EXCELRA KNOWLEDGE SOLUTIONS PRIVATE LIMITED,HYDERABAD vs. DCIT, CIRCLE-8(1), HYDERABAD

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आयकर अपीलȣय अͬधकरण, हैदराबाद पीठ
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ‘ B ‘ Bench, Hyderabad

Before Shri Vijay Pal Rao, Vice-President
A N D
Shri Madhusudan Sawdia, Accountant Member

आ.अपी.सं /ITA No.202/Hyd/2023
(िनधाŊरण वषŊ/Assessment Year: 2020-21)

Excelra Knowledge
Solutions (P) Ltd,
Hyderabad
PAN:AAFCG5715Q
Vs.
Dy. CIT
Circle 8(1)
Hyderabad
(Appellant)

(Respondent)

िनधाŊįरती Ȫारा/Assessee by:
Shri H. Srinivasulu, Advocate
राज̾ व Ȫारा/Revenue by::
Shri Kumar Pranav, CIT(DR)

सुनवाई की तारीख/Date of hearing:
25/11/2024
घोषणा की तारीख/Pronouncement: 23/01/2025

आदेश/ORDER
Per Vijay Pal Rao, Vice President

This appeal filed by the assessee is directed against the order dated10/02/2023 of the learned CIT (A)-NFAC Delhi, relating to A.Y.2020-21. 2. The assessee has raised the following grounds:

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“1. Ld A.O/Ld CIT(A), NEAC erred in taxing the interest
Income of Rs. 4,40,41,931 under income from other sources and Income from Business. Interest income was credited in P&L a/c. Action of Ld A.O resulted in double addition of same income and CIT (A) ought not have up held the Action of Ld A. O.

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from the impugned order as well as the processing of the return by the CPC u/s 143(1) of the I.T. Act, 1961. It is contended that the interest income has already been credited to the P&L Account and therefore, making addition under the head “income from other sources” resulting a double addition of the same income. On these pleadings, we admit the additional grounds raised by the assessee for adjudication on merits.

could not succeed. Before the Tribunal, the learned AR contended that the fixed deposits were made from the export receipts and directly from the EEFC Account. He has further contended that since the deposits with banks were made out of the export proceeds and assessee is a 100% export oriented unit located in SEZ have to receive its sale proceeds in convertible foreign exchange. Therefore, the entire turnover is from exports which is eligible for deduction u/s 10AA of the Act. The parking of surplus fund out of the export proceeds is an integral part of the export business activity and assessable to tax as business income.
Further, the deposits in the banks is for commercial expediency and interest income cannot be delinked with the export income.
In support of his contention, he has relied upon the decision of the Hon'ble Karnataka High Court in the case of Hewlett Packard
Global Soft Ltd (403 ITR 453) (Kar.) (Full Bench) wherein the Hon'ble High Court has held that the interest earned by the assessee from parking of the surplus funds in the deposits is incidental to the business income of the assessee and therefore, eligible for deduction u/s 10A of the Act. The Hon'ble Madras
ITR 361 (Mad.) has agreed with the view taken by the Hon'ble
Karnataka High Court in the case of Hewlett Packard Global Soft
Ltd (Supra). He has relied upon the decision of the Hon'ble Delhi
ITR OL 401 (Del.) as well as the decision of the Hon'ble Madras
422 ITR 514 (Mad.) and also the judgment of the Hon'ble Madras
ITR 578) and submitted that the Hon'ble High Court has allowed the claim of deduction u/s 10A in respect of foreign exchange fluctuation gain. He has also referred to the Rule 54 and 79 of SEZ Rule 2006 as well as section 51 of SEZ and submitted that there is a reference of section 10AA in SEZ as it exists prior to the amendment and insertion of explanation to section 10AA, however, no corresponding amendment has been made in the SEZ. The learned AR has further submitted that the provisions of SEZ Act has overriding effect on any other law and therefore, the assessee is a unit in the SEZ is eligible for deduction u/s 10AA in respect of all the incomes earned by it. The quantum of deduction to be the income of the export oriented unit. He has also referred to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Vasishta Chay Vyapar Ltd (330 ITR 440) (Del.) and submitted that the Hon'ble High Court has held that a non-banking fiancé
company is bound by the provisions of RBI Act, 1934 and 1998
directions under which it was mandatory on the part of the assessee not to recognize the interest on inter-corporate deposits as income having regard to the recognized accounting principles.
Therefore, it is held that the Assessing Officer has to follow the RBI directions of 1998 in view of section 45Q of RBI Act and section 145 of the I.T. Act, 1961 has no role to play so far as the income recognition is concerned. He has also relied upon the judgment of the Hon'ble Supreme Court in the case of Tax
Recovery Officer, Central Range-1 reported in 293 ITR 369 and submitted that the Hon'ble Supreme Court has held that the ITA No 202 of 2023 Excelra Knowledge Solutions P Ltd
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order of the Special Court in view of section 13 of the Special
Court Act has an overriding effect to the provisions of the I.T. Act,
1961. Thus, the learned AR has submitted that even after the insertion of Explanation to section 10AA vide Finance Act, 2017
w,.e.f. 1.4.2018, there is no change in the nature of interest arising from the export business activity as forming an integral part of export business activity. The learned AR has further submitted that the Assessing Officer has relied upon the judgment of the Hon'ble Madras High Court in the case of Menon
Impex P ltd vs. CIT (2003) 259 ITR 403 (Mad.). However, the said decision is not applicable in the case of the assessee, because in the subsequent decisions of the Hon'ble Madras High Court in the case of Sankya Technologies vs. CIT (Supra) and in case of Camiceria Apparels India (P) Ltd – WT – 13 ITR 193 (Mad.) has decided the issue in favour of the assessee. Hence the learned AR has submitted that the interest income earned from the Fixed
Deposits with bank is a business income of the assessee and eligible for deduction u/s 10AA.

income received from bank deposits as income from other sources and denied the claim of interest u/s 10AA of the Act and the assessee has accepted the said decision of the Assessing Officer for the A.Ys 2017-18 & 2018-19 respectively. He has further contended that the judgment of the Hon'ble Karnataka High Court in the case of CIT vs. Hewlett Packard Global Soft Ltd (Supra) has been challenged before the Hon'ble Supreme Court and the SLP is pending adjudication before the Hon'ble Supreme Court. Even otherwise, in the said case of Hewlett Packard Global Soft Ltd
(Supra) the interest was earned by the said company on the surplus fund with banks and advance of staff loan and therefore, it was allowed as eligible for deduction u/s 10A of the Act only on the ground that there was only a short-term deposits made by the assessee of its surplus fund and other income was earned from the loan advanced to the employees, which has direct nexus with the business of the assessee. However, in the case in hand, the assessee has made the fixed deposits for a long duration, as evident from the balance sheet of the assessee and running from year to year. He has relied upon the decision of the Hon'ble
Supreme Court in the case of Orissa State Warehousing
Corporation vs. CIT reported in 237 ITR 589 and submitted that the Hon'ble Supreme Court has laid down the rule of interpretation of fiscal statute shall have to be interpreted on the basis of the language used therein and not de hors the same and the Court ought not, under any circumstances, to substitute its own impression and ideas in place of the legislative intent as is available from the plain reading of the statutory provisions.

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guarantee required for the business of exports. Thus, if the deposits is made by the assessee for business expediency, then the said incidental interest income will be treated as part of the business activity of the assessee. The scheme of SEZ also contemplates that the foreign exchange earned by the enterprises in SEZ is a necessary condition for getting the incentives.
Therefore, the incentive u/s 10AA is to maximise the foreign exchange by an 100% export oriented unit. Further, the export turnover of the EOU is considered for the purpose of computing deduction u/s 10AA. There is no quarrel that the income earned by the 100% EOU in the normal course of business being exports of goods, articles or services is eligible for deduction u/s 10AA of the I.T. Act, 1961. Even if a surplus fund available with the assessee and to be utilized for working capital of its business of export activity, the interest earned on such temporary deposits in the bank account cannot be given a separate treatment than the business income and the same will be treated as income derived from the normal course of business activity of the assessee. The decisions relied upon by the assessee have laid down the principles, that, if the interest earned by the assessee has a direct nexus with the business activity of the assessee then the said interest income will be an integral part of the business income of the assessee and therefore, eligible for deduction u/s 10AA of the I.T. Act, 1961. In case of CIT vs. Sankhya Technologies Ltd
(Supra), the Hon'ble Madras High Court has held that all the profits and gains of undertaking including incidental income by way of interest on income deposits or soft loan would be entitled

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to the deduction u/.s 10A/10B of the Act. Therefore, on the principles of commercial expediency, the interest income earned was treated as incidental and cannot be delinked from the profits and gains earned by the undertaking engaged in the export of articles.

a result of decision of the commercial expediency. In some of the cases even the fixed deposits was made by the assessee for obtaining the letter of credit required for the business of exports and in other cases for obtaining the bank guarantee required for the business activity of the assessee and hence, the said deposit was necessary for the business activity of the assessee and the interest earned on such deposits was considered as the income earned in the normal course of business activity. In the case in hand, it is undisputed fact that the assessee has made long term deposits with the Banks which is also evident from the fact that for the A.Ys 2017-18 & 2018-19, the interest income on the same deposits with banks was assessed by the Assessing Officer as income from other sources and denied the benefit of section 10AA.
Thus, it is clear that the fixed deposits made by the assessee in the case in hand are not an incidental or owing to commercial expediency but it was an investment decision taken by the assessee to earn the interest income on the surplus fund available with the assessee not required for business purposes. When the deposits were not made for business exigencies or requirement of other business obligations of the assessee like securing bank guarantee or letter of credit or margin money or security deposits etc., necessary for business which can be regarded as inextricably linked with business activity of the assessee but is a part of decision of making investment in fixed deposits for a specific motive to earn the interest income, then the income earned on such deposits cannot be regarded as directly or inextricably linked with the business activity of the assessee. The source of ITA No 202 of 2023 Excelra Knowledge Solutions P Ltd
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deposits cannot change the nature of the income in the form of interest on the fixed deposits because the export income is already considered for the benefit of section 10AA and subsequent deposits in the bank account and interest on such deposits cannot be said to have a direct nexus with the export activity of the assessee. Thus, the decisions relied upon by the learned AR of the assessee cannot be applied to the facts of the present case.
Even otherwise, when the interest on the same fixed deposits has already been treated as income from other sources for the A.Ys
2017-18 & 2018-19 which has attained the finality, then as per the rules of consistency and in the absence of any change in the facts and circumstances, the said income cannot be given a different treatment. The Hon'ble Supreme Court in the case of India Comnet International vs. Income Tax Officer (Supra) has held in Para 4 & 5 as under:
“4. The impugned judgment of the High Court is based on the judgment of the Madras High Court in the case of CIT v. Menon
Impex (P.) Ltd.[2003] 259 ITR 403 / 128 Taxman 11 wherein a similar question arose as to "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the interest income derived by the assessee from funds in connection with Letter of Credit is income derived from the profits of business of the industrial undertaking so as to be entitled to get the benefit of Section 10A of the Income
Tax Act, 1961?" In that case, the Madras High Court examined in detail the transaction in question and found that the assessee had set up a new industrial undertaking in Kandla
Free Trade zone for manufacturing light engineering goods.
The goods therein were exported during the Assessment Year
1985-1986. In the course of business, the assessee was required to open a Letter of Credit. On such Deposit, the assessee earned interest. Under the said circumstances, the High Court held, following the judgment of this Court in the case of CIT v. Sterling Foods [1999] 237 ITR 579/ 104 Taxman
204, that the interest received by the assessee was on deposit made by it in the Banks; that such deposit was the source of ITA No 202 of 2023 Excelra Knowledge Solutions P Ltd
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income; and that, the mere fact that the deposit was made for obtaining Letter of Credit which Letter was, in turn, used for the purpose of business undertaking did not establish a direct nexus between the interest and industrial undertaking. Thus, the judgment of the Madras High Court in Menon Impex (P.)
Ltd. (supra) was based on the examination of the transaction in detail which exercise has not been undertaken in the present case.

For the above reasons, we set aside the impugned judgment and remit the cases to the Income Tax Appellate Tribunal
['ITAT', for short] for deciding the matter afresh after examining the transaction in question, as done by the Madras High Court in the case of Menon Impex (P.) Ltd. (supra).

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he has not taken the correct amount of book profit u/s 115JB. He has thus, pleaded that the Assessing Officer may be directed to verify the correct amount of profit & loss account as well as the book profit u/s 115JB of the Act.

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43B or not and consequently, whether this amount is otherwise allowable as a deduction. Accordingly, this issue is remanded to the record of the Assessing Officer for fresh adjudication after proper verification and examination of the relevant record and after giving an opportunity of hearing to the assessee.

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the addition of entire amount interest would amount to double addition. Accordingly, in the facts and circumstances of the case and in the interest of justice, this issue is remanded to the record of the Assessing Officer with the direction to verify this fact and assess the correct income as per law.

Copy to:
S.No Addresses
1
Excelra Knowledge Solutions (P) Ltd, 6th Floor, Wing B, NSL Arena, Plot
No.6, Uppal, KV Ranga Reddy 500039
2
Dy. CIT, Circle 8(1) Signature Towers, Hyderabad
3
Pr. CIT - Hyderabad
4
DR, ITAT Hyderabad Benches
5
Guard File

By Order