NIRMA INDUSTRIES LTD. v. ASSISTANT COMMISSIONER OF INCOME TAX
[Citation -2005-LL-0425-1]

Citation 2005-LL-0425-1
Appellant Name NIRMA INDUSTRIES LTD.
Respondent Name ASSISTANT COMMISSIONER OF INCOME TAX
Court ITAT
Relevant Act Income-tax
Date of Order 25/04/2005
Assessment Year 1992-93
Judgment View Judgment
Keyword Tags profits and gains of business or profession • investment deposit account • new industrial undertaking • opportunity of being heard • residential accommodation • manufacture or production • income chargeable to tax • business of construction • export promotion scheme • proportionate interest • industrial development • transport rent income • professional charges • business expenditure • memorandum of appeal • non-payment of rent • plant and machinery • interest on deposit • competent authority • computing deduction
Bot Summary: During the course of assessment proceedings for the year under consideration, it was submitted by the assessee that the facts are similar and the assessee relies upon the same submissions as were made in asst. The AO has already given a finding that s. 35D provides for amortization of the expenditure incurred by the assessee for setting up of a new industrial undertaking and the assessee would be entitled to deduction under s. 35D as and when soda ash project is set up. The learned counsel for the assessee fairly admitted that the transport rent income is not the income derived from the industrial undertaking and he did not press the assessee s ground of appeal claiming the deduction under s. 80-I in respect of the transport rent income. With regard to the disallowance under r. 6B, it was pointed out by the learned counsel for the assessee that this issue is covered in favour of the assessee by the decision of the Tribunal in assessee s own case for asst. Since the assessee has deposited its entire income in the same bank account from where the withdrawal for payment of income-tax is made, we accept the assessee s claim that the withdrawal for payment of tax was out of the income generated during the year under consideration and not out of the borrowed funds. Regarding transport rent income :With regard to the transport rent income also, the finding of the CIT(A) is that the assessee is not entitled for deduction under s. 80-I on the transport rent income but he directed the AO to exclude depreciation of Rs. 10,87,973 from the above income of Rs. 19,03,000 and thereafter he held that the assessee is not entitled for deduction under s. 80- I on Rs. 8,15,027. The learned counsel for the assessee submitted that there is separate requirement for claiming deduction under s. 32AB and for utilisation of the withdrawal from the deposit account under s. 32AB. If the assessee fulfils the conditions of s. 32AB(1), he will get the deduction in the year of deposit.


G.D. AGARWAL, A.M. Hon ble President vide order in UO No. F. 12 Jd. (AT)/02, dt. 8th Jan., 2002 constituted Special Bench for hearing appeals in ITA No. 5131/Ahd/ 1995 furnished by Revenue and ITA No. 4996/Ahd/ 1995 furnished by assessee. These cross-appeals are directed against order of CIT(A)-VI, dt. 12th Oct., 1995 . ITA No. 4996/Ahd/ 1995 Assessee s appeal 2. Ground No. 1 of assessee s appeal reads as under : "In law and in facts and circumstances of appellant s case, learned CIT(A) has grossly erred in points of law and facts." At time of hearing before us, it is submitted by learned counsel for assessee that this ground is of general nature and needs no separate adjudication. Accordingly, same is rejected. 3. Ground No. 2 of assessee s appeal reads as under : "In law and in facts and circumstances of appellant s case, learned CIT(A) has grossly erred in confirming disallowance of consultation fees Rs. 2, 95 ,000 under s. 40A(12) of IT Act." 3.1 facts of case are that assessee made payment of professional charges of Rs. 3,05,000 as under : Fee to G.K. Chokshi & Rs. Co. 2,75,000 Fee to K.C. Patel Rs. 25,000 Fee to R.D. Shah & Co. Rs. 5,000 Rs. 3,05,000 3.2 It was claim of assessee that above payments were partly for income-tax matters and partly for other services which are not covered by s. 40A(12). assessee had worked out disallowance under s. 40A(12) at Rs. 88,750 which was disallowed by assessee itself while preparing computation of its income. However, AO considered entire payments of Rs. 3,05,000 to be covered within ambit of s. 40A(12). He, therefore, allowed only sum of Rs. 10,000 as provided in s. 40A(12) and disallowed balance amount of Rs. 2, 95 ,000. same is sustained by CIT(A). Hence, this appeal by assessee. 3.3 At time of hearing before us, it is submitted by learned counsel that major payment of professional fees is to M/s G.K. Chokshi & Co. amounting to Rs. 2,75,000. It was for retainership which included preparation of returns, consultancy from time to time in income-tax matters, auditing and company law matters, etc. Therefore, only small portion of fees is relating to representation of income-tax matters before tax authorities. That, in immediately preceding years in case of assessee itself i.e., for asst. yrs. 199 -91 and 199 1-92, Tribunal held that 25 per cent of fees is to be disallowed being professional fees for income-tax matters. He stated that facts being identical, same view may be taken in year under consideration. learned Departmental Representative, on other hand, relied upon orders of authorities below. 3.4 We have carefully considered arguments of both sides and perused material placed before us. Sec. 40A(12) as it stood at relevant time reads as under: "(12) No deduction shall be allowed in excess of ten thousand rupees for any assessment year in respect of any expenditure incurred by assessee by way of fees or other remuneration paid to any person (other than employee of assessee), (a) for services (not being services by way of preparation of return of income) in connection with any proceeding under this Act before any IT authority or Commission constituted under s. 245B or competent authority within meaning of cl. (b) of s. 269A or Tribunal or any Court; (b) for services in connection with any other proceeding before any Court, being proceeding relating to tax, penalty, interest or any other matter under this Act; and (c) for any advice in connection with tax, penalty, interest or any other matter under this Act." Thus, fees or remuneration paid for services in connection with proceedings under IT Act before IT authorities or any Court and also fees for any advice in connection with tax, penalty or interest or any other matter under this Act is covered within ambit of s. 40A(12). However, services for preparation of return is excluded from purview of s. 40A(12). Deduction permissible under s. 40A(12) is only Rs. 10,000. Therefore, adjudication of this ground would depend upon nature of services rendered b y M/s G.K. Chokshi & Co. CA s, Shri K.C. Patel & R.D. Shah & Co. AO has considered entire services to be within ambit of s. 40A(12) while it is contended by assessee that only part of services were within ambit of s. 40A(12). AO as well as CIT(A) has not discussed exact nature of services being rendered by above persons. assessee has not produced before us bills issued by above professionals. In view of above, we set aside orders of authorities below and restore matter back to file of AO. We direct him to examine nature of fees paid by assessee to above persons and thereafter re-adjudicate matter as per provisions of s. 40A(12). Needless to mention that AO will allow adequate opportunity of being heard to assessee. 4. Ground No. 3 of assessee s appeal reads as under : "In law and in facts and circumstances of appellant s case, learned CIT(A) has grossly erred in disallowing soda ash project expenses Rs. 7,22,855." 4.1 facts of case are that during year under consideration, assessee claimed deduction for expenditure of Rs. 7,32,084 on soda ash project. details of expenditure incurred read as under : (Rs.) Consultation fee 4,49,700.00 Other expenses 2,14,736.96 Travelling expenses 67,646.57 7,32,083.53 4.2 AO found that similar expenditure was claimed by assessee in preceding year i.e., asst. yr. 199 1-92 and it was disallowed by AO after detailed discussion. During course of assessment proceedings for year under consideration, it was submitted by assessee that facts are similar and, therefore, assessee relies upon same submissions as were made in asst. yr. 199 1-92. AO following his own order for asst. yr. 199 1-92, held that expenditure towards soda ash project being incurred by assessee in connection with setting up of new industrial undertaking is to be amortised and deduction under s. 35D would be allowed to assessee in year in which industrial undertaking commenced production or operation. At time of hearing before us, learned counsel for assessee fairly admitted that, in asst. yr. 199 1-92, Tribunal upheld order of lower authorities in this respect and assessee has accepted same and has not filed any appeal before Hon ble jurisdictional High Court. However, at time of hearing before us, learned counsel stated that Special Bench is not bound by decision of Division Bench and, therefore, it should re-adjudicate matter. He contended that assessee is manufacturing detergent powder and cake. Soda ash is one of important raw materials for manufacturing of detergent powder and cake and, therefore, expenditure incurred by assessee for preparation of feasibility report for manufacturing of soda ash should have been allowed as revenue expenditure. In support of this contention, he relied upon decision of Hon ble Calcutta High Court in case ofAsiatic Oxygen Ltd. vs. CIT ( 199 1) 190 ITR 328 (Cal). 4.3 learned Departmental Representative, on other hand, relied upon orders of authorities below and he submitted that, since facts are identical, order of Tribunal for asst. yr. 199 1-92 should be followed. 4.4 We have carefully considered arguments of both parties and perused material placed before us. learned counsel has heavily relied upon decision of Hon ble Calcutta High Court in case ofAsiatic Oxygen Ltd.(supra). facts in that case were that assessee incurred expenditure in preparation of feasibility report in connection with project to produce raw materials required by him and claimed it as revenue expenditure. ITO allowed expenditure in draft assessment order but IAC in proceedings under s. 144B, disallowed it and added amount to income of assessee. Tribunal upheld addition. On reference : "Held, (i) that, in this case, in draft assessment order, amount claimed as expenditure was not disallowed by ITO. Therefore, question of disallowance of amount in question could not have been covered by objection raised by assessee. direction given by IAC to enhance assessment was not lawful." Thus, in that case, Hon ble Calcutta High Court has allowed relief only on ground that IAC acting under s. 144B of Act cannot enhance assessment. Therefore, above decision has no relevance so far as facts of case under appeal before us are concerned. learned counsel for assessee has not given any other reason for taking different view than view taken by Tribunal in asst. yr. 199 1-92. assessee has accepted order of Tribunal for asst. yr. 199 1-92. Moreover, AO has already given finding that s. 35D provides for amortization of expenditure incurred by assessee for setting up of new industrial undertaking and, therefore, assessee would be entitled to deduction under s. 35D as and when soda ash project is set up. In view of above, we do not find any justification to interfere with order of lower authorities in this respect. Ground No. 3 of assessee s appeal is rejected. 5. Ground No. 4 of assessee s appeal reads under : "In law and in facts and circumstances of appellant s case, learned CIT(A) has grossly erred in partly confirming disallowance under s. 40A(3) of IT Act." At time of hearing before us, learned counsel for assessee did not press ground No. 4 of assessee s appeal. Accordingly, same is rejected. 6. Ground No. 5 of assessee s appeal reads as under: "In law and in facts and circumstances of appellant s case, learned CIT(A) has grossly erred in confirming that following incomes are not entitled to deduction under s. 80-I of IT Act, in respect of Vatva Industrial Undertaking : (Rs.) (i) Interest on fixed deposit 24,39,469 (ii) Interest from Nirma Ltd. 29,45,000 (iii) Transport rent income 19,03,000 (iv) Interest on deposit with IDBI 48,57,833 (v) Profit on sale of raw material 7,585" 6.1 We have heard both parties and perused material placed before us. As per s. 80-I, profit and gains derived from industrial undertaking, included in gross total income of assessee, is eligible for deduction at certain percentage as prescribed in s. 80-I. Hon ble apex Court has interpreted meaning of words "derived from" in case ofCIT vs. Sterling Foods ( 199 9) 153 CTR (SC) 439 : ( 199 9) 237 ITR 579 (SC)and in case ofPandian Chemicals Ltd. vs. CIT (2003) 183 CTR (SC) 99 : (2003) 262 ITR 278 (SC). In case ofSterling Foods(supra) their Lordships held as under : "There must be, for application of words "derived from", direct nexus between profits and gains and industrial undertaking. In instant case, nexus was not direct but only incidental. industrial undertaking exported processed sea foods. By reason of such export, Export Promotion Scheme applied. Thereunder, assessee was entitled to import entitlements, which it could sell. sale consideration therefrom could not be held to constitute profit and gain derived from assessee s industrial undertaking. receipts from sale of import entitlements could not be included in income of assessee for purpose of computing relief under s. 80HH of IT Act, 1961." In case ofPandian Chemicals Ltd.(supra), their Lordships held as under: "It is clear that words "derived from" in s. 80HH must be understood as something which has direct or immediate nexus with industrial undertaking. Although electricity may be required for purposes of industrial undertaking, deposit required for its supply is step removed from business of industrial undertaking. derivation of profits on deposit made with electricity board cannot be said to flow directly from industrial undertaking itself." 6.2 From above, it is evident that there must be direct or immediate nexus between profit and gains and industrial undertaking. Then only profit and gains can be said to be derived from industrial undertaking. learned counsel for assessee could not satisfy us that there was any direct nexus between earning of interest on fixed deposits, on deposits with IDBI and on deposits with Nirma Ltd., with industrial undertaking. interest was earned because assessee made fixed deposits with bank, IDBI and Nirma Ltd. direct or immediate source for earning of interest is deposits made by assessee and not industrial undertaking. Though funds which are deposited by assessee might have been generated from profit and gains of industrial undertaking, however, then nexus between interest income and industrial undertaking is not direct or immediate. immediate and direct source for earning interest is deposits made by assessee. In view of above, we hold that interest on fixed deposits, interest on deposits with Nirma Ltd. and interest on deposits with IDBI cannot be said to be income derived from industrial undertaking and, therefore, same is not qualified for computing deduction under s. 80-I. 6 . 3 transport rent income of Rs. 19,03,000 was received by assessee from letting out trucks to others. AO has excluded same from profits and gains of industrial undertaking. On appeal, CIT(A) in principle, upheld disallowance. However, he directed AO to consider only net income i.e., after excluding expenditure on repair of trucks and depreciation. Both parties aggrieved with order of CIT(A) are in appeal before us. learned counsel for assessee fairly admitted that transport rent income is not income derived from industrial undertaking and, therefore, he did not press assessee s ground of appeal claiming deduction under s. 80-I in respect of transport rent income. Revenue s ground against direction of CIT(A) to exclude only net income shall be dealt with separately while disposing of Revenue s appeal. Subject to this remark, we uphold order of CIT(A) disallowing claim under s. 80-I with regard to transport rent income. 6.4 AO has also held that profit on sale of raw material amounting to Rs. 7,585 is not profit and gain derived from industrial undertaking. learned counsel for assessee could not justify how profit on sale of raw material has direct or immediate nexus with industrial undertaking. Therefore, we uphold order of lower authorities in this respect and hold that profit on sale of raw material is not profit derived from industrial undertaking for purpose of s. 80-I. Accordingly, ground No. 5 of assessee s appeal is rejected. 7. Ground No. 6 of assessee s appeal reads as under : "6. In law and in facts and circumstances of appellant s case, learned CIT(A) has grossly erred in rejecting appellant s ground that whole of interest expenses of Rs. 84,64,785 should be reduced from interest income to determine qualifying amount for purpose of deduction under s. 80-I of IT Act. He has allowed interest expenses of Rs. 35,45,000 from interest income for purpose of aforesaid claim against profits derived from Mandali Industrial undertaking." At time of hearing before us, learned counsel for assessee did not press ground No. 6 of assessee s appeal. Accordingly, same is rejected. 8. Ground No. 7 of assessee s appeal reads as under : "In law and in facts and circumstances of appellant s case, learned CIT(A) has grossly erred in not dealing with appellant s ground No. 10(xi) that learned AO has not allowed deduction under s. 80-I of IT Act on bill discounting charges Rs. 25,15,000." At time of hearing before us, learned counsel for assessee did not press ground No. 7 of assessee s appeal. Accordingly, same is rejected. 9. Ground No. 8 of assessee s appeal reads as under : "In law and in facts and circumstances of appellant s case, learned CIT(A) has grossly erred in confirming disallowance of deduction under s. 80HH of IT Act in respect of Mandali Industrial undertaking." 9.1 facts of case are that assessee had claimed that during previous year relevant to asst. yr. 199 -91, it begun to manufacture article or thing in backward area as provided in s. 80HH and, therefore, it claimed deduction under s. 80HH in asst. yr. 199 -91. AO while completing assessment for asst. yr. 199 -91 came to conclusion that assessee did not begin manufacturing or production of articles before 1st day of April, 199 , as provided in s. 80HH and, therefore, it is not entitled to deduction under s. 80HH. In subsequent year, claim for deduction under s. 80HH is disallowed following finding of AO for asst. yr. 199 -91. CIT(A) sustained finding of AO following his own order for asst. yr. 199 1-92. 9.2 At time of hearing before us, it is pointed out by learned counsel that this issue is considered by Tribunal for asst. yrs. 199 -91 and 199 1-92. Tribunal, vide order dt. 21st Sept., 199 9 in ITA Nos. 2116 and 4936/Ahd/ 199 4 and others, in para 10 held as under : "10. next ground of appeal is regarding deduction under ss. 80HH and 80-I in respect of Mandali unit. authorities below refused relief to assessee on ground that no production was effected during year under consideration. After hearing both sides, we find that while deciding issue of depreciation, we have already decided that assessee has started manufacturing activity during year. Therefore, claim of deduction under ss. 80HH and 80-I has to be allowed for reasons mentioned in earlier paragraphs. This ground of appeal is allowed." That disallowance of deduction under s. 80HH for year under consideration was only consequential to disallowance made by Revenue in asst. yrs. 199 -91 and 199 1-92. Since Tribunal in above two years has already allowed deduction under ss. 80HH and 80-I to assessee, we direct AO to allow deduction under s. 80HH in year under consideration also. Accordingly, ground No. 8 of assessee s appeal is rejected. 10. Ground No. 9 of assessee s appeal reads as under : "In law and in facts and circumstances of appellant s case, learned CIT(A) has grossly erred in holding that appellant-company is not entitled to deduction under ss. 80-I and 80HH of IT Act, in respect of following incomes against profit derived from Mandali industrial undertaking : (Rs.) (i) Rent 10,000 (ii) Profit on sale of raw material 30,034 (iii) Fixed deposit interest 10,322 (iv) Other interest 1,085" 10.1 At time of hearing before us, learned counsel for assessee did not press his claim with regard to rent, fixed deposit interest and other interest. Accordingly, same are rejected. issue relating to profit on sale of raw material is already considered in para 6 above and for detailed discussion therein, we hold that profit on sale of raw material is not income derived from industrial undertaking. Accordingly, ground No. 9 of assessee s appeal is rejected. 11. Ground No. 10 of assessee s appeal reads as under : "In law and in facts and circumstances of appellant s case, learned CIT(A) has grossly erred in not adjudicating upon appellant s ground that deduction under ss. 80-I and 80HH of IT Act should be allowed on addition in respect of withdrawal from investment deposit account under s. 32AB(6) of IT Act." It is submitted by learned counsel that this ground is only alternate claim of assessee and that this will survive only if ground No. 1(vi) of revenue s appeal is allowed and addition on account of withdrawal from IDBI account is upheld under s. 32AB(6). In view of above, this ground will be considered only after adjudicating ground No. 1(vi) of Revenue s appeal. 12. Ground No. 11 of assessee s appeal reads as under : "In law and in facts and circumstances of appellant s case, learned CIT(A) has grossly erred in confirming withdrawal of interest under s. 244 of IT Act." Ground No. 11 of assessee s appeal was not pressed at time of hearing. Accordingly, same is rejected. 13. Ground No. 12 of assessee s appeal reads as under : "Your appellant reserves right to add, alter, amend or vary all or any of above grounds of appeal as may be decided from time to time." Ground No. 12 of assessee s appeal is of general nature and which was not pressed at time of hearing. Accordingly, same is rejected. ITA No. 5131/Ahd/ 1995 Revenue s appeal : 14. In this appeal by Revenue, following grounds are raised : 1. learned CIT(A) has erred in law and on facts in (i) deleting disallowance made under r. 6B (ii) deleting disallowance out of interest (iii) deleting disallowance made under s. 40A(2)(b) (iv) directing to allow deduction under s. 80-I as guideline laid down in order (v) directing to allow deduction under ss. 80HH and 80 (sic) separately (vi) deleting addition on account of withdrawal from IDA a/c under s. 32AB(6). 15. With regard to disallowance under r. 6B, it was pointed out by learned counsel for assessee that this issue is covered in favour of assessee by decision of Tribunal in assessee s own case for asst. yrs. 199 -91 and 199 1-92. He also submitted that specific statement was made before AO that presentation articles did not bear logo of assessee-company and, therefore, it does not have any evidentiary (sic- advertisement) value. 15.1 learned Departmental Representative fairly accepted that facts are identical to earlier years and CIT(A) has allowed relief following his own order in asst. yr. 199 1-92. We find that Tribunal in asst. yr. 199 1-92 sustained order of CIT(A) holding that gift articles had no advertising element as there was no logo on said gift articles. While taking this view, Tribunal relied upon decision of Hon ble Bombay High Court in case ofCIT vs. Allana Sons (P) Ltd. ( 199 3) 114 CTR (Bom) 448 : ( 1995 ) 216 ITR 690 (Bom). Since facts in year under consideration are identical to asst. yr. 199 1-92, CIT(A) rightly followed order of his predecessor for asst. yr. 199 1-92 which is sustained by Tribunal. In view of above, we do not find any merit in ground No. 1(i) of Revenue s appeal. same is rejected. 16. next ground is against deletion of disallowance of interest. AO found that assessee has withdrawn money for payment of income- tax from bank overdraft. He was of opinion that money borrowed for payment of income-tax was not borrowed for purpose of business and, therefore, he disallowed proportionate interest amounting to Rs. 2,46,575. On appeal, CIT(A) deleted same following his own order in case of Norma Detergent Ltd. for asst. yr. 199 2-93. 16.1 At time of hearing before us, it was brought to our knowledge that Revenue had challenged order of CIT(A) in case of Norma Detergent Ltd. before Tribunal, and Tribunal upheld order of CIT(A) and dismissed Revenue s appeal on this point. 16.2 We find that Tribunal considered this issue in case of Norma Detergent Ltd. vide ITA Nos. 49 95 and 4893/Ahd/ 1995 . Tribunal found that daily collections of assessee are deposited in overdraft account and if collection of day of withdrawal and subsequent day which is deposited in same account is considered, same would be sufficient for withdrawal for payment of income-tax. It was pointed out by learned counsel that facts are identical in case under consideration before us. entire income of assessee which is Rs. 14.69 crores as per income returned, is deposited in same bank account. Out of such income, which is deposited in same bank account, withdrawal for payment of income-tax was made. withdrawal is much less than income deposited during year under consideration. He also pointed out that above income is net returned income after various deductions under s. 80-I and depreciation, etc., and therefore, cash income is even more. That withdrawal for income-tax is much less than above income deposited in bank account. above statement made by learned counsel is not controverted before us. Since assessee has deposited its entire income in same bank account from where withdrawal for payment of income-tax is made, we accept assessee s claim that withdrawal for payment of tax was out of income generated during year under consideration and not out of borrowed funds. Accordingly, we uphold order of CIT(A) on this point and reject Revenue s ground. 17. next ground of Revenue s appeal is against deletion of disallowance made under s. 40A(2)(b). facts of case are that during year under consideration, assessee-company claimed expenditure of Rs. 40 lakhs for payment to Nirma Management Services as service charges. In asst. yr. 199 1-92, assessee paid service charges of Rs. 13 lakhs to Nirma Management Services. AO considered same to be excessive and allowed only Rs. 9 lakhs as reasonable and disallowed balance sum of Rs. 4 lakhs. In year under consideration, AO following his own order for asst. yr. 199 1-92, held service charges of Rs. 14 lakhs to be reasonable. He, therefore, disallowed sum of Rs. 26 lakhs. On appeal, CIT(A) deleted disallowance following his own order for asst. yr. 199 1-92. 17.1 At time of hearing before us, while learned Departmental Representative relied upon order of AO; argument of learned counsel was two-fold; (i) That Nirma Management Services is not person covered with meaning of "related person" as given in s. 40A(2)(b). (ii) That, in asst. yr. 199 1-92, Tribunal upheld order of CIT(A) and dismissed Revenue s appeal. 17.2 We have carefully considered arguments of both sides and perused material placed before us. Sec. 40A(2) reads as under : "(2)(a) Where assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in cl. (b) of this sub-section, and AO is of opinion that such expenditure is excessive or unreasonable having regard to fair market value of goods, services or facilities for which payment is made or legitimate needs of business or profession of assessee or benefit derived by or accruing to him therefrom, so much of expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as deduction. "(b) persons referred to in cl. (a) are following, namely: (i) where assessee is any relative of assessee; individual (ii) where any director of company, partner of assessee is firm, or member of association or family, or any company, firm, AOP relative of such director, partner or member; or HUF (iii) any individual who has substantial interest in business or profession of assessee, or any relative of such individual; (iv) company, firm, AOP or HUF having substantial interest in business or profession of assessee or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member; (v) company, firm, AOP or HUF of which director, partner or member, as case may be, has substantial interest in business or profession of t h e assessee; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member; (vi) any person who carries on business or profession, (A) where assessee being individual, or any relative of such assessee, has substantial interest in business or profession of that person; or (B) where assessee being company, firm, AOP or HUF, or any director of such company, partner of such firm or member of association or family, or any relative of such director, partner or member, has substantial interest in business or profession of that person. Explanation: For purposes of this sub-section, person shall be deemed to have substantial interest in business or profession, if, (a) in case where business or profession is carried on by company, such person is, at any time during previous year, beneficial owner of shares (not being shares entitled to fixed rate of dividend whether with or without right to participate in profits) carrying not less than twenty per cent of voting power; and (b) in any other case, such person is, at any time during previous year, beneficially entitled to not less than twenty per cent of profits of such business or profession." 17.3 AO held Nirma Management Services to be concern covered within meaning of "related concern" as provided in cl. (b) of s. 40A(2). However, he has not specified under which sub-clauses of cl. (b) of s. 40A(2) Nirma Management Services falls. assessee had claimed that Nirma Management Services is not covered within persons specified in 40A(2)(b). However, neither name of directors nor details of shareholdings of assessee or Nirma Management Services have been given so as to arrive at finding whether Nirma Management Services falls within persons specified in s . 40A(2)(b). Similarly, nature of services rendered by Nirma Management Services has not been given to us. No justification has been given for increase of service charges from Rs. 13 lakhs paid in last year to Rs. 40 lakhs in year under consideration. AO has also not examined facts in detail. He made disallowance following his own order for asst. yr. 199 1-92. CIT(A) also did not examine facts in year under consideration but he deleted disallowance following his own order for asst. yr. 199 1-92. CIT(A) even did not bother to see that last year service charges were only Rs. 13 lakhs while it has increased to Rs. 40 lakhs in year under consideration. Reasons for such increase is not given at any stage. In view of above, we deem it proper to set aside order of authorities below and restore matter back to file of AO. We direct him to examine (i) whether Nirma Management Services falls within category of persons specified under s. 40A(2)(b); and (ii) nature of services rendered by Nirma Management Services and then arrive at conclusion whether payment of service charges is excessive or unreasonable having regard to fair market value of such services rendered to assessee; (iii) reasons for increase of service charges from Rs. 13 lakhs last year to Rs. 40 lakhs in year under consideration. After examining above facts, he will re-adjudicate matter in accordance with law. Needless to mention that AO will allow adequate opportunity of being heard to assessee. 18. next ground of Revenue s appeal is against direction of CIT(A) to allow deduction under s. 80-I on certain incomes. facts of case are that assessee is entitled to deduction under s. 80-I in its Vatva industrial undertaking and also Mandali unit. AO, while computing deduction under s. 80-I, excluded certain incomes. CIT(A) directed AO to include following items in profit of industrial undertaking while computing deduction under s. 80-I : Vatva Industrial Undertaking: (Rs.) (a) Late payment interest received from debtors 1,25,23,324 (b) Insurance refund 75, 95 1 (c) Transport rent income 19,03,000 (d) Sale of Bardan 22,40,750 (e) Sale of waste material 16,25,646 Mandali Unit: (a) Late Payment interest received from debtors 53,67,140 (b) Bardan sale 49,92,405 (c) Waste sales 5,78,198 18.1 We have heard both parties with regard to each of above items and our finding in this regard is as under: 18.2 Regarding late payment interest received from debtors:The learned Departmental Representative stated that this issue is squarely covered in favour of Revenue by decision of Tribunal, Ahmedabad Bench "A" in case ofDy. CIT vs. Mira Industries & Ors. (2004) 86 TTJ (Ahd) 309 : (2003) 87 I T D 475 (Ahd)and also decision of Hon ble apex Court in case ofPandian Chemicals Ltd. vs. CIT(supra). learned counsel for assessee vehemently contended that decision of Tribunal Ahmedabad Bench in case ofMira Industries(supra) needs reconsideration. He stated that Tribunal, Ahmedabad Bench have taken contrary view in following cases of assessee or group concern: Sr. Asst. IT Appeal Name of assessee No. yr. No. 89- 4576/A/92 1. M/s Nirma (P) Ltd. 90 & 4567/A/92 Nirma Chemical 90- 2116 & 2. Works (P) Ltd. 91 4936/A/ 199 4 Nirma Chemical 91- 2443 & 3. Works (P) Ltd. 92 5156/A/ 199 4 (Assessee) Asstt. CIT vs. 88- 2440/A/93 4. Harsiddh Sp. Family 89 & 89- & 2188/A/94 & Trust, Ahmedabad 90 2441/A/94 Norma Detergents 89- 4574/A/92 5. (P) Ltd. 90 & 4517/A/92 Norma Detergents 90- 2174 & 6. (P) Ltd. 91 2439/A/94 Norma Detergents 91- 5172 & 7. (P) Ltd. 92 5857/A/94 Norma Detergents 92- 49 95 & 8. (P) Ltd. 93 4843/A/ 95 18.3 He also pointed out that Hon ble jurisdictional High Court rejected Department s Tax Appeal in case of Nirma (P) Ltd., and Harsiddh Specific Family Trust, while Revenue had not challenged this ground before High Court in case of Norma Detergents (P) Ltd. He further submitted that in case ofNirma Specific Family Trust and K. Kacharadas Patel Specific Family Trust, Hon ble jurisdictional High Court in IT Ref. No. 61 & 59 of 199 3 [reported at(2005) 1 95 CTR (Guj) 577 Ed.] held that excess of recoveries of advertisement expenses is eligible for deduction under s. 80-I. learned counsel for assessee also relied upon decision of Hon ble jurisdictional High Court in case ofM/s Mayank Electro Ltd.in IT Ref. Nos. 231 & 232 of 2001, wherein their Lordships rejected Departments appeals holding that no substantial question of law arises against order of Tribunal. He also relied upon decision of Hon ble Madras High Court in case ofCIT vs. Madras Motors Ltd. (2002) 174 CTR (Mad) 221 : (2002) 257 ITR 60 (Mad), wherein their Lordships held interest received on bank deposit to be not eligible for deduction under s. 80-I but interest received from customers on belated payment to be eligible for deduction under s. 80-I. learned counsel has further contended that Tribunal is bound to follow solitary decision of any other High Court when there is no decision of jurisdictional High Court. In support of this contention, he has relied upon decision of Hon ble jurisdictional High Court in case ofCIT vs. Maganlal Mohanlal Panchal (HUF) ( 199 4) 210 ITR 580 (Guj). 18.4 We have carefully considered arguments of both sides and perused material placed before us. While disposing of ground No. 5 of assessee s appeal, we have discussed at length that for purpose of s. 80-I, income which has direct or immediate nexus with industrial undertaking only is eligible for computing deduction as provided in that section. This conclusion is reached on basis of decision of Hon ble apex Court in case ofSterling Foods(supra) andPandian Chemicals(supra). Therefore, limited issue which needs examination is whether interest from debtors for late payment of sale consideration has direct or immediate nexus with industrial undertaking. We find that Tribunal Ahmedabad Bench, has considered this issue in case ofMira Industries(supra). In that case Tribunal considered various decisions of Hon ble apex Court, High Courts and Tribunals and thereafter in para 55(vii) has recorded finding with regard to nature of interest recovered from debtors for late payment of sale price. same is reproduced hereunder for ready reference: "55(vii)Interest recovered from debtors for late payment for sale price: Interest, in general terms, is return or compensation for use or retention by one person of sum of money belonging to or owed to another. Halsbury s Laws. It is payment for commercial compensation for non- payment of debt on time. When sale is effected, money consideration thereof becomes due and payable and interest starts running as per terms stipulated. Such interest is not consideration of sale of goods of industrial undertaking, even though it has its origin in sale. Had sale of goods manufactured been not made, there would not be debt and consequently no interest, but immediate source is debt owed which takes it degree away from industrial undertaking. In light of Privy Council in case ofRaja Bahadur Kamakhaya Narayan Singh(supra), immediate and effective source would be debt itself. InGovind Choudhary & Sons case (supra) interest paid is held to be accretion to assessee s receipts and attributable to and incidental to business carried by him and notde horsthe business carried on by assessee. It was therefore held to be not income from other sources. This is not case near to case ofCambay Electric Supply Industrial Co. Ltd.(supra). question whether interest was derived from execution of contracts was not there before Supreme Court in this case. See also in this connection two decisions of Supreme Court relating to levy of excise duty in case ofGovernment of India vs. Madras Rubber Factory AIR 1995 SCW 2654and in case ofVST Industries Ltd. vs. Collector, Central Excise, Hyderabad AIR 199 8 SC 1441,the observations wherein clearly show that when goods are sold on credit and interest is received, that does not form part of price on which excise duty is payable." 18.5 In above case, Tribunal has clearly held that direct and immediate source of interest is debt owed by customer which is degree away from industrial undertaking. sale consideration has direct nexus with industrial undertaking but not interest which is payable on above sale consideration, if it is not paid within stipulated time. 18.6 We find that in case ofPandian Chemicals Ltd.(supra), Hon ble apex Court has applied decision of Privy Council in case ofCIT vs. Raja Bahadur Kamakhaya Narayn Singh & Ors. (1948) 16 ITR 325 (PC). In that case dispute was whether interest on arrears of rent can be said to be dispute was whether interest on arrears of rent can be said to be agricultural income. It was contended by assessee that interest has its origin in tenancy of agricultural land because, if there had been no tenancy, there would have been no arrears of rent and if there had been no arrears of rent, there would have been no interest. However, Privy Council did not accept assessee s contention and held that "the interest clearly is not rent. Rent is technical conception, its leading characteristic being that it is payment in money or in kind by one person to another in respect of grant of right to use land. Interest payable by statute on rent in arrear is not such payment. It is not part of rent, nor is it accretion to it, though it is received in respect of it. Equally clearly interest on rent is revenue, but in their Lordships opinion it is not revenue derived from land. It is no doubt true that without obligation to pay rent-and-rent is obviously derived from land-there could be no arrears of rent and without arrears of rent there would be no interest. But, affirmative proposition that interest is derived from land does not emerge from this series of facts. All that emerges is that as regards interest, land rent and non-payment of rent stand together ascausae sine quibus non. source from which interest is derived has not thereby been ascertained. word "derived" is not term of art. Its use in definition indeed demands enquiry into genealogy of product. But enquiry should stop as soon as effective source is discovered. In genealogical tree of interest, land indeed appears in second degree, but immediate and effective source is rent, which has suffered accident of non-payment. And rent is not land, within meaning of definition." 18.7 In case under appeal before us, assessee sold detergent powder/cake to various customers. sale proceeds has direct/immediate nexus with industrial undertaking. If amount of sale proceeds is not paid within credit period allowed, buyer has to pay interest on such delayed payment. interest is not arising because of manufacturing of detergent powder/cake by industrial undertaking, but because, sale proceeds remained unpaid for stipulated period. interest cannot be said to flow directly from industrial undertaking. In caseRaja Bahadur Kamakhaya Narayan Singh(supra) similar dispute arose before Privy Council. In that case assessee received interest on arrears of rent. It was claim of assessee that character of interest is similar to that of rent of agricultural land; both should be treated as income derived from agricultural land. Similar is case under appeal before us. assessee has sold product of industrial undertaking and since sale proceeds was not paid within time, on arrears of sale proceeds, interest is received. Hon ble Privy Council denied assessee s claim and it was stated that in genealogical tree, interest is received from rent and land appears in second degree. Identical is situation herein. immediate and effective source of interest is sale proceeds which remained unpaid for stipulated credit period. industrial undertaking comes in second degree. Therefore, above decision of Hon ble Privy Council would be squarely applicable with regard to interest on arrears of sale proceeds. In case ofSterling Foods(supra), assessee was engaged in processing of prawns and other seafood, which was exported. On export of such processed seafood, assessee received import entitlement, which was sold by it. However, Hon ble apex Court held that sale proceeds of import entitlement is not income derived from industrial undertaking, even though import entitlement was received by assessee on export of goods produced by t h e assessee in industrial undertaking. In case ofPandian Chemicals Ltd.(supra), assessee was required to deposit money with electricity board for supply of electricity. Hon ble apex Court agreed that deposit was made with electricity board for supply of electricity for running of industrial undertaking. Still, their Lordships held that interest cannot be said to flow directly from industrial undertaking. From above decisions, it is evident that words "derived from" are to be given narrow meaning. "Derived from" means something which has direct or immediate nexus with industrial undertaking. sale proceed has direct nexus with industrial undertaking, but not interest on arrears of sale proceeds. interest was paid by buyer only because he did not made payment of sale proceeds within time. 18.8 learned counsel for assessee has relied upon decision of Tribunal in assessee s own case for asst. yrs. 199 -91 and 199 1-92. However, wee find that above decision was delivered by Tribunal on 21st Sept., 199 9. Thus, on above date decision of Hon ble apex Court in case ofPandian Chemicals Ltd.(supra) was not available. Similar is position with regard to Tribunal decisions in cases ofNirma (P) Ltd., Harsiddh Specific Family TrustandNorma Detergents Ltd.(supra). All these decisions were delivered before decision of Hon ble apex Court in case ofPandian Chemicals Ltd.(supra). learned counsel for assessee has also relied upon rejection of Department s Tax Appeals, by Hon ble jurisdictional High Court in cases ofNirma (P) Ltd.and alsoHarsiddh Specific Family Trust. We find that in case ofNirma (P) Ltd.(supra) Revenue has preferred appeal raising five grounds which included allowability of deduction under ss. 80HH and 80-I on interest from trade debtors. However, Hon ble jurisdictional High Court admitted appeal only on one ground i.e., "whether Tribunal is right in law and on facts in directing to allow separate relief under ss. 80HH and 80-I of Act". Thus, there is no decision by Hon ble jurisdictional High Court on allowability of deduction under ss. 80HH and 80-I on interest from trade debtors. Similarly, Tax Appeal ofHarsiddh Specific Family Trustwas dismissed by Hon ble jurisdictional High Court holding that no question of law much less substantial question of law arises out of impugned order of Tribunal. 18.9 question, therefore, is what is effect of dismissal of Tax Appeal by High Court holding that no substantial question of law arises? Sec. 260A prescribes provision for appeal to High Court. Sub-ss. (1) to (5) of s. 260A read as under: "260A. (1) appeal shall lie to High Court from every order passed in appeal by Tribunal, if High Court is satisfied that case involves substantial question of law. (2) Chief CIT or CIT or assessee aggrieved by any order passed by Tribunal may file appeal to High Court and such appeal under this sub-section shall be (a) filed within one hundred and twenty days from date on which order appealed against is received by assessee or Chief CIT or CIT: (b) [] (c) in form of memorandum of appeal precisely stating therein substantial question of law involved. (3) Where High Court is satisfied that substantial question of law is involved in any case, it shall formulate that question. (4) appeal shall be heard only on question so formulated, and respondents shall, at hearing of appeal, be allowed to argue that case does not involve such question: Provided that nothing in this sub-section shall be deemed to take away or abridge power of Court to hear, for reasons to be recorded, appeal on any other substantial question of law not formulated by it, if it is satisfied that case involves such question. (5) High Court shall decide question of law so formulated and deliver such judgment thereon containing grounds on which such decision is founded and may award such cost as it deems fit." From above, it is clear that under sub-s. (1) appeal shall lie to High Court from every order passed in appeal by Tribunal, only if High Court is satisfied that case involves substantial question of law. Sub-s. (2) of said section permits party aggrieved by any order passed by Tribunal to file appeal to High Court and it has to be in form of memorandum of appeal precisely stating therein substantial question of law involved. Sub-s. (3) provides that, where High Court is satisfied that substantial question of law is involved in any case, it shall formulate that question and appeal shall thereafter, as provided in sub-s. (4), be heard on question so formulated and at time of hearing respondent is also permitted to argue on appeal that case does not involve such question, without taking away or to abridge power of High Court to hear, for reasons to be recorded, appeal on any other substantial question of law not formulated by it. Sub-s. (5) of this section further provides that High Court shall decide question of law so formulated and deliver such judgment thereon containing grounds on which such decision is founded and may award such cost as it deems fit. From these provisions, it is clear that appeal lies to High Court only where substantial question of law is involved. In appeal filed by party, when High Court dismisses same by stating that no substantial question of law arises, it cannot, in our opinion, be said that it was decision of High Court on merits. What High Court can be said to have observed is that they declined to entertain/admit appeal in absence of any substantial question of law, which is prerequisite for assuming jurisdiction of High Court. If there is no substantial question of law, in opinion of High Court, then by virtue of provision of sub-s. (1) of s. 260A, there lies no appeal. Therefore, when High Court dismisses appeal stating that no substantial question of law arises, it only means that High Court has declined to entertain/admit appeal in absence of any substantial question of law. There is no decision on merits by jurisdictional High Court on issues raised by parties. 18.10 In case ofK. Kacharadas Patel Specific Family Trust, Hon ble jurisdictional High Court in IT Ref. Nos. 59 and 59A of 199 3 (supra), upheld order of Tribunal allowing deduction under s. 80-I on amount relating to excess recovery on account of advertisement expenditure. In this case, Hon ble jurisdictional High Court held as under: "9. As can be seen from impugned order of Tribunal, Tribunal h s taken into consideration terms of agreement entered into by assessee with consignee distributors and recorded finding to effect that t h e recoveries made from consignee distributors were directly related to net sales of detergent powder made by consignee distributors. Tribunal h s also taken into consideration converse situation, namely, in case where if expenditure had exceeded recoveries, whether difference arising on excess of expenditure over recoveries would have been allowed as business expenditure referable to activities of industrial undertaking, and answered question by holding that it had direct nexus with activities of answered question by holding that it had direct nexus with activities of industrial undertaking. 10. In light of aforesaid findings recorded by Tribunal, it is not possible to accept contention raised on behalf of applicant Revenue that activity amounted to different business altogether. Once it is found by Tribunal that recovery was directly linked with sales of detergent powder, it is not possible to find any infirmity in process of reasoning adopted by Tribunal for holding that excess amount of recoveries made towards advertisements issued by assessee would be permissible item to be considered for computing deduction under s. 80-I of Act." 18.11 From above, it is evident that Tribunal has recorded finding of fact that excess of expenditure over recoveries had direct nexus with activities of industrial undertaking. Hon ble jurisdictional High Court has decided issue in light of aforesaid finding of fact recorded by Tribunal. Therefore, above decisions would be of no help to assessee to adjudicate whether interest from debtors on delayed payment of sale proceeds has direct nexus with industrial undertaking or not. 18.12 learned counsel has also relied upon decision of Hon ble Madras High Court in case ofMadras Motors Ltd.(supra). However, we find that in above decision also, decision of Hon ble apex Court in case ofPandian Chemicals(supra) was not considered. From decision of Hon ble Privy Council in case ofRaja Bahadur Kamakhaya Narayan Singh(supra), decision of Hon ble apex Court in case ofPandian Chemicals(supra) andSterling Foods(supra), it is clear that income which has direct and immediate nexus with industrial undertaking only is eligible for deduction under s. 80-I/80HH. After detailed discussion, we have held in para 18.7 that interest from debtors does not have either direct or immediate nexus with industrial undertaking. Therefore, we hold that interest on delayed payment of sale proceeds cannot be said to be income derived from industrial undertaking. We, therefore, reverse order of CIT(A) on this point and restore that of AO. 19. Regarding insurance refund :At time of hearing before us, both parties fairly agreed that, in fact, finding of CIT(A) is that assessee is not entitled to deduction under s. 80-I on insurance refund. However, CIT(A) has found that actual expenditure incurred by assessee on repairs of trucks was much more than insurance refund and, therefore, he directed AO not to exclude insurance refund from profit and gains of business. 19.1 After considering arguments of both parties, we entirely agree with reasoning of CIT(A). vehicles of assessee met with accident and, therefore, claim was made with insurance authorities. assessee received certain insurance claim and has also incurred expenditure on repairs of vehicles. expenditure incurred by assessee on repairs of vehicles is admittedly more than insurance refund and, therefore, in fact, there was no income to assessee in nature of refund from insurance. Therefore, question of excluding any amount from profit and gains of business does not arise. Accordingly, we uphold direction of CIT(A) in this respect. 2 0 . Regarding transport rent income :With regard to transport rent income also, finding of CIT(A) is that assessee is not entitled for deduction under s. 80-I on transport rent income but he directed AO to exclude depreciation of Rs. 10,87,973 from above income of Rs. 19,03,000 and thereafter he held that assessee is not entitled for deduction under s. 80- I on Rs. 8,15,027 (Rs. 19,03,000 - Rs. 10,87,973). 21. After considering arguments of both sides, we entirely agree with this finding of CIT(A). transport rent income is not income derived from industrial undertaking. However, net income from transport is to be excluded from profit and gains of business. net income can be worked out only after reducing depreciation claimed on trucks by assessee. CIT(A) has rightly calculated net income from transport business at Rs. 8,15,027. We, therefore, uphold order of CIT(A) on this point. 22. Regarding sale of Bardan and sale of waste material :At time of hearing before us, it is submitted by learned counsel that sale of Bardan and waste material has been generated during course of production of industrial undertaking. Therefore, it has direct and immediate nexus with industrial undertaking. learned Departmental Representative could not controvert above statement made by learned counsel for assessee. Moreover, it was pointed out by learned counsel for assessee that Hon ble jurisdictional High Court has decided identical issue in favour of assessee in case ofDy. CIT vs. Harjivandas Juthabhai Zaveri & Anr.vide IT Ref. No. 189 of 199 9. Since Bardan and waste material have been generated during course of production of industrial undertaking, we hold that, it has direct and immediate nexus with industrial undertaking and, therefore, entitled to deduction under s. 80HH/80-I. Accordingly, we uphold order of CIT(A) in this respect. 23. Mandali Unit :For detailed discussion in para 18 above, we reverse finding of CIT(A) for allowing deduction under s. 80-I in respect of late payment interest received from debtors in Mandali Unit. However, for detailed discussion in para 22 above, we uphold finding of CIT(A) for allowing deduction under s. 80-I in respect of sale of Bardan and waste material in Mandali Unit. 24. next ground of Revenue s appeal is against deletion of addition of Rs. 1,30,80,000 made by AO on account of withdrawal from investment deposit account under s. 32AB(6). facts of case are that assessee was claiming deduction under s. 32AB of Act by depositing amounts in investment deposit account with IDBI as per provisions of s. 32AB(1)(a). balance of assessee in investment deposit account as o n 1st April, 199 1 was Rs. 565 lakhs. Out of same, amount of Rs. 42.35 lakhs was withdrawn by assessee on 11th April, 199 1 and amount of Rs. 88.48 lakhs was withdrawn by assessee on 14th Nov., 199 1. Out of withdrawal of Rs. 42.35 lakhs, amount of Rs. 30 lakhs was used by assessee for repayment of term loan against land, building and equipment and amount of Rs. 12.35 lakhs was used for repayment of term loan contracted with State Bank of India against trucks and tankers. Out of other withdrawal of Rs. 88.48 lakhs, amount of Rs. 15 lakhs was used for repayment of term loan contracted lakhs, amount of Rs. 15 lakhs was used for repayment of term loan contracted with State Bank of India against land, building, plant and machinery, amount of Rs. 24.7 lakhs was used for repayment of loan contracted with State Bank of India against trucks and tankers and amount of Rs. 48.78 lakhs was used for repayment of loan contracted with Kalupur Commercial Co-op. Bank Ltd. against trucks and tankers. AO found that assessee utilised amount withdrawn from investment deposit account for purpose of making repayment of loans which were not term loans utilised for purchase of new ship, new aircraft, new plant or new machinery. Therefore, AO treated above withdrawal as income of assessee under s. 32AB(6) of Act. On appeal, CIT(A) deleted addition following his own order in case of Norma Detergents Ltd. for asst. yr. 199 2-93. Revenue aggrieved with order of CIT(A) is in appeal before us. 25. At time of hearing before us, it was vehemently contended by learned Departmental Representative that as per s. 32AB(1) deduction is permissible (i) if amount is utilised for purchase of new ship, new aircraft, new plant or new machinery; or (ii) if amount is deposited in deposit account maintained by assessee with development bank. That when above amount deposited with development bank is withdrawn, same can be utilised for repayment of term loan taken from bank. It is contended by learned Departmental Representative that such term loan which is repaid by assessee should have been taken by assessee for purchase of new ship, new aircraft, new plant or new machinery. That sub-s. (4) of s. 32AB provides that no deduction under sub-s. (1) shall be allowed in respect of amount utilised for purchase of any road transport vehicle. Therefore, if assessee purchases trucks, same will not be considered to be eligible for deduction under s. 32AB(1). amount withdrawn from deposit account has been utilised by assessee mainly for repayment of loans which were taken for purchase of trucks. Therefore, amount has been utilised in violation of s. 32AB(4). assessee cannot enlarge scope of s. 32AB(1) just by depositing same in deposit account. He further submitted that s. 32AB replaced s. 32A and even s. 32A, which had provided certain exemptions for purchase of new plant and machinery, expenditure on purchase of road transport vehicle was not entitled to deduction. He contended that assessee purchased road transport vehicle by borrowing money from bank, deposited money in deposit account with development bank and claimed deduction under s. 32AB, thereafter withdrew money from deposit account of development bank and repaid loans to State Bank/Kalupur Commercial Co-op. Bank Ltd. Thus, in fact, amount has been utilised for purchase of road transport vehicle for which deduction under s. 32AB is not permissible. He, therefore, submitted that AO rightly made addition as per s. 32AB(6). 26. learned counsel for assessee submitted that there is separate requirement for claiming deduction under s. 32AB and for utilisation of withdrawal from deposit account under s. 32AB. If assessee fulfils conditions of s. 32AB(1), he will get deduction in year of deposit. When money is withdrawn from deposit account, assessee has to fulfil conditions as provided in s. 32AB(6) read with scheme framed by Government in this regard. If assessee fails to utilise amount as per Scheme, amount can be added to income of assessee in year of withdrawal. However, in year of withdrawal assessee need not satisfy conditions provided in s. 32AB(1). 27. We have carefully considered arguments of both parties and perused material placed before us. Secs. 32AB(1), (4) and (6) which are relevant for purpose of disposal of this ground of appeal, read as under : "32AB. (1) Subject to other provisions of this section, where assessee, whose total income includes income chargeable to tax under head "profits and gains of business or profession", has, out of such income, (a) deposited any amount in account (hereinafter in this section referred to as deposit account) maintained by him with development bank before expiry of six months from end of previous year or before furnishing return of his income, whichever is earlier; or (b) utilised any amount during previous year for purchase of any new ship, new aircraft, new machinery or plant, without depositing any amount in deposit account under cl. (a), in accordance with, and for purposes specified in, Scheme 38 (hereafter in this section referred to as Scheme) to be framed by Central Government, or if assessee is carrying on business of growing and manufacturing tea in India, to be approved in this behalf by Tea Board, assessee shall be allowed deduction (such deduction being allowed before loss, if any, brought forward from earlier years is set off under s. 72) of (i) sum equal to amount, or aggregate of amounts, so deposited and any amount so utilised; or (ii) sum equal to twenty per cent of profits of [] business or profession as computed in accounts of assessee audited in accordance with sub-s. (5), whichever is less: Provided that where such assessee is firm, or any AOP or any BOI, deduction under this section shall not be allowed in computation of income of any partner, or as case may be, any member of such firm, AOP or BOI: Provided further that no such deduction shall be allowed in relation to assessment year commencing on 1st day of April, 199 1, or any subsequent assessment year: (4) No deduction under sub-s. (1) shall be allowed in respect of any amount utilised for purchase of (a) any machinery or plant to be installed in any office premises or residential accommodation, including any accommodation in nature of guest-house; (b) any office appliances (not being computers); (c) any road transport vehicles; (d) any machinery or plant, whole of actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing income chargeable under head "profits and gains of business or profession" of any one previous year; (e) any new machinery or plant to be installed in industrial undertaking, other than small scale industrial undertaking, as defined in s. 80HHA, for purposes of business of construction, manufacture or production of any article or thing specified in list in Eleventh Schedule: (6) Where any amount, standing to credit of assessee in deposit account, released during any previous year by development bank for being utilised by assessee for purposes specified in Scheme or at closure of account [in circumstances other than circumstances specified in cls. (b), (c) and (e) of sub-s. (5A)], is not utilised in accordance with, and within time specified in Scheme, either wholly or in part, [] whole of such amount or, as case may be, part thereof which is not so utilised shall be deemed to be profits and gains of business or profession of that previous year and shall accordingly be chargeable to income-tax as income of that previous year." 28. Investment Deposit Account Scheme, 1986, was notified by Central Government vide Notification No. GSR 945(E), dt. 15th July, 1986. Clause 9 of Scheme reads as under: "9.Utilisation of amounts for purposes of s. 32AB (1) assessee, whose total income includes income chargeable to tax under head "profits and gains of business or profession", may utilise (a) whole or any part of amount deposited by him in deposit account under cl. (a) of sub-s. (1) of s. 32AB of IT Act, or (b) any amount out of such income, without depositing same under cl. (a) of sub-s. (1) of s. 32AB of IT Act, in accordance with this scheme, for any of following purposes, namely: (i) purchase of new ship or new aircraft or new machinery or new plant for purposes of business or profession carried on by depositor; (ii) purchase of new computers to be installed either in office or at place where depositor carries on business or profession; (iii) repayment of principal amount of term loans contracted after 31st March, 1986, and taken for period of three years or more from financial corporation which is engaged in providing long-term finance for industrial development in India or from scheduled bank or from any such other institution as Central Government may, by notification in Official Gazette, specify in this behalf. (2)(e) Withdrawal from deposit may be made by depositor not more than once in every three calendar months, by making application in Form "D": Provided that no such application shall be granted unless depositor has, for minimum period of one year prior to date of such withdrawal, in this account minimum balance of amount which is not less than amount to be withdrawn. (b) On receipt of request for withdrawal, deposit office shall, as soon as may be, pay amount to depositor through credit to designated account. (c) amount credited to designated account under cl. (b) shall be utilised by depositor within fifteen working days from date of such credit for purpose for which amount has been withdrawn; and amount or any part thereof which has not been so utilised shall be refunded to development bank and on such refund, amount or part thereof, as case may be, shall be treated as fresh deposit in account for purposes of withdrawal under cl. (a) of sub-para. (2) of para 9 above." 29. From above, it is clear that s. 32AB(1) is applicable in case of assessee whose total income includes income chargeable to tax under head "profits and gains of business or profession". Out of such business income, he can either deposit amount in deposit account with development bank or utilise any amount for purchase of new ship, new development bank or utilise any amount for purchase of new ship, new aircraft, new machinery or new plant. In either case he is entitled to deduction of amount which is equal to amount deposited with development bank and amount utilised for purchase of any new ship, new aircraft, new machinery or new plant. However, above deduction is subject to 20 per cent of profit of business of assessee. Sub-s. (4) debars assessee to claim deduction under sub-s. (1) in respect of certain plant and machinery which are installed in office premises or which are office appliances, road transport vehicles, etc. Sub-s. (6) provides that where any amount is withdrawn from deposit account, if it is not utilised in accordance with scheme, same is chargeable to income-tax as income of previous year in which amount was withdrawn. Therefore, in our opinion, in year of withdrawal only requirement is about utilisation of amount as provided in scheme. In year of withdrawal, assessee is not required to utilise amount again in conformity with sub-s. (1) of s. 32AB. As per scheme amount withdrawn by assessee can be utilised for purchase of new ship, new aircraft, new machinery or new plant or new computers. amount can also be utilised for repayment of principal amount of term loan contracted after 31st March, 1986. term loan must have been taken for period of three years or more from financial corporation which is engaged in providing long-term finance for industrial development in India or from scheduled bank or from any other institution as Central Government may notify. When amount is utilised for repayment of term loan, there is no such requirement that, term loan was taken by assessee for purchase of new ship, new aircraft, new machinery or new plant. This condition is imposed by AO which was not in scheme. It is not disputed by Revenue that assessee has fulfilled conditions as provided in cl. 9(1)(iii) of Scheme by utilising amount withdrawn from deposit account for repayment of term loan as per scheme. Therefore, in our opinion, AO was not justified in making addition of amount withdrawn from deposit account amounting to Rs. 1,30,80,000 under s. 32AB(6). 30. CIT(A) has allowed relief following his own order in case of Norma Detergents Ltd. for asst. yr. 199 2-93. We find that Revenue carried matter to Tribunal in case of Norma Detergents Ltd. and Tribunal vide order dt. 7th Oct., 199 9 in ITA No. 49 95 /A/ 1995 and ITA No. 4843/A/ 1995 upheld order of CIT(A). Revenue has canvassed that above decision of Tribunal need reconsideration. However, for detailed discussion in para 29 above, we agree with finding of Tribunal in case of Norma Detergents Ltd. and hold that since amount withdrawn from t h e deposit account with development bank has been utilised for repayment of term loan as provided in cl. 9(1)(iii) of Scheme, CIT(A) rightly deleted addition. Accordingly, ground No. 1(vi) of Revenue s appeal is rejected. 31. Ground No. 10 of assessee s appeal, which is reproduced in para 11 above, was only alternate ground, and it was stated by learned counsel for assessee that this ground would survive only if ground No. 1(vi) of Revenue s appeal is allowed in favour of Revenue. Since we have rejected ground No. 1(iv) of Revenue s appeal, ground No. 10 of assessee s appeal has become infructuous. Accordingly, same is rejected. 32. In result, both appeals are partly allowed. *** NIRMA INDUSTRIES LTD. v. ASSISTANT COMMISSIONER OF INCOME TAX
Report Error