These cross-appeals are heard together and are being disposed of by consolidated order for sake of convenience. In Revenue s appeal for asst. yr. 1991-92 in ITA No. 466/Mad/2002 ground raised is to effect that CIT(A) erred in directing AO to treat interest received as income from business and to allow deduction under ss. 80HHC and 80-I of IT Act, 1961. We have carefully considered matter in light of material placed before us as well as arguments of parties. facts of case as apparent from record are assessee has two units under which business of export of ready made garments and moneylending are carried out. assessee received interest of Rs. 22,21,683 from main unit and Rs. 10,05,006 from MEPZ, totalling to Rs. 32,26,069. This included interest on refund of income-tax at Rs. 19,766. This amount also includes interest from bank to extent of Rs. 17,48,477. assessee treated entire interest receipts as its income assessable under head "Profits and gains from business" and thereby included same in local turnover for purpose of deduction under s. 80HHC. AO observed that there was no doubt in assessee s contention that interest received from moneylending business was assessable under head "profits and gains from business" and would form part of local turnover for purpose of deduction under s. 80HHC. However, he held that interest received from banks on FDRs in main unit and MEPZ unit amounting to Rs. 11,11,809 and Rs. 6,36,669 respectively will be assessable under head "other sources" as same represent interest arising from fixed deposits with bank made out of surplus funds. AO has included balance interest as part of total turnover for purpose of deduction under s. 80HHC. On appeal learned CIT(A) held that there was definitely nexus between monies invested in banks and interest received thereon. For arriving at this conclusion, he followed findings contained in appellate order passed by Dy. CIT(A) for asst. yr. 1990-91 wherein it was held that money itself constituted stock-in-trade of assessee s business. Therefore, assessee was eligible for deduction under s. 80HHC and 80-I of Act. Before us learned Authorised Representative of assessee submitted that assessee is engaged in moneylending business. In asst. yr. 1990-91 interest earned on moneylending business was treated as business income and no appeal against said order was filed by Department. assessee was held eligible for deduction under s. 80HHC of Act. In this regard reliance was placed on decision of Punjab & Haryana High Court in case of CIT vs. Vikas Chemi Gum India (2005) 196 CTR (P&H) 123: (2005) 276 ITR 32 (P&H) for proposition that when Department has accepted appellate order in one year it cannot challenge same issue in subsequent year. It was further submitted that moneylending business is done by assessee as part of business of industrial unit. money which is invested in moneylending business constituted stock-in-trade of moneylending business. When there is no demand same is invested in short-term fixed deposits. Since, money itself constituted stock-in-trade, income earned from idle funds invested in short-term fixed deposits will be assessable under head "Profits and gains of business or profession". learned Authorised Representative further submitted that assessee is having consolidated books of account and financial debtors are clearly identified. moneylending business of assessee consists of lending funds to various individual parties. In addition, assessee does bills discounting for certain financial houses and also invests in Certificate of Deposits of Banks. Both of these are wholly in nature of business transactions. income from bills discounting are in nature of financial income. Certificate of Deposits are given when Banks borrow from public. rates of interest are variable and akin to market rates and sometimes higher. These are pure transactions of borrowings that banks make with approval of RBI and Certificates of Deposits are Negotiable Instruments which can be tradable in open market just like any other security and are akin to promissory notes. Therefore, these are all pure financial transactions carried out by assessee in its character of financial dealer or moneylender. assessee carries out this business in systematic manner and all ingredients of business are found therein and which has been accepted in orders itself. Therefore, it is submitted that entire interest receipts of Rs. 4,89,92,839 and Rs. 5,67,82,293 for asst. yrs. 1997- 98 and 1998-99 respectively are only emanating from moneylending and financial business of assessee and are to be considered as business income for purpose of s. 80HHC. assessee is not claiming this income as export profits but only as profits and gains of business. In respect of this he relied on decision of Tribunal, Mumbai Bench, in case of Jadishprasad M. Joshi vs. Dy. CIT (2005) 97 TTJ (Mumbai) 924. Learned Authorised Representative has drawn our attention to decisions of Hon ble Supreme Court in cases of CIT vs. Cocanada Radhaswami Bank Ltd. (1965) 57 ITR 306 (SC), Brooke Bond & Co. Ltd. vs. CIT (1986) 57 CTR (SC) 25: (1986) 162 ITR 373 (SC) and O.Rm.M.SP.SV. Firm vs. CIT (1967) 63 ITR 404 (SC). In case of O.Rm.M.SP.SV. Firm (supra) it was held that interest earned by exploitation of commercial asset should only be assessed under head income from business. Mere circumstance that assessee showed dividend income under head "Income from other sources" in its return cannot in law decide nature of dividend income. It must be determined from evidence whether having regard to true nature and character of income, it could be described as income from business, even though it is liable to fall for computation under another head. It was further argued that AO himself has held that interest receipts from financial debtors who constituted moneylending business are assessed under head "business income". Having held so, there is no justification for AO for not treating bank interest under head "Business income", since stock-in-trade (money) was kept as short-term deposit when same was not used in business. By keeping stock-in-trade in deposit, character of income would not change and it is only in course of carrying on moneylending business.: learned Departmental Representative on other hand, submitted that interest income earned on fixed deposits was out of surplus funds and therefore same should be assessable under head "other sources". He further submitted that assessee s case is similar to that of salaried person who invests his surplus income from salary; interest therefrom is assessable under head "other sources". Therefore, same is to be assessed under "other sources" and assessee will not be entitled for deduction under s. 80HHC as well as 80-I of Act. Replying to submissions made by learned Departmental Representative, learned Authorised Representative submitted that comparison made with surplus income out of salary income is not correct on ground that in case of assessee funds utilised for moneylending business are not surplus funds. They are part of stock-in-trade and therefore, in order to earn income on idle money, assessee makes deposits for short-term period. He cited case of banks where certain money is invested in securities, income therefrom is treated as business income and not as income under head "other sources". We have carefully considered submissions of both parties. AO has treated moneylending business as income under head "Profits and gains of business". However, idle money deposited in bank has been taken income from other sources. In asst. yr. 1990-91 money invested in moneylending business was treated as stock-in-trade by AAC and no second appeal was filed by Department. It is admitted fact that no separate books of account are maintained in respect of export business and moneylending business. Therefore, funds of moneylending business and export business are inter-twined. There is interlacing of funds. Revenue has not been able to bifurcate that funds invested in short-term fixed deposits were not out of moneylending activities of assessee and they represented surplus funds of export business. Since assessee is engaged in moneylending business where idle funds are parked in short-term fixed deposits, same will not lose character of stock-in-trade of moneylending business. In our view case is like insurance companies where main activity is insurance business and income arising therefrom is invested in short-term deposits with banks so as to earn maximum income. In assessee s case also whenever surplus funds were available with assessee same were parked in banks by way of short-term fixed deposits to earn higher rate of interest rather than keeping money idle in safe or in any other account without earning any interest or interest at lower rate. Hon ble Supreme Court in case of CIT vs. Cocanada Radhaswami Bank Ltd. (supra), held that for purpose of computation of income interest on securities held that for purpose of computation of income interest on securities separately classified, income by way of interest from such securities does not cease to be part of income from business income if securities are part of trading assets. In absence of separate books of account, it is impossible to identify whether funds of moneylending business are invested in export business or vice versa. Therefore, funds of both businesses are inter-twined, intermingled and interlaced with each other. AO has himself treated interest received on fixed deposits as income from business. Therefore, fixed deposits are to be treated as stock-in-trade and consequently interest received from fixed deposits has to be treated as profits and gains of business or profession. As we have held that interest from fixed deposits is to be assessed under head "Profits and gains of business or profession", therefore, provisions of Expln. (baa) in s. 80HHC would not be applicable. Another issue for consideration is whether assessee will be entitled for deduction under s. 80-I of Act for asst. yr. 1991-92 in respect of income received earned by assessee. Under s. 80-I any profit and gains derived from industrial undertaking shall be allowed deduction at specified rate in computing assessee s total income. Hon ble Supreme Court in case of Cambay Electric Supply Industrial Co. Ltd. vs. CIT 1978 CTR (SC) 50: (1978) 113 ITR 84 (SC) held that expression "derived from" is narrower than expression "attributable to". income eligible for deduction under s. 80-I must have direct nexus with industrial activities of assessee and hence interest income earned by assessee from moneylending business, though is in nature of business income cannot be said to have direct nexus with industrial activities of assessee. Consequently, assessee will not be entitled for deduction under s. 80-I of Act on interest income earned by assessee from moneylending business. In result, Revenue s appeal for asst. yr. 1991-92 is partly allowed. Now coming to Revenue s appeals for asst. yrs. 1997-98 and 1998-99, point at issue is with regard to allowance of deduction under s. 80HHC and 80-IA of Act. For asst. yr. 1991-92 in Revenue s appeal we have held that assessee will be eligible for deduction under s. 80HHC in respect of interest income from moneylending including interest on fixed deposits. We have also held that assessee will not be eligible for deduction under s. 80-I in respect of moneylending income. Following our observations in Revenue s appeals for asst. yr. 1991-92, it is held that assessee will be eligible for deduction under s. 80HHC in respect of interest income on fixed deposits. assessee will not be eligible for deduction under s. 80-IA in respect of income from moneylending business. In result, Revenue s appeals for both years are partly allowed. Now coming to assessee s appeal, common issue for asst. yr. 1997-98 and 1998-99 is whether assessee will be eligible for deduction under s. 80-IA in respect of duty drawback received by assessee." facts of case are that assessee received duty drawback and receipt by way of exchange rate difference and same was treated as profits of business. AO however, held that for purpose of deduction under s. 80-IA profit should be derived from industrial undertaking and that there should be material to show that it has direct nexus to such industrial undertaking. Profit or loss can be said to have been derived from activity carried on by industrial undertaking only if said activity is immediate and effective source of said profit or gain. Mere commercial connection between income and industrial undertaking would not be sufficient. He, therefore, came to conclusion that duty drawback and exchange rate fluctuation receipt were not eligible for deduction under s. 80- IA of Act. On appeal, learned CIT(A) following decision of Hon ble Supreme Court in case of CIT vs. Sterling Foods (1999) 153 CTR (SC) 439: (1999) 237 ITR 579 (SC) held that duty drawback could not be said to be as profit derived from undertaking. Before us, learned Authorised Representative of assessee submitted that scheme of taxation in relation to custom and central excise duties has recognised impact of multiple taxation on raw materials and on various inputs including packing materials, at time of production of goods. T h e relief provisions in case of exports were provided considering internationally recognised practice in most of countries to provide relief from input taxation to exporters so as to make their product competitive in international market. It was further submitted that duty drawback reduces cost of raw material purchased by manufacturer for exporting goods manufactured. What duty is charged on purchase of raw material is refunded to manufacturer, if manufacturer is exporting finished goods. In case of import against advance licences, if customs duty is not paid, duty drawback will not be given. assessee has rightly adjusted drawback receipts in its trading account from view of accountancy principles. To qualify for exemption under s. 80-IA, income should be derived from industrial undertaking. If industrial undertaking purchases raw material from outside and opts for not paying duty of customs, it will not be entitled for any duty drawback. Further, if industrial undertaking is in MEPZ/SEZ, neither custom/excise duty is payable by manufacturer on purchase of its raw material even it is purchased locally and in-turn that undertaking is not getting any duty drawback also. This is because industrial undertaking has not paid any duty on its raw material purchases. Thus whatever profits derived by industrial undertaking is profit of business derived from industrial undertaking. Thus by no stretch of imagination, it can be said that industrial undertaking, which carries on its activities identical to MEPZ, if it is outside MEPZ will be deprived of deduction admissible under s. 80-IA simply because it first pays duty and later gets reimbursed; not under any scheme but as per statute provisions in Customs Act and Central Excise Act. He further submitted that import entitlement is export incentive to help in promoting exports whereas duty drawback is refund of duties of customs and excise paid by industries on its raw materials. Drawback is derived from industrial undertaking and has got direct and immediate nexus with profits and gains of industrial undertaking. duty drawback is available only upon fulfilling two conditions namely, (a) for purchase of raw material duty must have been charged; and (b) raw material purchased has been used for manufacturing and exporting of goods. This duty drawback is therefore, received from actual conduct of business of industrial undertaking. It was further submitted that decision of Hon ble Supreme Court in case of Sterling Foods (supra) is factually distinguishable as it deals with premium on import licence. He also relied on following cases wherein it was held that duty drawback is eligible for exemption under s. 80-IA: (i) Anil L. Shah vs. CIT (2005) 95 TTJ (Mumbai) 216 (ii) Dy. CIT vs. Metro Tyre Ltd. (2001) 79 ITD 557 (Del) (iii) A.P. Industrial Components Ltd. vs. Dy. CIT (2002) 74 TTJ (Hyd) 272 It was accordingly, submitted that duty drawback is not granted under scheme but under statutory provisions of respective Acts and is directly connected to business. He placed reliance on decision in case of CIT vs. India Gelatine & Chemicals Ltd. (2005) 194 CTR (Guj) 492: (2005) 275 ITR 284 (Guj), wherein it was held that duty drawback is intended to reduce cost of production and being integral part of pricing of goods, is part of cost of production of industrial undertaking and hence derived from industrial undertaking and eligible for deduction under s. 80J. He further submitted that wordings of s. 80-IA are "any profits and gains derived from any business of industrial undertaking". word used is "any business". In view of above, it is submitted that decisions of Madras High Court in case of CIT vs. Jameel Leathers (2000) 246 ITR 97 (Mad) had not taken cognizance of facts as narrated above with regard to duty drawback and deals with ss. 80J and 80H, wherein wordings are different. Therefore, it is submitted by learned Authorised Representative that decisions of Tribunal and Gujarat High Court relied on above may be followed and claim of assessee with regard to deduction under s. 80-IA be allowed. We have considered submissions made by both parties. According t o assessee, there is difference in wordings of s. 80-IA. At relevant time s. 80-IA(1) contained expression "any profits and gains derived from any business of industrial undertaking". words "any business", appearing in expression, according to assessee would include income from moneylending business also. Since issue relating to deduction under s. 80-IA in respect of money tending business is not contained in grounds of appeal and no additional ground has been raised, we reject plea of assessee. However, we are unable to agree with assessee that deduction under s. 80- I is available in respect of any business on ground that s. 80-IA(1) is enabling section whereas sub-s. (5) of s. 80-IA is machinery section which deals with computation of deduction under this section. Sub-s. (5)(i)(a) talks about deduction at specified rate in respect of profits and gains "derived from" such industrial undertaking. In machinery section expression "any business" has not been used. Accordingly, provisions of ss. 80-IA(1) and 80-IA(5) are to be interpreted harmoniously and would mean that assessee will be eligible for deduction in respect of such income which are derived from industrial undertaking. Hon ble jurisdictional High Court in case of Jameel Leathers (supra) has held that cash assistance, duty drawback and import entitlement which were received as export benefits under scheme were not eligible for deduction under ss. 80J and 80HH on ground that such receipts were not having direct nexus with assessee s industrial activity. Similar view has been expressed in case of CIT vs. Viswanathan & Co. (2003) 181 CTR (Mad) 335: (2003) 261 ITR 737 (Mad). However, assessee s plea is that duty drawback has not been received by it as part of scheme. It has been explained that assessee has received duty drawback under Customs Act, 1962; and Central Excise Act. As per s. 75 of Customs Act, 1962 duty drawback means grant of refund of duty suffered on imported or local inputs used in manufacture of product on its export. Drawback Rules, 1995 also define drawback in relation to any goods manufactured in India and exported and means rebate of duty chargeable on any imported material or excisable material used in manufacture of such goods. Therefore, it is clear that assessee may also receive duty drawback under Central Excise Act in respect of excise duty paid on inputs when goods manufactured by assessee are exported out of India. What assessee may receive by way of duty drawback is excise duty already paid and therefore, refund of excise duty will have direct nexus with industrial activity of assessee. Under s. 28(iiic) of IT Act, 1961 any duty of customs or excise repaid or repayable as duty drawback to any person against exports under Customs and Central Excise Duties Drawback Rules, 1971, shall be chargeable to income-tax under head "Profits or gains of business or profession". refund of excise duty paid as duty drawback has direct nexus profession". refund of excise duty paid as duty drawback has direct nexus with industrial activity of assessee. In case of Anil L. Shah vs. Asstt. CIT (supra), Tribunal, Mumbai Bench held that duty drawback, insurance, recovery of export freight, etc. have direct nexus with industrial undertaking and therefore, eligible for deduction under s. 80-I. In that case it was held that duty drawback is given by way of incentive to boost export of goods manufactured in India. If any imported goods on which customs duty is levied, has been used in manufacture of any goods of any class or description and if such manufactured goods have been exported out of India, then customs duty paid on imported goods is given back to manufacturer by way of rebate. This duty drawback is given only to manufacturer making export as is apparent from s. 75 of Customs Act, 1962. In other words, it is nothing but reimbursement of duty already paid. Whenever such duty is paid, it is directly effected in profits of industrial undertaking inasmuch as it is debited to manufacturing and profit and loss account. Such payment of Customs duty increases cost of manufacturing but when same is received back as duty drawback, it nullifies effect of aforesaid increase in cost of manufacturing. Therefore, duty drawback is inextricably linked with production cost of goods manufactured by assessee. Accordingly, drawback is trading receipt of industrial undertaking having direct nexus with activities of such industrial undertaking and accordingly forms part of income derived from such industrial undertaking. Similar view has been expressed by Hyderabad Tribunal in case of A.P. Industrial Components vs. Dy. CIT (supra). Hon ble Madras High Court in case of CIT vs. Madras Motors/M.M. Forgings Ltd. (2002) 174 CTR (Mad) 221: (2002) 257 ITR 60 (Mad) (head notes) held: "That amount received by way of Modvat credits could not have been received by assessee had assessee not purchased raw materials for running its industry of manufacturing forgings. It was only on account of purchase of raw materials that it was required to pay excise duty thereupon in respect of which assessee had earned Modvat credits. Therefore, that credit would be directly relatable to industrial undertaking. Therefore, amounts received by assessee under Modvat credits were eligible for deduction under s. 80HH. same logic applies to income earned by assessee under International Price Rationalisation Scheme. amount paid by Government at rate of Rs. 6 per kg. of raw materials purchased by assessee had connection only with industrial activity of assessee. If assessee had riot purchased raw materials for its industrial activity and had not exported finished forgings, assessee would not be entitled to said amount of Rs. 6 per kg. Therefore, amount earned by assessee under International Price Rationalisation Scheme was eligible for deduction under s. 80HH." In case of CIT vs. U.P. State Industrial Development Corporation (1997) 139 CTR (SC) 267: (1997) 225 ITR 703 (SC), wherein Hon ble Supreme Court upheld view taken by Tribunal that underwriting commission in respect of shares held by assessee would reduce cost of shares and would not be separately assessable as income of assessee. Further refund of excise duty/import duty by way of duty drawback received by assessee reduces cost of goods manufactured thereby resulting in higher receipt of business profit. Consequently, profits derived by industrial undertaking will be higher and assessee will be eligible for deduction under s. 80-IA of Act. On careful consideration of submissions made by learned Authorised Representative of assessee and judicial pronouncements, it is clear that if duty drawback is received by way of export incentive, it cannot be said to have been derived from industrial activities of assessee. However, when excise duty/import duty is refunded in name of duty drawback under Central Excise Act/Customs Act, same is to be treated as directly or inextricably linked with industrial activities of assessee. Hon ble Madras High Court in case of CIT vs. Madras Motors/M.M. Forgings Ltd. (supra) has held that assessee will be eligible for deduction under s. 80HH of Act in respect of Modvat credit which is similar to duty drawback. assessee in this situation will be eligible for deduction under s. 80-IA of Act. If duty drawback has been received as export incentives, same will not be treated as derived from industrial activities and accordingly assessee will not be eligible for deduction under s. 80-IA in view of decision of jurisdictional High Court and of under s. 80-IA in view of decision of jurisdictional High Court and of Hon ble Supreme Court referred to above. We accordingly direct AO to verify fact whether assessee has received duty drawback under Central Excise Act or as export incentive under scheme announced by Government. second issue for consideration for asst. yrs. 1997-98 and 1998-99 pertains to deduction under s. 80-IA in respect of exchange rate fluctuation. It is submitted that this is received in course of realization of sale proceeds and is part and parcel of sale consideration. case law relied on by Department are not relevant to issue at all. order of CIT(A) is upheld. We have heard both parties. Exchange rate fluctuation is nothing but part of trading receipts. assessee makes sales in foreign currency. realisation thereof on receipt of such sale proceeds may result in gain attributable to exchange rate fluctuation. Therefore, amount received on account of foreign exchange fluctuation will be in nature of trading receipt and assessee will be eligible for deduction under s. 80-IA in respect of foreign exchange rate fluctuation since it has direct nexus with industrial activities of assessee. In assessee s appeal ground Nos. 6, 7 and 8 for asst. yrs. 1997-98 and 1998-99 are not pressed and accordingly stands dismissed. In result, assessee s appeals for asst. yrs. 1997-98 and 1998-99 are partly allowed. *** ASSISTANT COMMISSIONER OF INCOME TAX v. P.S. APPARELS