE HELD THAT IF THE INCOME IS RELATED TO THE INDUSTRIAL UND ERTAKING EVEN THOUGH NOT DIRECTLY EMANATING THERE FROM IT WOULD STILL FALL WITHIN THE SCOPE OF THIS EXPRESSION. IN THE CASE OF ASHOK LEYLAND VS. CIT [(1997) 224 ITR 122 (S.C.)] THE HONBLE SUPREME COURT HELD THAT THE ASSESSEE ENGAGED IN MAN UFACTURING AND SALE OF TRUCKS IN COLLABORATION WITH A FOREIGN COMPANY IMPORTING S PARE PARTS AND SELLING IT TO THE ITA NOS.887 & 4555/M/08 & 5337/M/09 M/S.E.A.INFRASTRUCTURE OPERATIONS PVT.LTD. 7 PURCHASERS OF THE TRUCKS WHEN SUCH PURCHASER FOUND IT DIFFICULT TO GET THEM IN THE INITIAL YEARS OF PRODUCTION PROFITS AND GAINS FROM THE SALE OF SUCH SPARE PARTS WAS `ATTRIBUTABLE TO THE PRIORITY INDUSTRY CARRIED ON BY THE ASSESSEE AS THE SAME WAS INTIMATELY CONNECTED WITH THE MAIN ACTIVITY OF PRI ORITY INDUSTRY. 8. LET US EXAMINE THE FACTS OF LIBERTY INDIA (SUPRA) WHICH IS TRUMP CARD CASE OF THE LEARNED DEPARTMENTAL REPRESENTATIVE. IN THAT CASE THE ASSESSEE OWNED A SMALL SCALE INDUSTRIAL UNDERTAKING ENGAGED IN MANUFACTURI NG OF FABRICS. DEDUCTION U/S.80- IB WAS CLAIMED ON THE INCREASED PROFITS OF RS.22.70 LAKHS AS PROFITS OF THE INDUSTRIAL UNDERTAKING ON ACCOUNT OF DEPB AND DUTY DRAW BACK CREDITED TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER DEN IED DEDUCTION ON THE GROUND THAT THE SAID TWO BENEFITS CONSTITUTED EXPORT INCENTIVES AND HENCE DID NOT REPRESENT PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING. THE HO NBLE HIGH COURT RELYING ON THE JUDGEMENT IN THE CASE OF CIT VS. STERLING FOODS [(1999) 237 ITR 579 (S.C.)] HELD THAT THE ASSESSEE FAILED TO PROVE THE NEXUS BETWEEN DUTY DRAW BACK / DEPB BENEFIT AND INDUSTRIAL UNDERTAKING. WHEN THE MATTER CAME UP BEFORE THE HONBLE APEX COURT IT WAS HELD THAT DEPB AND DUTY DRAWBACK ARE INCENTIVE PROFITS WHICH FLOW FROM THE SCHEMES FRAMED BY THE CENTRAL GOVERNMENT U /S.75 OF THE CUSTOMS ACT 1962 HENCE SUCH INCENTIVE PROFITS ARE NOT PROFIT S DERIVED FROM THE ELIGIBLE BUSINESS BUT BELONG TO THE CATEGORY OF ANCILLARY P ROFITS OF SUCH UNDERTAKING AND THEREFORE THEY DO NOT FORM PART OF NET PROFIT OF I NDUSTRIAL UNDERTAKING FOR THE PURPOSES OF DEDUCTION U/S.80-IA OR 80-IB. THE HONB LE SUPREME COURT ILLUMINATED ON THE SCOPE OF THE EXPRESSION DERIVED FROM BY REITERATING THAT IT IS NARROWER IN CONNOTATION AS COMPARED TO THE WORDS A TTRIBUTABLE TO. IN THIS CASE IT HAS BEEN THUS HELD THAT: WHAT ATTRACTS THE INCENTI VES UNDER SECTION 80-IA / 80-IB IS THE GENERATION OF PROFITS (OPERATIONAL PROFITS). ITA NOS.887 & 4555/M/08 & 5337/M/09 M/S.E.A.INFRASTRUCTURE OPERATIONS PVT.LTD. 8 9. ON GOING THROUGH THE PRINCIPLE LAID DOWN IN ABOV E JUDICIAL PRONOUNCEMENTS IT IS MANIFEST THAT THE EXPRESSION DERIVED FROM I S CONSTRICTED IN ITS AMBIT WHEN CONSIDERED IN JUXTAPOSITION TO THE EXPRESSION ATTR IBUTABLE TO. IN ORDER TO BE COVERED WITHIN THE FORMER EXPRESSION IT IS SINE QUA NON THAT THE RELATION BETWEEN THE INCOME AND SOURCE MUST BE THAT OF THE FIRST DEG REE. IN OTHER WORDS INCOME MUST DIRECTLY SPRING FROM THE SOURCE WHICH IS SUB JECT MATTER OF CONSIDERATION IN THE LANGUAGE OF SECTION. WHERE THE RELATION BETWEEN INCOME AND SOURCE SLIPS FROM FIRST TO SECOND DEGREE INCOME STANDS EXCLUDED FROM THE SCOPE OF EXPRESSION DERIVED FROM AND MAY FALL WITHIN THE PURVIEW OF ATTRIBUTABLE TO. CONSEQUENTLY AN INCOME SO AS TO BE CHARACTERIZED AS `DERIVED FR OM AN UNDERTAKING SHOULD DIRECTLY RESULT FROM IT. TO PUT IT SIMPLY IT SHOU LD BE GENERATION OF PROFITS (OPERATIONAL PROFITS) [AS HELD IN LIBERTY INDIA(SUPRA) ] OF THE ELIGIBLE UNDERTAKING. IF HOWEVER THE INCOME HAS GOT SOME INDIRECT OR REMO TE RELATION WITH THE INDUSTRIAL UNDERTAKING BUT DOES NOT SPRING FROM IT THE SAME C ANNOT BE HELD TO BE DERIVED FROM IT. 10. WITH THIS BACKGROUND IN MIND WE NOW ADVERT TO THE FACTS OF THE INSTANT CASE. THE ASSESSEE SET UP THE PROJECT FOR BMW TREATMENT INCOME FROM WHICH IS OTHERWISE ELIGIBLE FOR DEDUCTION U/S.80-IA. THE PR OJECT WAS AWARDED BY MCGM FOR TREATMENT OF BMW ON BOOT BASIS. AS PER TERMS OF CONTRACT THE ASSESSEE WAS TO TREAT BMW AT THE SPECIFIED RATE. IT WAS SUBJECT TO MINIMUM GUARANTEE OF TREATING BMW FOR 5000 KGS. MINIMUM GUARANTEE HERE MEANS THAT IF ASSESSEE GETS MORE THAN 5000 KGS OF BIO MEDICAL WASTE FOR TREATMENT IT WOULD GET THE AMOUNT AT THE RATE SPECIFIED FOR SUCH QUANTITY ACTUALLY TREATED. IF HOWEVER THE ASSESSEE GETS LOWER QUANTITY OF BIO MEDICAL WASTE FOR TREATMENT THEN IT WOULD BE ENTITLED TO SUCH MINIMUM RECEIPT. IT HAS BEEN ACCEPTED BY THE A.O. IN THE FORMER CASE THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S.80-IA(4) ON THE FULL AMOUNT AS SUCH INCOME IS DERIVED FROM THE OPERATION OF INFRASTRUCTURE PRO JECT. THE PROBLEM IS ONLY IN THE ITA NOS.887 & 4555/M/08 & 5337/M/09 M/S.E.A.INFRASTRUCTURE OPERATIONS PVT.LTD. 9 LATTER CASE THAT IS WHERE THE QUANTITY OF BMW AV AILABLE FOR TREATMENT IS LESS THAN 5000 KGS. AND THE ASSESSEE HAS GOT RECEIPTS FROM MCGM AT THE RATE SPECIFIED FOR 5000 KGS. OF BMW. FOR THE SAKE OF PROPER UNDERSTAN DING WE ARE SPLITTING THIS 5000 KGS. INTO TWO PARTS VIZ. 4000 KGS. ACTUALLY T REATED BY THE ASSESSEE AND 1000 KGS. WHICH ARE NOT TREATED BUT PAYMENT IS MADE AS P ER AGREEMENT WITH MCGM. DEDUCTION HAS BEEN NEGATIVED BY THE AO ON THE INCOM E FROM RECEIPTS TOWARDS 1000 KGS. BY ASSIGNING THE REASON THAT IT CAN NOT B E HELD AS DERIVED FROM THE ELIGIBLE UNDERTAKING. 11. WE ARE NOT CONVINCED WITH THE VIEW POI NT OF THE AO. THE ENTIRE RECEIPT WHETHER ON ACCOUNT OF ACTUAL TREATMENT (4000 KGS) OR NOTIONAL TREATMENT (1000 KGS) OF BMW HAS DIRECT RELATION WITH THE ELIGIBL E ENTERPRISE. THERE IS NO TRACE OF THE SOURCE OF INCOME FROM 1000 KGS. OF BMW WITHOUT THE ELIGIBLE UNDERTAKING. IT IS BUT FOR SUCH UNDERTAKING ALONE THAT THERE IS A R ECEIPT ON ACCOUNT OF 1000 KGS. RELATION BETWEEN THE INCOME FROM THE NOTIONAL TREA TMENT OF BMW WITH THE UNDERTAKING IS DIRECT AS IT IS SO IN THE CASE OF ACTUAL TREATMENT OF BMW. SINCE THE VERY SOURCE OF SUCH INCOME IS FROM UNDERTAKING WHI CH IS OTHERWISE ELIGIBLE FOR DEDUCTION U/S.80-IA IT FALLS BEYOND OUR COMPREHE NSION AS TO HOW DEDUCTION COULD BE DENIED ON RECEIPTS TOWARDS SUCH NOTIONAL TREATME NT OF BMW. 12. WE HAVE NOTED FROM THE CASE OF LIBERTY INDIA (SUPRA) THAT THE DISPUTE IN THAT CASE WAS TOWARDS DUTY DRAW BACK / DEPB INCENTI VES WHICH THE ASSESSEE CLAIMED TO HAVE DERIVED FROM THE ELIGIBLE BUSINESS . THE HONBLE SUPREME COURT NOTED THAT THESE INCENTIVE FLOW FROM THE SCHEME FRA MED BY THE CENTRAL GOVERNMENT U/S.75 OF THE CUSTOMS ACT 1962 HENCE THE INCENTI VE PROFITS ARE NOT PROFITS DERIVED FROM ELIGIBLE BUSINESS U/S.80-IB. COMING BACK TO TH E FACTS OF OUR CASE WE NOTE THAT ITA NOS.887 & 4555/M/08 & 5337/M/09 M/S.E.A.INFRASTRUCTURE OPERATIONS PVT.LTD. 10 THE PAYMENT IN RESPECT OF NOTIONAL TREATMENT OF BMW IS NOT FLOWING FROM ANY DIFFERENT SCHEME OR ANY OTHER PROVISIONS OF THE ACT . THE ENTIRE RECEIPT OF 5000 KGS IS FLOWING FROM THE CONTRACT ENTERED INTO BY THE AS SESSEE WITH MCGM. WHOLE OF THE AMOUNT IS OPERATIONAL INCOME BE IT FROM ACTUA L OR NOTIONAL OPERATION OF UNDERTAKING. AS THE RELATION BETWEEN INCOME FROM N OTIONAL OPERATION AND UNDERTAKING IS DIRECT AND NOT INDIRECT OR REMOTE BY NO STANDARD CAN IT BE VIEWED AS ANYTHING OTHER THAN NOT DERIVED FROM THE ELIGIBL E UNDERTAKING. UNDER SUCH CIRCUMSTANCES WE HOLD THAT THE LEARNED CIT(A) HAS T AKEN AN UNIMPEACHABLE VIEW. THE SAME IS THEREFORE UPHELD. 13. THE ONLY OTHER GROUND IN APPEAL FOR ASSESSMENT YEAR 2006-2007 IS AGAINST THE DELETION OF ADDITION OF RS.7 50 000 MADE BY THE AO U/S 41(1) OF THE ACT. FACTUAL SCENARIO OF THIS GROUND IS THAT THE ASSESSE E INCLUDED A SUM OF RS.7 50 000 IN THE LIST OF SUNDRY CREDITORS SHOWN AS PAYABLE TO M/S.PHE CONSULTANTS MUMBAI. THE ASSESSEE WAS CALLED UPON TO SUBMIT DETAILS IN T HIS REGARD. ON THE PERUSAL OF SUCH DETAILS IT WAS NOTICED BY THE A.O. THAT THIS A MOUNT WAS OUTSTANDING SINCE ACCOUNTING YEAR 2001-2002. THE ASSESSEE CLAIMED TH AT THERE WAS SOME DISPUTE WITH M/S.PHE CONSULTANTS WHICH WAS NOT YET SETTLED AND HENCE THE AMOUNT WAS OUTSTANDING. INFORMATION U/S.133(6) WAS CALLED FOR FROM M/S PHE CONSULTANTS WHO STATED AS UNDER:- WE WORKED AS CONSULTANT TO EA INFRASTRUCTURE OPERA TION PVT. LTD. DURING THE FY 99-2000 WHEN EA INFRASTRUCTURE OPERAT IONS PVT. LTD. WAS SETTING UP A BIO MEDICAL WASTE TREATMENT PLANT AT GTB HOSPITAL MUMBAI FOR MCGM. THE CONSULTATION FEE OF RS.750000/ - WAS AGREED TO BE PAID TO US. HOWEVER DISPUTE REGARDING THE EX TENT OF SERVICES PROVIDED AND FEES PAYABLE AROSE BETWEEN EA INFRASTR UCTURE HAVING DISPUTED THE CONSULTATION WORK AND DID NOT SHOWN AN Y AMOUNT AS DUE FROM EA INFRASTRUCTURE OPERATIONS P.LTD. TILL DATE THE DISPUTE IS STILL NOT SETTLED. WE THEREFORE DO NOT HAVE ANY LEDGER A CCOUNT IN THE NAME OF EA INFRASTRUCTURE OPERATIONS PVT. LTD. IN OUR BO OKS OF ACCOUNTS. ITA NOS.887 & 4555/M/08 & 5337/M/09 M/S.E.A.INFRASTRUCTURE OPERATIONS PVT.LTD. 11 14. IN THE LIGHT OF THIS REPLY OF PHE CONSULTANTS THE ASSESSING OFFICER MADE ADDITION OF RS.7 50 000 U/S 41(1) OF THE ACT AS IN HIS OPINION THE AMOUNT WAS NO MORE PAYABLE BY THE ASSESSEE. THE LEARNED CIT(A) OV ERTURNED THE ASSESSMENT ORDER ON THIS POINT AND ORDERED FOR THE DELETION OF THIS ADDITION. 15. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PE RUSING THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE ASSESSEE AVAILED SOME CONSU LTATION FROM M/S PHE CONSULTANTS IN THE PREVIOUS YEAR RELEVANT TO THE AS SESSMENT YEAR 2002-2003 FOR WHICH A SUM OF RS.7.50 LAKHS WAS CREDITED TO THEIR ACCOUNT. THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2006-2007 AND THE AMOUNT HAS BEEN CONTINUOUSLY SHOWN AS LIABILITY BY THE ASSESSEE. HOWEVER LETTER FROM M/ S PHE CONSULTANTS CLARIFIED THE POSITION THAT SOME DISPUTE AROSE BETWEEN THE ASSESS EE AND THEM WHICH WAS NOT SETTLED AND CONSEQUENTLY THEY SQUARED UP ASSESSEES ACCOUNT IN THEIR BOOKS BY SHOWING NIL BALANCE. FROM HERE IT IS OBVIOUS THAT IT IS A CASE OF REMISSION OR CESSASSION OF TRADING LIABILITY BY M/S PHE CONSULT ANTS IN FAVOUR OF THE ASSESSEE. BOTH THE AUTHORITIES BELOW HAVE RECORDED A CATEGOR ICAL FINDING THAT THE SAID SUM OF RS.7.50 LAKHS WAS CLAIMED BY THE ASSESSEE AS AN EXP ENDITURE IN ASSESSMENT YEAR 2002-2003. ON A PERTINENT QUERY FROM THE BENCH THE LEARNED A.R. ADMITTED THAT TILL DATE THE SAID AMOUNT OF RS.7.50 LAKHS HAS NOT BEEN PAID. IN VIEW OF THESE FACTS IT BECOMES PATENT THAT THE PROVISIONS OF SECTION 41(1) ARE RIGHTLY ATTRACTED HERE INASMUCH AS THE ASSESSEE CLAIMED DEDUCTION FOR THE SAME IN AN EARLIER YEAR AND SUBSEQUENTLY THE AMOUNT CEASED TO BE PAYABLE AS IS MANIFEST FROM THE INFORMATION SUPPLIED BY M/S PHE CONSULTANTS WHO ERASED THE AMOU NT DUE FROM ASSESSEE BY SHOWING NIL BALANCE AS RECOVERABLE. IN OUR CONSIDER ED OPINION THE LEARNED CIT(A) WAS NOT JUSTIFIED IN DELETING THIS ADDITION. WE TH EREFORE SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND RESTORE THE ACTION OF THE A SSESSING OFFICER. ITA NOS.887 & 4555/M/08 & 5337/M/09 M/S.E.A.INFRASTRUCTURE OPERATIONS PVT.LTD. 12 16. IN THE RESULT APPEALS FOR ASSESSMENT YEARS 200 4-2005 AND 2005-2006 ARE DISMISSED AND THAT OF ASSESSMENT YEAR 2006-2007 IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 9 TH DAY OF JULY 2010. SD/- SD/- (V.DURGA RAO) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 9 TH JULY 2010 . DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENTS. 3. THE CIT CONCERNED 4. THE CIT(A)-X MUMBAI. 5. THE DR/ITAT MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI. FIT FOR PUBLICATION (J.M.) (A.M.)