HIKAL LTD,MUMBAI vs. ASST CIT CIR 2(1), MUMBAI

Although in the Memo of Appeal, the assessee has raised multiple Grounds of appeal, but essentially, the grievance of the assessee is on three counts, which we shall deal in seriatim.

On the other hand, learned DR has reiterated the stand of the lower authorities, which is to the effect that the interest income in question is not derived from exports and, therefore, the same is not includible for the purpose of deduction u/s. 10B of the Act.

We have carefully considered the rival submissions. The short point before us is with regard to interest income earned by the assessee on Fixed Deposits kept with bank in order to obtain the facility of Bank Guarantees. It is not disputed that the facility of Bank Guarantee obtained by the assessee is in relation to the sales effected from its 100% EOU at Taloja, which is entitled to the benefits of section 10B of the Act. In somewhat similar situation the Hon’ble Karnataka High Court in the case of CIT vs. Motorolo India Electronics (P) Ltd. (98 DTR 81), considered eligibility of interest derived from deposits in the EEFC account and the interest income earned on inter-corporate deposits for the benefits of section 10A and 10B of the Act. The Hon’ble High Court after taking into consideration the mechanics of section 10A and section 10B of the Act, which are quite pari materia, held that such interest income would be entitled to benefits provided the same has a nexus with the business of the eligible undertaking. In that light of the matter, in our view, the claim of the assessee is on a sound footing in as much as factually speaking it is not disputed that interest has been earned on deposit with bank and used for furthering the business of its 100% EOU, which is eligible for benefits of section 10B. So long as such income constitutes profits and gains of business of the eligible undertaking, the same would fall within the scope of expression ‘Income from profits and gains’ incorporated in section 10B(4) of the Act. In view of the aforesaid and also the order dated 16.07.2010 of the Tribunal in assessee’s own case for A.Ys 2003-04 and 2004-05, claim of the assessee deserves to be accepted. We hold so. At this point we may also note that the Hon’ble Karnataka High Court in the case of CIT vs. Motorolo India Electronics (P) Ltd. (supra) considered and distinguished the case of Liberty India, which has since been relied upon by the CIT(A) before us. In this background, we allow the claim of the assessee and, accordingly, assessee succeeds on this ground.

The second grievance of the assessee in this appeal arises from the action of the Assessing Officer of scaling down the carry forward losses of non-10B units by the amount of exemption u/s. 10B of the Act. On this aspect, we find that the CIT(A) has directed the Assessing Officer to verify the claim of the assessee and allow it as per law. Pertinently, before the CIT(A) the assessee has relied on various decisions of the Tribunal as well as the judgment of Hon’ble Karnataka High Court in the case of Yokogawa India Ltd. (ITA NO.78 dated 09.08.2011). In our considered opinion, the manner in which the CIT(A) has decided the issue does not require any interference from our side as the matter has already been set aside to the file of the Assessing Officer for decision as per law. We hereby affirm the order of the CIT(A) on this aspect.

The third grievance of the assessee is regarding quantification of carry forward of losses, which is consequential to the decision on the issue raised by the assessee in second Ground, which has already been set aside to the file of the Assessing Officer. Therefore, no separate adjudication is required on the said issue.