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NODI EXPORTS vs. ASSISTANT COMMISSIONER OF INCOME TAX ITAT, DELHI F BENCH Vimal Gandhi, President & K.D. Ranjan, A.M. ITA No. 1085/Del/2006; Asst. yr. 2002-03 25th July, 2008 (2008) 117 TTJ (Del) 913 : (2008) 24 SOT 526 : (2008) 12 DTR 1 Section 37(1), 80HHC, 80-IA(1), 80-IA(9), 80-IB, Asst. Year 2002-03 Decision in favour of Revenue Counsel appeared : Rupesh Jain & Vishal Kalra, for the Assessee : Sanjay Kumar, for the Revenue

K.D. RANJAN, A.M. :

This appeal by the assessee for asst. yr. 2002-03 arises out of order of the CIT(A), Bareilly. 2. The first issue for consideration relates to deduction under s. 80HHC of the IT Act by reducing the amount of deduction allowed under s. 80-IB of the Act. The relevant grounds of appeal are reproduced as under : "2. That the CIT(A) erred on facts and in law in determining deduction admissible to the appellant under s. 80HHC of the IT Act at Rs. 76,80,636 against deduction of Rs. 80,39,341 claimed by the appellant; 3. That the CIT(A) erred on facts and in law in holding that for computing allowable deduction under s. 80HHC eligible profits of the business must be reduced by deduction allowed under s. 80IB of the Act." 3. The facts of the case stated in brief are that the assessee is a manufacturer and exporter of aluminum art wares, brass art wares, EPNS wares and other Indian handicrafts. The assessee claimed deduction under ss. 80HHC and 80-IB on business profits derived by the assessee. The AO referring to provisions of ss. 80-IB(13), 80-IA(9) and 80HHC(4B) held that once deduction under s. 80-IB had been allowed, the deduction on the same income would not be allowable under other provisions of IT Act. Similar directives are also received from reading of s. 80HHC(4B). The AO, therefore, for the purpose of computing deduction under s. 80HHC reduced the amount of deductions under s. 80-IB and on the balance he allowed deduction under s. 80HHC of the Act. On appeal the learned CIT(A) upheld the stand taken by the AO. 4. Before us the learned Authorised Representative of the assessee relying on the decision of Honble Madras High Court in the case of SCM Creations vs. Asstt. CIT, ITA Nos. 310 and 311 of 2008 [reported at (2008) 218 CTR (Mad) 126Ed.] submitted that M/s SCM Creations was one of the interveners in the case of Asstt. CIT vs. Rogini Garments (2007) 111 TTJ (Chennai)(SB) 274 : (2007) 108 ITD 49 (Chennai)(SB). In this case Honble Madras High Court has decided the matter against the Revenue. Therefore, assessees case is covered by the decision of Honble Madras High Court, which is the only decision on the point. On the other hand, the learned Departmental Representative submitted that in the decision relied upon by Honble Madras High Court in the case of SCM Creations vs. Asstt. CIT (supra), the issue related to deduction under s. 80HH. There was no provision in s. 80HH when the decisions were rendered by various Courts referred to in the decision of Madras High Court.

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ORDER

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Sec. 80-IA(9) specifically provides that where any amount of profits and gains of an undertaking or an enterprise in the case of an assessee is claimed as deduction under s. 80-IA(1) and allowed, the deduction to the extent of such profits and gains shall not be allowed under any other provisions of Chapter VI-A. Sec. 80-IB(13) provides that provisions of sub-s. (5) and sub-ss. (7) to (12) of s. 80-IA shall apply to the eligible business for the purpose of deduction under s. 80-IB of the Act. Therefore, when there is a specific provision under s. 80-IB, the computation of deduction under s. 80HHC has to be made after reducing the amount of deduction allowed under s. 80-IB. No such provision was available under s. 80HH or 80-I. Since the law has provided specific provision under s. 80-IB(13) r/w s. 80-IA(9), the specific provision has to be followed while computing deduction under s. 80HHC of the Act. 5. We have heard both the parties and perused the material available on record. Under s. 80-IB where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-ss. (3) to (11B) being the eligible business, the assessee shall be entitled for deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in the section. Further s. 80-IB(13) provides that the provisions contained in sub-s. (5) and sub-ss. (7) to (12) of s. 80-IB shall, so far as may be, apply to the eligible business under this section. Sec. 80-IA(9) provides for exclusion of profits allowed as deduction for the purpose of computing deduction under Chapter VI-A. It reads as under : "Where any amount of profits and gains of an undertaking or of an enterprise in the case of an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading C.Deductions in respect of certain incomes, and shall in no case exceed the profits and gains of such eligible business of undertaking or enterprise, as the case may be." 6. From the language of s. 80-IA(9) it is clear that deduction to the extent of profits and gains allowed under s. 80IA shall not be allowed under any other provisions of Chapter VI-A under the heading "C.Deductions in respect of certain incomes". Sec. 80HHC falls under the heading "C. Deductions in respect of certain incomes" of Chapter VI-A. Therefore, where an assessee is entitled to both the deductions under ss. 80HHC and 80-IA, deduction under s. 80HHC will be available on profits derived from export business after reducing the amount of deduction allowed under s. 80-IA of the Act. Since provisions of s. 80-IA(9) are applicable to s. 80-IB by virtue of provisions of s. 80IB(13), the amount of deduction allowable under s. 80-IB will be reduced from profits derived from export business for the purpose of deduction under s. 80HHC. However, there was difference of opinion amongst various Benches of this Tribunal. The controversy amongst the various Benches of the Tribunal has been set at rest by the decision of Tribunal, Chennai Special Bench in the case of Asstt. CIT vs. Rogini Garments (supra) wherein it has been held that relief under s. 80-IA should be deducted from profits and gains of assessees business before computing relief under s. 80HHC of the Act. 7. The contention of the learned Authorised Representative of the assessee is that Honble Madras High Court in the case of SCM Creations (supra), one of the interveners in Rogini Garments (supra) has allowed the appeal in its favour. Therefore, the assessees case is covered by the decision in the case of SCM Creations (supra) which is only decision of any High Court available on the issue. We have gone through the decision of Rogini Garments (supra) carefully and find that Shri R.R. Vora, the learned counsel for the intervener, SCM Creation, relying on the decision of the Bombay High Court in the case of CIT vs. Nima Specific Family Trust (2001) 165 CTR (Bom) 518 : (2001) 248 ITR 29 (Bom) has submitted before Special Bench that where unit is entitled to a special deduction under ss. 80HH and 80-I, priority is to be given to special deduction under s. 80HH. The Court followed the decision of the Madhya Pradesh High Court rendered in the case of J.P. Tobacco Products (P) Ltd. vs. CIT (1997) 140 CTR (MP) 329 : (1998) 229 ITR 123 (MP) (see para 20). After considering the submissions made by Authorized Representatives, Tribunal Chennai Special Bench in para 44 observed that the cases of interveners had not been examined and the regular Bench while deciding those appeals might keep in view the principles laid down by Special Bench. Thus from the order of Tribunal in the case of Rogini Garments (supra), it is clear that the arguments were directed by the counsel for SCM Creations (supra) in respect of deduction under ss. 80HH and 80-I and not in respect of deduction under ss. 80-IA/80-IB and 80HHC. 8. In SCM Creations (supra), the dispute before Honble Madras High Court related to the question as whether the relief under s. 80-IA should be deducted from profits and gains of business before computing relief under s. 80HHC. The learned counsel for SCM Creations (supra) appearing before Honble Madras High Court submitted

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We have gone through the decisions referred to by the Honble Madras High Court in the case of SCM Creations (supra). We find that in the decisions relied upon by Honble Madras High Court, the issue before various High Courts related to deduction under ss. 80HH and 80-I which did not contain any provisions similar to s. 80-IA(9A). In the case of CIT vs. Rochi Ram & Sons (supra), the issue before their Lordships of Honble Rajasthan High Court related to deduction under ss. 80IA and 80HHC, but since the assessment year involved was 1995-96 and the amendment in s. 80IA was made w.e.f. 1st April, 1999 by the Finance Act, 1998, inserting sub-s. (9A), Honble Rajasthan High Court decided the matter on merits by holding that deduction under ss. 80-IA and 80HHC will be allowable on gross total income and not on the balance amount after any deduction made under any section. Thus the decisions relied by Honble Madras High Court were either in respect of deduction under ss. 80HH and 80-I wherein there was no such provision similar to sub-s. (9A) of s. 80-IA or were prior to 1st April, 1999. Thus after 1st April, 1999, deduction under s. 80HHC will be allowed after reducing the amount of deduction under s. 80-IA from profits of export business. Honble Madras High Court in SCM Creations (supra)

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Since the Special Leave Petitions filed against the judgment of the Madhya Pradesh High Court have been dismissed and the Department has not filed the Special Leave Petitions against the judgments of different High Courts following the view taken by the Madhya Pradesh High Court, we do not find any merit in this appeal. The Department having accepted the view taken in those judgments cannot be permitted to take a contrary view in the present case involving the same point. Accordingly, the civil appeal is dismissed. No costs." From the abovequoted decision it is clear that Honble Madras High Court while delivering judgment in the case SCM Creations (supra) followed the decisions of Madhya Pradesh High Court in J.P. Tobacco Products (P) Ltd. vs. CIT (supra) of Honble Bombay High Court in CIT vs. Nima Specific Family Trust (supra) and other High Courts where the issue before various Honble High Courts in all cases except in the case of CIT vs. Rochi Ram & Sons (2004) 191 CTR (Raj) 472 : (2004) 271 ITR 444 (Raj) was related to deductions under ss. 80HH and 80-I of the Act. It was held that both ss. 80HH and 80-I being independent, the deductions could be claimed under both sections on the gross total income. Since Special Leave Petitions filed by the Revenue were dismissed by the Supreme Court on various occasions and subsequently no Special Leave Petitions were preferred against the judgments deciding the issue relating to deduction under ss. 80HH and 80-I. Honble Madras High Court following the ratio of aforesaid decisions held that the Department having accepted the view taken in the judgments cannot be permitted to take a contrary view in subsequent appeals involving the same point. However no discussion was made on allowability of deduction under ss. 80-IA and 80HHC.

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that the issue had been decided in favour of the assessee in TC No. 344 of 2004 [reported as Dy. CIT vs. Chola Textiles (P) Ltd. (2008) 218 CTR (Mad) 123 Ed.]. Honble Madras High Court in TC No. 344 of 2004 held as under : "5. It is submitted across the Bar by the learned counsel appearing for either side that the very issue has been considered and held against the Revenue by the Madhya Pradesh High Court in the case of J.P. Tobacco Products (P) Ltd. vs. CIT (1997) 140 CTR (MP) 329 : (1998) 229 ITR 123 (MP). It has also been further submitted that the Bombay High Court also has taken the same view in the case of CIT vs. Nima Specific Family Trust (2001) 165 CTR (Bom) 518 : (2001) 248 ITR 29 (Bom). The judgment of the Madhya Pradesh High Court has been taken to the Supreme Court and the Supreme Court in Jt. CIT vs. Mandideep Eng. & Pkg. Ind. (P) Ltd. (2007) 210 CTR (SC) 614 : (2007) 292 ITR 1 (SC) has rejected the SLP by giving the following reasons : .... 2. The Madhya Pradesh High Court in J.P. Tobacco Products (P) Ltd. vs. CIT (1997) 140 CTR (MP) 329 : (1998) 229 ITR 123 (MP) took the view that both the sections are independent and therefore, the deductions could be claimed both under ss. 80HH and 80-I on the gross total income. Against this judgment, a Special Leave Petition was filed in this Court which was dismissed on the ground of delay on 21st July, 2000 [see (2000) 245 ITR (St) 71]. The decision in J.P. Tobacco Products (P) Ltd. vs. CIT (1997) 140 CTR (MP) 329 : (1998) 229 ITR 123 (MP) was followed by the same High Court in the case of CIT vs. Alpine Solvex (P) Ltd. in ITA No. 92 of 1999 decided on 2nd May, 2000. Special Leave Petition against this was dismissed by this, Court on 12th Jan., 2001 [see (2001) 247 ITR (St) 36]. This view has been followed repeatedly by different High Courts in a number of cases against which no Special Leave Petitions were filed meaning thereby that the Department has accepted the view taken in these judgments. See CIT vs. Nima Specific Family Trust (2001) 165 CTR (Bom) 518 : (2001) 248 ITR 29 (Bom); CIT vs. Chokshi Contacts (P) Ltd. (2001) 166 CTR (Raj) 383 : (2001) 251 ITR 587 (Raj); CIT vs. S.B. Oil Industries (P) Ltd. (2006) 203 CTR (P&H) 218 : (2005) 274 ITR 495 (P&H); CIT vs. S.K.G. Engineering (P) Ltd. (2005) 197 CTR (Del) 81 : (2006) 285 ITR 423 (Del) : (2005) 119 DLT 673 (Del) and CIT vs. Lucky Laboratories Ltd. (2006) 200 CTR (All) 305.

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has allowed the relief in favour of the assessee on the ground that the Department having accepted the view taken in the judgments cannot be permitted to take a contrary view in subsequent appeals involving the same point. Further all the decisions are related to the period prior to insertion of sub-s. (9A) of s. 80-IA. In view of the above, it has to be decided as to whether the decision rendered in the case of SCM Creations (supra) is a binding precedent to be followed while deciding the issue relating to reduction of profits allowed as deduction under s. 80-IA/80-IB from the profits of export business for the purposes of computing deduction under s. 80HHC. It is a settled law that a law declared by the Supreme Court/High Court has a binding effect as is contemplated by Art. 141. According to the well-settled theory of precedents, every decision contains three basic postulates(i) finding of material facts, direct and inferential. An inferential finding of fact is the inference which the Judge draws from the direct or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on combined effect of the above. A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in the judgment. The enunciation of the reason or principle on which a question before a Court has been decided is alone binding as a precedent. A deliberate judicial decision arrived at after hearing an argument as a question which arises in the case or is put in issue may constitute a precedent, no matter for what reason, and the precedent by long recognition may mature into rule of stare decisis. It is the rule deducible from the application of law to the facts and circumstances of the case which constitutes ratio decidendi [see Union of India vs. Dhanwanti Devi (1996) 6 SCC 44, 51-52]. A decision passes sub silentio, in the technical sense that has come to be attached to that phrase, when the particular point of law involved in the decision is not perceived by the Court or present to its mind. The Court may consciously decide in favour of one party because of point A, which it considers and pronounces upon. It may be shown, however, that logically the Court should not have decided in favour of the particular party unless it also decided point B in his favour, but point B was not argued or considered by the Court. In such circumstances although point B was logically involved in the facts and although the case had a specific outcome, the decision is not an authority on point B. Point B is said to pass sub silentio (Salmond on Jurisprudence, 12th Edition. Editor. Prof. P. J. Fitzgerald). Precedents sub silentio (in silence) and without argument are of no moment. This rule has ever since been followed. One of the chief reasons for the doctrine of precedent is that a matter that has once been fully argued and decided should not be allowed to be reopened. Honble Supreme Court in Union of India vs. Raghubir Singh (Decd by Liquidetor) (1990) 87 CTR (SC) 186 : (1989) 178 ITR 548 (SC) at pp. 556 and 557 has held that "the doctrine of binding precedent has the merit of promoting a certainty and consistency in judicial decisions, and enables an organic development of law, besides providing assurance to the individual as to the consequences of transactions forming part of his daily affairs. And therefore, the need for a clear and consistent enunciation of legal principles in the decision of a Court". In State of Punjab vs. Surinder Kumar (1992) 194 ITR 434 (SC) at p. 437, Honble Supreme Court has held that a decision is available as a precedent only if it decides a question of law. Uniformity and consistency are the core of judicial discipline, but that which escapes in the judgment without any occasion is not ratio decidendiState of U.P. vs. Synthetics & Chemicals Ltd. 87 STC 289, 309 (SC). Honble Supreme Court in the case of Goodyear India Ltd. vs. State of Haryana & State of Maharashtra (1991) 188 ITR 402 (SC) also held that a decision on a question which had not been argued could not be treated as a precedent. Therefore, the decision of the Honble Supreme Court in the case of State of Tamil Nadu vs. M.K. Kandhaswami (1975) 36 STC 191 and the decision of the Kerala High Court in the case of Malabar Fruit Products Co. vs. STO (1972) 30 STC 537, were not authority for the proposition that a mere despatch of goods was within the ambit of expression disposal of goods. Honble Supreme Court in the case of State of Orissa vs. Sudhanshu Shekhar Mishra AIR 1968 SC 647 has held that a decision is only an authority for what it actually decides and what is of the essence in a decision is its ratio and not what logically flows from the various observations made in it. From the decision of Honble Madras High Court, we find that the counsel appearing for SCM Creations did not refer to the provisions of s. 80-IA(9A) before the Honble Madras High Court and hence their Lordships have no occasion to examine the provisions of s. 80-IA(9A) inserted by the Finance Act, 1998 w.e.f. 1st April, 1999. At the same time we cannot overlook the insertion of subs. (9A) of s. 80-IA for the purpose of computation under s. 80HHC. Tribunal, Special Bench, Chennai in the case of Rogini Garments (supra) had examined the provisions of s. 80-IA(9A) and has held that the relief allowed under s. 80-IA should be deducted from profits and gains of

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assessees business before computing relief under s. 80HHC of the Act. The decision of the Special Bench is binding on us. Respectfully following the decision of the Special Bench, in the case of Rogini Garments (supra), it is held that the deduction claimed and allowed under s. 80-IB(13) will be reduced from eligible profits of business for computation of deduction under s. 80HHC of the Act. 19. The next issue for consideration relates to deduction under s. 80-IB in respect of duty drawback/DEPB. The relevant grounds of appeal are reproduced as under : "4. That the CIT(A) has erred on facts and in law in determining deduction admissible to the appellant under s. 80-IB of the IT Act at Rs. 5,49,124 against the deduction of Rs. 28,72,489 claimed by the appellant. 5. That the CIT(A) has erred on facts and in law in holding that the duty drawback/DEPB amounting (to) Rs. 93,14,939 is not eligible for deduction under s. 80-IB of the IT Act." The facts of the case stated in brief are that the assessee claimed deduction under s. 80-IB in respect of duty drawback and DEPB. The AO while computing deduction under s. 80-IB reduced the amount of duty drawback and DEPB amounting to Rs. 93,14,939, which has been upheld by the learned CIT(A). The learned CIT(A) while deciding the issue observed that the words derived from have been the subject-matter of interpretation in the case of CIT vs. Sterling Foods (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC) and in the case of Pandian Chemicals Ltd. vs. CIT (2003) 183 CTR (SC) 99 : (2003) 262 ITR 278 (SC) wherein it has been held that there must be a direct nexus between the profits and gains and industrial undertaking. In the case of assessee, there was no such direct nexus, but receipts of DEPB and duty drawback were incidental to the business of industrial undertaking. Before us the learned Authorised Representative of the assessee submitted that the amount of Rs. 93,14,939 consists of Rs. 89,18,384 on account of duty drawback and Rs. 3,96,555 on account of DEPB. It has been submitted that in the case of CIT vs. Eltek SGS (P) Ltd. (2008) 215 CTR (Del) 279 Honble Delhi High Court held that duty drawback is the profits and gains derived from industrial undertaking. He also referred to the decision of the Tribunal in the case of Eltek SGS (P) Ltd. (supra) which has been upheld by the Honble jurisdictional High Court referred to above. The decision of Tribunal in Dy. CIT vs. Eltek SGS (P) Ltd. (2006) 10 SOT 178 (Del) was rendered in respect of deduction under s. 80-IA of the Act. The learned Authorised Representative of the assessee placing reliance on the decision of Tribunal, Bench "B" New Delhi in the case of Bharat Rasayan Ltd. (ITA No. 570/Del/2002, dt. 17th Feb., 2006) submitted that Tribunal in asst. yr. 1998-99 allowed deduction under s. 80-IA of the Act in respect of DEPB. It was held that the decision of Honble Supreme Court in the case of CIT vs. Sterling Foods (supra) was delivered in the context of old provisions of ss. 80HH and 80-I of the Act in which words used were "profits derived from industrial undertaking" and as such, the receipts were not held as directly derived from industrial undertaking and thus, not held eligible for deduction under ss. 80-I and 80HH of the Act. What is true for s. 80-IA is true for s. 80-IB. Therefore, the duty drawback and DEPB receipts have to be taken into consideration for the purpose of deduction under s. 80-IB of the Act. On the other hand, the learned Departmental Representative submitted that from the language of sub-s. (3) of s. 80-IB it is clear that the deduction under s. 80-IB(1) is to be allowed on profits and gains derived from industrial undertaking. Therefore, there should be a direct nexus between the profits and gains earned by the assessee and the industrial activities of the assessee. The decision of Honble Supreme Court in the case of CIT vs. Sterling Foods (supra) will still be applicable and the deduction will be available on income derived from industrial undertaking. He further submitted that the expression "any profits and gains" derived from any business cannot be read in isolation without reading the provisions together with sub-ss. (3) to (11B) of the Act which defines the scope of profits and gains derived from various industrial activities. We have heard both the parties. The AO has not allowed deduction under s. 80-IB of the Act in respect of duty drawback and DEPB on the ground that these were not derived from industrial activities of the assessee. Secs. 80IA and 80-IB were substituted for s. 80-IA by the Finance Act, 1999 w.e.f. 1st April, 2000. The present s. 80-IA was substituted by the Finance Act, 2001 w.e.f. 1st April, 2002. Prior to substitution of s. 80-IA by the Finance Act, 1999 as amended from time to time stood as under : "80-IA (1) Where the gross total income of an assessee include any profits and gains derived from any business of an industrial undertaking or a hotel or operation of a ship or developing, maintaining and operating any infrastructure facility or scientific and industrial research and

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development or providing telecommunicating services whether basic or cellular including radio paging, domestic satellite service or network of trucking and electronic data interchange services or construction and development of housing projects or operating an industrial park or commercial production or refining of mineral oil in the North Eastern region or in any part of India on or after the 1st day of April, 1997 (such business being hereinafter referred to as eligible business), to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing total income of the assessee, a deduction from such profits and gains of an amount equal to the percentage specified in sub-s. (5) and for such number of assessment years as is specified in sub-s. (6)." From asst. yr. 2002-03 the sustituted sub-s. (1) of s. 80-IA reads as under : "Where gross total income of an assessee includes any profits and gains derived by an industrial undertaking or an enterprise from any business referred to in sub-s. (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction of an amount equal to 100 per cent of profits and gains derived from such business for ten consecutive assessment years." Sec. 80-IB was substituted as mentioned above by the Finance Act, 1999 w.e.f. 1st April, 2000. For asst. yr. 2002-03, s. 80-IB(1) stood as under : "(1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-ss. (3) to (11A) (such business being hereinafter referred to as eligible business, there shall, in accordance with and subject to provisions of this section, be allowed in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as is specified in this section." On comparison of language employed in s. 80-IA of the Act prior to amendment by the Finance Act, 1999 the legislature used words "includes any profits and gains derived from any business of an industrialundertaking........" The existing s. 80-IB contains words "includes any profits and gains derived from any business referred to in subss. (3) to (11A)". On comparison of phraseology used in s. 80-IA as stood prior to the amendment by the Finance Act, 1999 and s. 80-IB, we find that the words used convey the same meaning that any profits and gains derived from any business of undertaking will be eligible for deduction. These words are common in both the sections. Therefore, for eligibility of deduction under these sections, the profits and gains derived by the undertaking should have the nexus with the business activities of the industrial undertaking. In other words, the profits and gains on which deduction under s. 80-IB of the Act will be available should be from the business of industrial undertaking referred to in sub-ss. (3) to (11A) of the Act. As long as the income is derived from business of the undertaking, the assessee will be eligible for deduction under s. 80-IB of the Act. Honble Delhi High Court in the case of CIT vs. Eltek SGS (P) Ltd. (supra) has held that the source of duty drawback is the business of industrial undertaking which was to manufacture and export goods out of raw material that is imported and on which customs duty was paid. The entitlement for duty drawback arises from s. 75(1) of the Customs Act, 1962 read with the relevant notification issued by the Central Government in this regard. Honble Delhi High Court finally held that : "We are of the opinion that it is not necessary for us to go as far as the Gujarat High Court has done in coming to the conclusion that duty drawback is profit or gain derived from an industrial undertaking. It is sufficient if we stick to the language used in s. 80-IB of the Act and come to the conclusion that duty drawback is profit or gain derived from the business of an industrial undertaking. The language used in s. 80-IB of the Act is not as broad as the expression attributable to referred to by the Supreme Court in CIT vs. Sterling Foods (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC) and Cambay Electric Supply Industrial Co. Ltd. vs. CIT 1978 CTR (SC) 50 : (1978) 113 ITR 84 (SC) nor is it as narrow as the expression derived from. The expression derived from the business of an industrial undertaking is somewhere in between. Consequently, we are of the view that the source of the duty drawback is the business of the industrial undertaking which is to manufacture and export goods out of raw material that is imported and on which customs duty is paid. The entitlement for duty drawback arises from s. 75 of the Customs Act, 1962 read with the relevant notification issued by the Central Government in that regard." 26. We also find that Tribunal, Delhi Bench "G", New Delhi, in the case of Anil Kumar Rastogi vs. Asstt. CIT in ITA. No 2465/Del/2007, order dt. 20th June, 2008) has held that assessee is entitled for deduction under s. 80-IB in respect of duty drawback and DEPB receipts. Tribunal, Delhi Bench "G" in the case of Anil Kumar Rastogi (supra) distinguished the case of Honble Allahabad High Court in the case of Mentha & Allied Products (P) Ltd. (supra) by observing as under : "6. Coming now to the judgment of the Honble Allahabad High Court in the case of Mentha & Allied Products (P) Ltd. (supra), it is seen that it was concerned with the deduction under s. 80HHA. which uses language that is identical with ss. 80HH, 80-I etc., viz., profits and gains derived from a small scale

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industrial undertaking to which this section applies. Thus, for the purpose of s. 80HHA, as in the case of ss. 80HH, 80-I etc. it is necessary that the industrial undertaking itself should be the direct source for the income in question and not one or more steps removed. As already noticed, the language employed in s. 80-IB is wider, though not as wide as attributable to. The statutory provision considered by the Honble jurisdictional High Court is different having different language." After considering the decision of jurisdictional High Court, the Bench further held as under : "7. In the light of the above discussion, it is not necessary to consider the judgments of the Madras High Court in CIT vs. Jameel Leathers & Uppers (2000) 246 ITR 97 (Mad) and CIT vs. Viswanathan & Co. (2003) 181 CTR (Mad) 335 : (2003) 261 ITR 737 (Mad), all cited by the learned senior Departmental Representative. In any case, a perusal of these judgments shows that they were concerned with ss. 80-J, 80HH and 80-I and not s. 80-IB where the language used is much wider. The judgment of the Delhi High Court in CIT vs. J.B. Exports Ltd. (2006) 201 CTR (Del) 30 : (2006) 286 ITR 603 (Del) cited by him was also concerned with s. 80HH and not s. 80-IB. The order of the Delhi Bench of the Tribunal in Asstt. CIT vs. K.S. International (2007) 293 ITR 39 (Del)(AT), in which s. 80-IB was considered and it was held that the DDB receipt cannot be treated as profits derived from the business of the industrial undertaking was rendered on 17th Nov., 2006, before the judgment of the Delhi High Court in CIT vs. Eltek SGS (P) Ltd. (supra); the order can no longer be given effect to after the judgment of the Delhi High Court. The Tribunal in this order had held that the two terms derived from the industrial undertaking and derived from the business of the industrial undertaking have the same meaning, a view which did not find approval by the Delhi High Court in Eltek SGS (supra). Therefore, the argument of the Department based on this order of the Tribunal cannot be given effect to. 8. In the result, we hold that the assessee is entitled to the deduction under s. 80-IB in respect of the DDB and DEPB receipts. The grounds are allowed." 27. In the case of Bharat Rasayan Ltd. vs. Asstt. CIT in ITA Nos. 570 and 1228/Del/2002 for asst. yr. 1998-99 dt. 17th Feb., 2006 Tribunal, Delhi Bench "B" allowed the claim of the assessee for deduction under s. 80-IA of the Act in respect of DEPB receipts, by observing as under : "3.4.2 We have perused the records and considered the matter carefully. The authorities below had reduced the eligible profit of the assessee for deduction under s. 80-IA by the amounts mentioned in para 3.4.1 holding that these receipts had not been derived from the industrial undertaking and for this purpose reliance had been placed on the judgment of Honble Supreme Court in the case of CIT vs. Sterling Foods (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC) and in case of Ashok Leyland Ltd. vs. CIT (1997) 138 CTR (SC) 287 : (1997) 224 ITR 122 (SC). Tribunal in assessees own case in asst. yrs. 1996-97 and 1997-98 (supra) had considered the issue relating to DEPB and QBAL licences and noted the changes in s. 80-IA in the relevant years when the eligible profit was defined as profit derived from the business of industrial undertaking. The judgments of Honble Supreme Court in the case of Sterling Foods (supra) and Ashok Leyland (supra) had been delivered in the context of old provisions of ss. 80HH and 80-I in which words used were profits derived from industrial undertaking and, therefore, such receipts were not held as directly derived from industrial undertaking and thus not held eligible for ss. 80-I and 80HH. The Tribunal had accordingly held that the assessee was entitled to deduction under s. 80-IA. In view of phraseology in s. 80-IA as it stood at the relevant time. The other receipts under consideration in this appeal are similar in nature and the interpretation of the Tribunal given in the context of DEPB and QBAL will be equally applicable. Other Benches of Tribunal as mentioned in para 3.4.1 have also taken a similar view. The judgment of Honble High Court of Delhi in the case of Ritesh Industries Ltd. (supra) relied upon by the learned Authorized Representative was in relation to the old provisions of s. 80-I in which the words used were profits and gains derived from an industrial undertaking. We, therefore, decide these grounds in favour of the assessee, respectfully following the decision of Tribunal in assessees own case in asst. yrs. 1996-97 and 1997-98 and the other decision of the Tribunal relied upon by the learned Authorized Representative." Respectfully following the precedents, it is held that the assessee will be entitled for deduction under s. 80-IB of the Act in respect of duty drawback and DEPB received by it as the same has direct nexus with the business of industrial undertaking. The last issue for consideration relates to disallowance of various expenses on ad hoc basis. During the course of hearing, the learned Authorised Representative of the assessee did not press the disallowance made in respect of telephone expenses, vehicle expenses, vehicle repairing expenses and depreciation on car. However, the disallowance made in respect of foreign tour expenses at Rs. 24,506 is being agitated. The AO disallowed 10 per

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cent of Rs. 2,45,060 on the ground that the expenditure of personal nature could not be ruled out while on foreign tour. The learned CIT(A) upheld the stand taken by the AO. Before us it was submitted that the expenditure of Rs. 3,27,796 was incurred by Shri Neeraj Khanna, the partner and one of the employees, namely, Shri Vinod Khanna. The expenditure has been disallowed without pointing out any expenditure in the nature of personal expenses. Ad hoc disallowance thus amounts to disallowance based on conjectures and surmises and deserves to be deleted in view of decision of the Tribunal in the case of Mahendra Oil Cake Industries (P) Ltd. vs. Asstt. CIT (1996) 55 TTJ (Ahd) 711. We have heard both the parties. From the assessment order we find that the AO has not pointed out any expenditure which could be related to personal expenses of the partner and employee. He has made the disallowance on ad hoc basis. Thus the addition made by the AO without supporting evidence cannot be upheld. The issue is squarely covered by the decision of Tribunal, Ahmedabad Bench "A" in the case of Mahendra Oil Cake Industries (P) Ltd. vs. Asstt. CIT (supra) wherein it was held that there was no justification in making the ad hoc disallowance to the extent of 1/4th of the total foreign tour expenditure without pointing out any specific item or instance of personal expenses. Respectfully following the precedent, the addition confirmed by the learned CIT(A) is deleted. The AO is directed to allow the relief to the assessee. In the result, the appeal filed by the assessee is partly allowed.

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