ORDER Ahmad Farred, Accountant Member. - This appeal by assessee is directed against order of CIT(A)-III Pune, dated 29th Nov., 2001 for assessment year 1998-99. 2. grounds raised by assessee in this appeal are as under : "1. learned CIT(A)-III Pune erred in confirming that export incentives and miscellaneous income of Rs. 80,66,246 and Rs. 63,231 respectively are not derived from eligible industrial undertaking and hence are not to be considered as eligible for deduction under section 80-IA of Income-tax Act, 1961. 2. learned CIT(A)-III, Pune erred in reducing 90 per cent of liabilities written back and miscellaneous receipts amounting to Rs. 4,84,293 and Rs. 63,231 while computing profits of business eligible for deduction under section 80HHC of Income-tax Act, 1961. 3. learned CIT(A)-III, Pune erred in confirming disallowance out of staff welfare expenses, telephone expenses and miscellaneous expenses to extent of Rs. 10,000, Rs. 25,000 and Rs. 25,000 respectively on account of non-business use for want of verification. 4. appellant-company craves leave to add to, alter, amend, modify and/or delete any or all of above grounds of appeal." 3. In return filed for assessment year 1998-99 on 24th Nov., 1998, assessee-company had claimed deduction of Rs. 81,94,588 under section 80-IA of Act. In assessment order passed under section 143(3) on 15th Dec., 2000, Assessing Officer restricted assessee s claim for deduction under section 80-IA to Rs. 46,99,378 worked out as under : Returned Assessed Rs. Rs. Profits and Gains from Business 2,81,51, 2,82,76,241 241 Less : Items not eligible for deduction/not "derived from" industrial undertaking ( a) Interest received on bank deposits, 2,44,704 2,44,704 etc. ( b) Interest on deposit with group 24,932 24,932 companies ( c) Commission received 5,66,312 5,66,312 ( d) Scrap sale 31,61,927 ( e) Export Incentive (DEPB Scheme) 80,66,246 ( f) Liabilities no longer required 4,84,293 written back ( g) Miscellaneous receipts 63,231 2,73,15, 1,56,64,596 293 30 per cent thereof 81,94,58 46,99,378 8 Ground No. 1 4. This ground relates to export incentive of Rs. 80,66,246 excluded by Assessing Officer while computing deduction allowable under section 80-IA. 5. Shri S.N. Inamdar, learned Authorised Representative reiterated arguments put forward on behalf of assessee before Assessing Officer and before CIT(A). submissions made by him are summarized below : that export incentive received by assessee under Duty Entitlement Pass Book Scheme (DEPBS) entitled assessee to import raw material free of import duty against exports made; that DEPB Scheme, in effect, gave assessee-company reimbursement/credit against cost of raw material consumed for manufacture of finished goods which were exported; that DEPB Scheme had effect of reducing customs duty which was integral part of cost of raw material for manufacture of goods; that impugned export incentive was in nature of cost compensatory support; uthat in industrial undertaking raw materials are purchased, finished goods are manufactured therefrom and are then sold and, therefore, any receipt which had effect of reducing cost of raw material represented profits and gains derived from industrial undertaking;that impugned incentive was derived from eligible industrial undertaking and was, therefore, eligible for deduction under section 80-IA of Act; that incentive received under DEPB Scheme was similar in nature to duty drawback , that it was not import entitlement , that it was customs duty credit; that this issue was covered in favour of assessee-company by decision of Gujarat High Court in case of CIT v. India Gelatine & Chemicals Ltd. [2005] 275 ITR 284 (Guj.); that this issue was also covered in favour of assessee-company by decisions of Tribunal in following cases : ( i) A.P. Industrial Components Ltd. v. Dy. CIT [2002] 124 Taxman 76 (Hyd.) (Mag.); ( ii) Anil L. Shah v. Asstt. CIT [2005] 95 TTJ (Mum.) 216; ( iii) Dy. CIT v. Metro Tyres Ltd. [2001] 79 ITD 557 (Delhi). 6. Shri P.V. Kulkarni, learned Departmental Representative relied on order of Assessing Officer and of CIT(A) and vehemently argued saying that order of CIT(A) needed to be upheld. It was, however, pointed out by him that Assessing Officer had no occasion to examine issue in light of DEPB Scheme. 7. We have considered rival submissions in light of material on record and precedents cited. It was noted by Assessing Officer in his order that export incentive amounting to Rs. 80,66,246 had been received by assessee due to policy of Government, that it was not income derived from manufacturing activity and that assessee was not eligible for deduction in respect of this income. He placed reliance on decision of Supreme Court in case of CIT v. Sterling Foods [1999] 237 ITR 579 (SC). CIT(A) while confirming Assessing Officer s action observed that receipt of Rs. 80,66,246 was out of promotional scheme of Central Government and hence it could not be considered as profits of industrial undertaking eligible for deduction under section 80-IA. 7.1 sub-section (1) of section 80-IA, before its amendment by Finance Act, 2001 w.e.f. 1st April, 2002 read as under : "(1) Where gross total income of assessee includes any profits and gains derived from any business of industrial undertaking or enterprise referred to in sub-section (4) (such business being hereinafter referred to as eligible business), there shall, in accordance with and subject to provisions of this section, be allowed, in computing total income of assessee, deduction from such profits and gains of amount equal to hundred per cent of profits and gains derived from such business for first five assessment years commencing at any time during periods as specified in sub-section (2) and thereafter, twenty-five per cent of profits and gains for further five assessment years; Provided that where assessee is company, provisions of this sub-section shall have effect as if for words "twenty-five per cent", words "thirty per cent" had been substituted." 7.2 Shri Inamdar, learned Authorised Representative heavily relied on decision of Gujarat High Court in case of India Gelatine & Chemicals Ltd. ( supra). In this case one of issues was whether duty drawback received by assessee constituted income derived from industrial undertaking and was eligible for relief under section 80-I of Act. While deciding this issue it was observed by Court that incentives like cash compensatory support, and import entitlements are in nature of general incentives though for determining quantum of such incentives Government could take into consideration export turnover of undertaking and hence such receipts are not derived from industrial undertaking but are merely attributable to it. But when it comes to duty drawback it is given specifically to reduce cost of manufacturing goods. very scheme of duty drawback was framed in order to relieve goods, to be exported, of burden of customs duty and excise duty. object of duty drawback was to reimburse customs duty and excise duty paid by assessee. customs duty and excise duty are integral part of cost of production and any receipts by way of reimbursement of such duties are inextricably linked with cost of production, which had to be reflected in profit and loss account of assessee. 7.3 Court observed that distinction between general incentives like cash assistance and import entitlement on one hand and specific incentives like duty drawback was not brought to notice of Madras High Court. Gujarat High Court, therefore, recorded disagreement with view taken by Madras High Court in cases of CIT v. Jameel Leathers & Uppers [2000] 246 ITR 97 and CIT v. Viswanathan & Co.[2003] 261 ITR 737 (Mad.). 7.4 Shri Inamdar took us through salient features of DEPB Scheme. He submitted that benefit available under DEPB Scheme was of nature of duty drawback . He explained that deposit of DEPB Scheme was to neutralize incidence of basic customs duty and surcharge on import content of export product. neutralization was provided by way of grant of duty credit against export product. He reiterated that value of benefit under of DEPBS was not import entitlement but it was customers duty credit. He, therefore, contended that issue involved in present appeal was squarely covered by decision of Gujarat High Court in case of India Gelatine & Chemicals Ltd. ( supra). 7.5 Madras High Court, on other hand, held in case of Jameel Leathers & Uppers ( supra), that it was not industrial undertaking which yielded income by way of cash compensatory support , duty draw-back and import entitlements , but it was scheme of Government which made it possible for assessee to receive these amounts and existence of such scheme was not essential part of industrial undertaking. 7.6 In case of Sterling Foods ( supra), Supreme Court observed as under : "We do not think that source of import entitlements can be said to be industrial undertaking of assessee. source of import entitlements can, in circumstances, only be said to be Export Promotion Scheme of Central Government whereunder export entitlements become available. There must be, for application of words "derived from", direct nexus between profits and gains and industrial undertaking. In instant case, nexus is not direct but only incidental. industrial undertaking exports processed sea food. By reason of such export, Export Promotion Scheme applies. Thereunder, assessee is entitled to import entitlements, which it can sell. sale consideration therefrom cannot, in our view, be held to constitute profit and gain derived from assessee s industrial undertaking." 7.7 Madras High Court in case of CIT v. Pandian Chemicals Ltd. [1998] 233 ITR 497, while explaining expression derived from as appearing in section 80HH of Act, observed as under : ". . . . fact that Legislature has used expression Profits and gains derived from industrial undertaking has some significance and it connotes that immediate and effect source of income eligible for grant of relief under section 80HH of Act must be industrial undertaking itself and not any other source. mandate of law is that unless source of profit is undertaking assessee is not eligible to claim deduction under section 80HH of Act. . . . If Legislature had intended to grant deduction to any profit from industrial undertaking it would have very well used expression attributable to in section 80HH of Act. We, therefore, do not find any justification to give expression derived from wider meaning to cover every receipt connected with industrial undertaking. . . ." 7.8 It was noted by Madras High Court in Pandian Chemicals Ltd. s case ( supra) that expression attributed to had wider meaning than expression derived from . 7.9 While affirming decision of Madras High Court in case of Pandian Chemicals Ltd. ( supra) Supreme Court in Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC) held that word derived from in section 80HH of Act must be understood as something which had direct or immediate nexus with assessee s undertaking. 7.10 In our opinion, decisions of Madras High Court in cases of Jameel Leathers & Uppers ( supra) and Viswanathan & Co. ( supra) are in line with judgments of Supreme Court in cases of Sterling Foods( supra) and Pandian Chemicals Ltd. ( supra). It makes no difference that benefit received under DEPB Scheme had effect of reducing customs duty which in turn, had effect of increasing profits. What is important is that because of export inceptive/benefit; received under DEPB Scheme assessee got same profit; which manifestly flowed from DEPB Scheme Government and not from business of industrial undertaking of assessee-company. 7.11 Government has been giving incentives to exporters in different forms namely import entitlement , cash assistance , duty drawback , DEPB Scheme , etc. and incentive received in each of these forms results in some extra profit in hands of assessee. question is as to what can be said to be source of that extra profit that arises from incentive/benefit given by Government to exporter-assessee under its various schemes. 7.12 extra profit, resulting from various export incentives benefits of Government, cannot be said to flow directly from business of industrial undertaking itself. source of such extra profit is surely particular scheme of Government, under which export incentive/benefit flows to assessee in one form or other. In one case, assessee received cash straightaway and in another case, assessee received import entitlement which could be converted into cash and in yet another case, customs duty paid by assessee was reimbursed. But in all such cases, in whatever form export incentive/benefit flowed to assessee resulting in some extra profit, source was surely that particular scheme of Government. This humble opinion of ours is based on principles laid down by Supreme Court in cases of Sterling Foods( supra), and Pandian Chemicals Ltd. ( supra) and by Madras High Court in cases of Jameel Leathers & Uppers ( supra) and Viswanathan & Co. ( supra). This ground No. 1 is accordingly rejected. Ground No. 2 8. In this ground, it has been contended that CIT(A) erred in reducing 90 per cent of liabilities written back of Rs. 4,84,293 and miscellaneous receipts of Rs. 63,231 while computing profits of business eligible for deduction under section 80HHC of Act. It was submitted by learned Authorised Representative that this issue was covered in favour of assessee by decision of Tribunal Pune in case of Finolex Pipes Ltd. v. Dy. CIT [2000] 68 TTJ (Pune) 422. 8.1 We have considered rival submissions in light of material and precedent cited. CIT(A) while confirming Assessing Officer s action observed in para 7.3 of his order as under : "The rival submissions have considered. I agree with Assessing Officer that in view of decision of Bombay High Court decision in case of CIT v. K.K. Doshi & Co. [2000] 163 CTR (Bom.) 472 : [2000] 245 ITR 849 (Bom.) income though assessable as business income have no link with export. These receipts do not have direct nexus with export income hence appellant is not entitled to claim deduction under section 80HHC on these receipts. Assessing Officer s action in reducign 90 per cent of liability written back and misc. receipts while computing profits of business eligible for deduction under section 80HHC is upheld. appeal fails." 8.2 We find that decision of Tribunal Pune in case of Finolex Pipes Ltd. ( supra) does not render any help to case of assessee insofar as this issue is concerned. It is seen that relevant facts with regard to nature of liabilities written back and also of miscellaneous receipts were not brought on record by authorities below. In circumstances, therefore, we remit this matter back to file of Assessing Officer with direction that he should bring relevant facts/material on record and should pass fresh speaking order with regard to this issue, after giving adequate opportunity of being heard to assessee. ground No. 2 is decided accordingly. Ground No. 3 9. In this ground, it has been contended that CIT(A) erred in confirming disallowance out of staff welfare expenses, telephone expenses and miscellaneous expenses of Rs. 10,000, Rs. 25,000 and Rs. 25,000 respectively on account of non-business use and for want of verification. 9.1 It was submitted by Shri Inamdar, learned Authorised Representative that this issue was covered in favour of assessee by decisions of Gujarat High Court in cases of Sayaji Iron & Engg. Co. v. CIT [2002]253 ITR 749 and Dinesh Mills Ltd. v. CIT [2002] 254 ITR 673 . 9.2 We have considered rival submissions in light of material on record and precedents cited. assessee had debited Rs. 22,02,292 on account of telephone expenses out of which Assessing Officer disallowed Rs. 50,000 on ground that personal use of telephone could not be ruled out. CIT(A) restricted this disallowance to Rs. 25,000. 9.3 Further, assessee had debited Rs. 39,03,923 as miscellaneous expenses out of which Rs. 50,000 was disallowed by Assessing Officer for want of verification. CIT(A) restricted this disallowance to Rs. 25,000. 9.4 assessee debited Rs. 13,67,000 on account of staff welfare expenses, out of which Rs. 25,000 was disallowed by Assessing Officer for want of verification. CIT(A) restricted this disallowance to Rs. 10,000. 9.5 We have considered matter and we find that Assessing Officer and also CIT(A) did not give cogent reasons for making above disallowances. In our opinion, above disallowances are based on conjectures and surmises and cannot be sustained. Further, decision of Gujarat High Court in case of Sayaji Iron & Engg. Co. ( supra) supports case of assessee. In circumstances, therefore, above disallowances are deleted and ground No. 3 is allowed. 10. In result, appeal filed by assessee is partly allowed. *** Lavrids Knudsen Maskinfabrik (India) Ltd. v. Additional Commissioner of Income-tax