DCIT, CIRCLE - 10(2), KOLKATA, KOLKATA vs. M/S. YAMAI FASHION PVT. LTD., KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “C” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “C” KOLKATA Before Shri S.S.Godara, Judicial Member and Shri M. Balaganesh, Accountant Member ITA No.61/Kol/2016, 1830- 1831/Kol/2018 Assessment Year :2011-12

DCIT, Circle-10(2), V/s. M/s Yamai Fashion Pvt. P-7, Chowringhee Ltd., 6, Dover Lane, Square, 3rd Floor, Kolkat-29 Kolkata-69 [PAN No.AAACT 9526 F] .. अपीलाथ� /Appellant ��यथ�/Respondent

Shri Dilip S Damle, FCA आवेदक क� ओर से/By Assessee Shri Saurabh Kumar, Addl. CIT-SR-DR राज�व क� ओर से/By Revenue 15-11-2018 सुनवाई क� तार�ख/Date of Hearing 30-11-2018 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER S.S.Godara, Judicial Member:- These three Revenue’s appeals for assessment year 2011-12 arise against the Commissioner of Income Tax (Appeals)-4 Kolkata’s separate orders; all dated 30.10.2015 in case No.(s) 857/CIT(A)-4/Cir-10/2014-15; 1573/CIT(A)/4/Cir-10/2014-15 & 385/CIT(A)-4/Cir-10/2014-15 respectively. The relevant proceedings in first appeal u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’ as against the sec.154/143(3) in latter two cases; respectively. Heard both the parties. Case file(s) perused.

ITA No.61/K/16 & 1830-31/K/18 A.Y. 2011-12 DCIT, Cir-10(2), Kol. Vs. M/s Yamai Fashion Pvt. Ltd. Page 2 that the CIT(A) has erred in law as well as on facts in holding assessee’s duty drawback and interest subsidy of ₹3,97,78,960/- and ₹66,888/-; respectively to be eligible for sec. 10B of the Act deduction as follows:- “4.2 I have considered the oral & written submissions of the AJR I have also examined the reasons put forth by the AO in the impugned order for denying the benefit of exemption u/s 10~ of the Income Tax Act in respect of receipts by way of duty draw back and interest subsidy. I have also taken into account the judgments rendered by the judicial forums and which were referred by the parties in support of their respective pleadings. On careful analysis of assessment order, I find that there is no dispute between the assessee and the AO with regard to the basic facts which are in narrow compass. The assessee in the present case carried on business of manufacture & export of leather goods. The assessee's manufacturing undertaking was registered with the competent authority as 100% export oriented undertaking (EOU). Accordingly in terms of Section 10B(1) of the Act profits derived by the 100% EOU from the export of articles were deductible from the total income for the period of 10 consecutive assessment years. The AO per se has not disputed that the assessee's EOU satisfied the conditions prescribed in Section 10B and accordingly the AO did not also dispute that deduction was permissible to the assessee u/s 108 of the Act. However, only in respect of receipts by way of "duty draw back" amounting to Rs.3,97,78,960/- and interest subsidy of Rs.66,888/- the AO held that the assessee was not eligible to claim deduction u/s 108 of the Act even though 100% of the assessee's turnover was derived from export of manufactured goods. 4.3 In support of the finding that export incentive in the form of duty draw back & interest subsidy did not qualify for deduction u/s 10B of the Act the AO relied on the judgments of the Supreme Court in the case of Pandian Chemicals Vs CIT (237 ITR 579) and Liberty India Vs CIT (317 ITR 218). In both the judgments the Supreme Court had held that the expression "derived from" as used in Section 80HH or Section 80lA had narrow meaning and therefore in order to get benefit of deduction u/s 80HH or Section 80lA it was necessary for the assessee to establish the direct or first degree nexus between the concerned receipt and the operation of the industrial undertaking. If the nexus between the receipt and the eligible undertaking is indirect or not proximate then the deduction is not permissible. According to AO the language used in Section 10B(1) was similar to the language employed in Section 80HH or 80lA and therefore it was necessary for the assessee to establish the direct or immediate nexus between the operations of the 100% export oriented undertaking and export incentives & interest subsidy. Referring to the judgment of the apex court in the case of Liberty India (supra) the AO pointed out that in the said judgment the Supreme Court specifically negated the assessee's claim for deduction u/s 801B, 801, 80lA of the Act with reference to export incentives on the ground that the source of such receipts was the relevant Government Schemes for promoting exports which per se did not have direct nexus with the operation of the industrial undertaking. The AO also relied on judgment of the Supreme Court in the case of CIT Vs Sterling Foods (237 ITR 579) wherein similar view was taken. In view of the judgments of the Supreme Court the AO held that the assessee was not eligible for deduction u/s 10B of the Income Tax Act in respect of its income by way of duty draw back & interest subsidy. 4.4 Per contra the A/R of the assessee however placed heavy reliance on the decisions of the ITAT Benches in the case of Maral Overseas Ltd Vs ACIT (136 ITD 177) and Hritnik Exports Pvt. Ltd Vs DCIT (ITA No.2111/DEL/2013). The A/R pointed out that the decision of the ITAT Delhi in the case of Hritnik Exports Pvt. Ltd was

ITA No.61/K/16 & 1830-31/K/18 A.Y. 2011-12 DCIT, Cir-10(2), Kol. Vs. M/s Yamai Fashion Pvt. Ltd. Page 3 upheld by the Hon'ble Delhi High Court in its judgment dated 13.11.2014. The copies of these judgments were filed in the course of hearing of the appeal. 4.5 On examination of the decision rendered by the Special Bench of the ITAT, Indore in the case of Maral Overseas Ltd Vs ACIT, it was noted that one of the issue which was for consideration by the Special Bench of the IT AT was whether the assessee who derived income from 100% EOU was eligible for deduction u/s 10B in relation to export incentives received On scrutiny of the said decision it was noted that in paragraph Nos. 18 & 19 the Special Bench had taken specific note of the fact that the CIT (D/R) relying on the decisions of the Supreme Court in the case of Liberty India (317 ITR 218) and Sterling Foods (237 ITR 579) had argued that the receipts by way of export incentives could not be considered income derived from the export oriented undertaking. The CIT (D/R) relying on the decisions of the apex court had claimed that deduction u/s 10B was not permissible in respect of the receipts by way of export incentives since such receipts did not have first degree nexus with the operations of the 100% EOU. On the contrary, however the Counsel for the assessee had brought to the attention of the Special Bench that the machinery provisions for granting deduction u/s 80lB were contained in Sub Section (4) and the said provision being specific and precise the deduction was required to be allowed strictly in conformity with the language used In the said Sub Section. It was claimed that Section 10B(4) mandates that the deduction is to be computed by apportioning the business profits of the undertaking in the ratio of export turnover to the total turnover. In the circumstances, even though Section 10B(1) referred to "profits & gains derived" by a 100% EOU, the manner of determination of the profits eligible for deduction u/s 10B were statutorily provided or prescribed in sub Section (4) and therefore deduction was to be computed & allowed only in conformity with the formula prescribed in Section 10B(4). On due consideration of the judgments of the Supreme Court in the case of Sterling Foods (supra) and Liberty India (supra) as also the language employed in sub secs. (1) & (4) of Section 10B of the I. 1. Act, the Special Bench of the ITAT ultimately held that Section 10B(4) of the Act stipulated specific formula for computing the profit derived by the undertaking from export. Section 10B(4) mandated that the deduction under that Section should be computed by apportioning the profits of the business of the undertaking in the ratio of export turnover to the total turnover. In the circumstances, even though Section 10B(1) referred to profits & gains derived by a 100% EOU, the manner of determining the eligible profits was statutorily defined in sub Section (4). The Tribunal held that sub Section (1) & (4) of Section 10B were required to be read together for computing amount of eligible deduction u/s 10B of the Act. For that purpose the specific formula incorporated in Section 10B(4) could not be ignored. According to ITAT as per the formula laid down; the entire profits of the business are to first be determined & these were to be multiplied by the ratio of export turnover to the total turnover of the business. The ITAT further took note of the fact that in the case of Liberty India the Supreme Court was concerned with interpretation of Section 80lA of the Act wherein no formula was laid down for computing the profit derived by the undertaking whereas it was specifically so provided in Section 10B(4) for the purposes of computing profit derived by the undertaking from the exports. In view of the material difference in the language employed in Section 10B(4) & Section 80lA of the Act the Special Bench of Tribunal ultimately held that the decisions of the Supreme Court relied upon by the Revenue were of no help in adjudicating the claim of deduction u/s 10B in respect of export incentives. The Tribunal accordingly held that provisions of Section 10B of the Act were materially different from the provisions of Section 80lA and in view of the specific formula prescribed for computing the qualifying amount of deduction u/s 10B of the Act deduction u/s 1 OB was permissible even in respect of export incentives which were admittedly assessed by the AO as business income of that assessee.

ITA No.61/K/16 & 1830-31/K/18 A.Y. 2011-12 DCIT, Cir-10(2), Kol. Vs. M/s Yamai Fashion Pvt. Ltd. Page 4 4.6 The decision of the Special Bench in the case of Maral Overseas Ltd was followed by the ITAT Delhi Bench; in case of ITO Vs Hritnik Exports Pvt. Ltd in I TA No. 2111/De1l2013. This decision was challenged in appeal u/s 260A of the Act by the Revenue before the Hon'ble Delhi High Court. The Revenue's appeal was however dismissed by the Delhi High Court vide judgment dated 30.11.2014 in I TA Nos. 219 & 239/2014. On going through the said judgment. it was found that the Hon'ble Delhi High Court noted with approval findings of the Special Bench in the case of Maral Overseas Ltd Vs ACIT. After taking due note of the specific findings of the Special Bench of the ITAT the High Court further noted that the view adopted by the Special Bench of the ITAT was in consonance with the decision of the Co-ordinate Bench of the same High Court in the case of CIT Vs XLNC Fashions dated 01.09.2014 in ITA 438/2014. Copy of the said judgment dtd. 01.09.2014 was furnished from which it appeared that facts of the decided case were pari materia with the appellant's case. The following findings of the Delhi High Court are found relevant in deciding the present appeal. "The issue in question in this appeal which pertains to A. Y. 2009-10, relates to duty draw back in the form of DEPB. As per Section 28(iiic)) any duty of customs or excise repaid as draw back to a person against exports under Customs & Central Excise Duties Draw Back Rules, 1971 is deemed to be profits & gains of business. The said provision has to be given full effect and this means and implies that the duty draw back or duty benefits would be deemed to be part of the business income. Thus, will be treated as profit derived from business of the undertaking. This cannot be excluded. Even otherwise when we apply sub Section (4) to Section 10B the entire amount received by way of duty draw back could not become eligible for deduction/exemption. The amount quantified as per the formula would be eligible and qualified for deduction/exemption. The position is somewhat akin or close to Section 80HHC of the Act which also prescribes a formula for computation of deduction in respect of exports" 4.7 I also find that the identical view was expressed by the Karnataka High Court in its judgment dated 11.12.2013 in the case of CIT Vs Motorola India Electronics Pvt Ltd (46 Taxman.com 167) wherein the High Court held that for the purpose of Section 108 of the Income Tax Act profits of the business of the undertaking inter- alia included all incidental incomes derived from the business of the undertaking. 4.8 Applying the ratio laid down in these judgments to the facts of the present case. I find that 100% turnover of the EOU was derived from export of manufactured leather goods. In the Circumstances, export turnover and total turnover of the assessee's EOU was derived only from exports and therefore as per the formula prescribed in Section 108(4) 100% of the income assessed under the head "business" & which was derived from the undertaking was eligible for deduction under Section10B of the Act. The AO was therefore not justified in rejecting the assessee's claim for deduction u/s 10B of the I T Act with respect to duty draw back receipts of RS.3,97,78,960/- of the Act & which were assessed under the head "business" in terms of Section 28(iiic) of the Act. The AO is accordingly directed to allow the deduction u/s 10B of the Act by treating the income of RS.3,97,78,960/- being duty draw back as eligible for the purposes of allowing deduction u/s 10B 4.9 As regards interest subsidy of Rs.66,888/- I find that the said subsidy was received under the Subvention Scheme of the State Govt. In connection with carrying on export business the assessee had availed bank credit facilities on which interest was paid. As per the Subvention Scheme prescribed by the West Bengal Government the assessee was eligible to claim 2% of the interest paid as interest subsidy. In computing the business income the AO had allowed the deduction for

ITA No.61/K/16 & 1830-31/K/18 A.Y. 2011-12 DCIT, Cir-10(2), Kol. Vs. M/s Yamai Fashion Pvt. Ltd. Page 5 gross interest paid on working capital loan. In the circumstances, when the Government granted subsidy to reduce effective cost of borrowing; interest subsidy received was directly attributable to the business of export oriented undertaking and the subsidy could not be considered in isolation, This view IS supported by the judgment of the Gauhati High Court in the case of CIT Vs Meghalaya Steels Ltd dtd. 29.05,2013 in ITA 16/2011. I therefore find full force in the submission of the NR that the interest subsidy received under the subvention scheme was integral part of the profits of the Export Oriented Undertaking and therefore in terms of the formula prescribed in sub section (4) of Section 10B; interest subsidy qualified for claiming pro-rata deduction. However, since the export turnover and total turnover of the assessee's EOU was one and the same; the interest subsidy was eligible for 100% deduction u/s 10B of the I. T. Act The AO is accordingly directed to allow the deduction permissible u/s 10B with regard to interest subsidy as well. [Ground Nos. 1 to 3 are therefore allowed].” 3. Learned Departmental Representative vehemently contends during the course of hearing that the CIT(A) has erred in law as well as on facts in holding both this head of income to be qualifying the impugned deduction. We find no merit in Revenue’s either of the two arguments. This tribunal’s co- ordinate bench’s decision in M/s Hindustan Gum & Chemical Ltd. vs. DCIT ITA No.1410 & 1601/Kol/2016 decided on 14.02.2018 has rejected Revenue’s identical contentions as follows:- “6. Disallowance of other income while computing the deduction u/s 10B of the Act. Ground nos. 1 and 2 of revenue appeal The brief facts of this issue is that the assessee is having a 100% EOU at Viramgram. The assessee company claimed deduction u/s 10B of the Act to the tune of Rs. 6,25,86,299/-. The ld. AO had gone through the profit and loss account of the said EOU unit and observed that the income of the assessee includes a sum of Rs. 86,85,103/- representing other income as under: Heads Amount(Rs.) Rent 5,907/- Claims realized 4,99,626/- Suppliers Balance Written back 18/- Miscellaneous Income & Receipts 7,882/- Duty Drawback 81,71,670/- Total 86,85,103/-

The ld. AO observed that this other income cannot be construed as profit derived from the manufacture of eligible article from the eligible undertaking of the assessee and accordingly denied deduction u/s 10B to that extent. The Ld. CIT(A) granted relief to the assessee by placing reliance on the decision of this Tribunal in

ITA No.61/K/16 & 1830-31/K/18 A.Y. 2011-12 DCIT, Cir-10(2), Kol. Vs. M/s Yamai Fashion Pvt. Ltd. Page 6 assessee’s own case for assessment years 2003-04 to 2007-08. Aggrieved, the revenue is in appeal before us on the following grounds : 1. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in fact and in law in accepting assessee’s contention regarding applicability of exemption u/s 10B of the Act on incomes from other sources. 2. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in not relying the decision of the Apex Court in this regard. 6.1. We have heard the rival submissions. We find that the issue under dispute is squarely covered by this Tribunal in assessee’s own case in its favour for the assessment year 2008-09 in I.T.A. No. 462 & 752/Kol/2014 dated 08.03.2017 wherein it was held as under: 5. The first issue to be decided in this appeal is as to whether the ld CITA was justified in allowing exemption u/s 10B of the Act in respect of other income of the assessee to the tune of Rs. 18,20,101/- in the facts and circumstances of the case. 5.1. The brief facts of this issue is that the assessee is having a100% Export Oriented Unit (EOU) at Viramgam and had claimed exemption u/s 10B of the Act in respect of profits of the business of the said undertaking in the return. The said profits admittedly includes the following incomes which in the opinion of the ld AO was not derived from export of articles as per section 10B of the Act :- Rent from staff quarters 5,712 Insurance claims realized 36,390 Excess liabilities no longer required 8 Miscellaneous income & receipts (including Duty Drawback of Rs. 20,64,901) 20,69,044 Interest received (net) (-) 2,91,053 ------------------ 18,20,101 The ld AO held that the aforesaid incomes were not derived from the export of articles or things and accordingly denied the exemption u/s 10B of the Act on the same. In support of his contention, he placed reliance on various decisions. The ld CITA granted the exemption u/s 10B of the Act and gave relief to the assessee by following the co-ordinate bench decision of this tribunal in assessee’s own case for the Asst Years 2003-04 and 2004-05 vide order dated 28.12.2007 in ITA No.s 150 and 277 (Kol) of 2007 and ITA Nos. 5678 and 580/Kol/2009 respectively. Aggrieved, the revenue is in appeal before us on the following ground:- “1. That is the facts and in law of the case the Ld. CIT(A) erred in allowing the exempted income u/s. 10B for interest earned from other income in the form of interest, duty drawback etc. of Rs. 18,20,101/-." 5.2. The ld DR argued that Staff accommodation rent is not derived from export of articles or things as per section 10B of the Act. The income in the form of duty drawback is squarely covered in favour of the revenue by the decision of the Hon’ble Supreme Court in the case of Liberty India vs CIT reported in 317 ITR 218 (SC) wherein it was held that duty drawback receipts and DEPB benefits do not form part of the net profits eligible industrial undertakings for the purpose of deduction u/s 80IA / 80IB of the Act as they are not derived from the industrial undertaking. In respect of excess liabilities

ITA No.61/K/16 & 1830-31/K/18 A.Y. 2011-12 DCIT, Cir-10(2), Kol. Vs. M/s Yamai Fashion Pvt. Ltd. Page 7 written back, he argued that it is not known whether the liabilities were originally created in this 100% EOU or for other units as admittedly the assessee is having both taxable unit as well as exempt unit. In response to this, the ld AR argued that the provisions of section 10B(1) of the Act starts with ‘subject to the provisions of this section’. The provisions of section 10B(4) of the Act clearly specifies that the profit derived from the 100% EOU should be as follows:- Profits of the business of the undertaking * Export Turnover / Total Turnover Hence, the entire income of the 100% EOU shall be eligible for exemption u/s 10B of the Act. He further stated that the assessee maintains separate profit and loss account and balance sheet for the 100% EOU which is also part of the records. In respect of rent recovered from staff, the same only represents recovery of rent from staff quarters in respect of the quarters let out by the assessee on the rented premises. In other words, the assessee pays rent for the total premises including staff quarters and recovers the rent from staff for their quarters accommodation. Hence it is effectively recovery of expenditure and not any income for assessee. In respect of insurance claims received, the same was received for damages for goods pertaining to 100% EOU and hence is the income of the 100% EOU. In respect of duty drawback, the ld AO concedes the fact that the same belongs to the category of ancillary profits of the 100% EOU and having said so, that also would only add to the profits of the business of the undertaking and hence is eligible for exemption u/s 10B in terms of section 10B(4) of the Act. He further stated that the decision of Hon’ble Apex Court in Liberty India case supra and other decisions relied upon by the ld AO were all rendered in the context of deductions under sections 80HH / 80HHC / 80IA / 80IB etc and hence the same cannot be used for section 10B where the language of the statute is covered and exemption is to be reckoned as per computation mechanism provided in section 10B(4) of the Act. He placed reliance on the decision of the Hon’ble Calcutta High Court in assessee’s own case in ITA 666 of 2008 with GA No. 3269 of 2014 ITAT 159 of 2014 dated 30.6.2016 where the similar issue was held in favour of the assessee by following the provisions of section 10B(4) of the Act. He accordingly prayed for non-interference of the order of the ld CITA. 5.3. We have heard the rival submissions and perused the materials available on record. The details of other income to the tune of Rs 18,20,101/- as detailed hereinabove pertains to 100% EOU as could be evident from the segmental profit and loss account of 100% EOU furnished by the assessee before the lower authorities. Hence the entire other income becomes the profits of the business of the undertaking (i.e 100% EOU). Then automatically the assessee is entitled for deduction as per the computation mechanism provided in section 10B(4) of the Act. For the sake of convenience, the provisions of section 10B(1) and 10B(4) of the Act are reproduced hereunder:- “10B (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software,

ITA No.61/K/16 & 1830-31/K/18 A.Y. 2011-12 DCIT, Cir-10(2), Kol. Vs. M/s Yamai Fashion Pvt. Ltd. Page 8 as the case may be, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to the deduction referred to in this sub-section only for the unexpired period of aforesaid ten consecutive assessment years” “10B(4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking.” From the aforesaid section, it is very clear as rightly pointed out by the ld AR that section 10B(1) of the Act starts with the expression ‘subject to the provisions of this section’--------. The provisions of section 10B(4) of the Act which stipulates the computation mechanism clearly states that the entire profits of the business of the eligible undertaking should be taken into account for computing the amount eligible for section 10B of the Act. We also find that the Hon’ble Jurisdictional High Court in assessee’s own case vide its order dated 30.6.2016 supra had held this issue in favour of the assessee. The question raised before the court is as below:- “(a) Whether on the facts and circumstances of the case the Income Tax Appellate Tribunal erred in law in directing the Assessing Officer to treat the interest income of Rs.28,74,473/- as part of the profits of business of the 100% E. O. U. eligible for deduction under Section 10B of the Income Tax Act, 1961 and compute deduction accordingly without appreciating the fact that the said interest income was not profit from the business but accrued on fixed deposit kept by the assessee in bank?” “A bare reading of sub-section (1) suggests that 100 % export oriented undertakings are entitled to a deduction of profits and gains derived from the export of articles for a period of 10 years. The aforesaid entitlement is, however, subject to the provisions of Section 10B. In other words, subject to the provisions contained in the other parts of the Section 10B, the benefit is available to an assessee. It was not disputed that the only relevant provision to be taken into account is subsection (4) which we already have quoted. Sub-section (4) provides the quantum of deduction which can be availed by an assessee. The quantum of deduction is dependent upon the total turnover of the business of the undertaking and the export turnover of the undertaking. Once these two figures are available, one has to divide the total turnover by the export turnover in order to work out the percentage of the export turn over, vis-à-vis the total turn over. Suppose total turn over is Rs. 100/- and total export turn over is for Rs 10/-, then the export turn over is 10 % of the total

ITA No.61/K/16 & 1830-31/K/18 A.Y. 2011-12 DCIT, Cir-10(2), Kol. Vs. M/s Yamai Fashion Pvt. Ltd. Page 9 turnover. Then one has to find out the total profit of the business of the undertaking. Suppose the total profit of the business of the undertaking is Rs. 100, in that case, deduction available to the assessee under Section 10 sub-section (1) of Section 10B shall be 10% of Rs. 100, i.e. to say Rs. 10/-. This is the formula which has been provided by subsection (4) for the purpose of working out the benefit or deduction under subsection (1). Total turnover shall naturally include receipt on account of 5 interest. The legislature does not appear to have provided for excluding the amount of interest from the total turn over as has been done in the case of 80HHC by explanation (baa) of sub-section (4C) thereof. In that case, 90% of the income arising out of interest has to be excluded from the profits of the business for the purpose of arriving at deduction available under Section 80HHC. But an identical provision is not there. Therefore, that provision cannot be imported by implication. The submission that the amount earned from interest was not intended to be taken into account for the purpose of giving benefit under subsection (1) of Section 10B may be correct. But the amount of deduction available to a 100% export oriented undertaking is necessarily dependent upon the formula provided in subsection (4). There is, as such, no scope for any controversy that part of the money was earned from interest and not from export. This question came up before the Karnataka High Court and was answered in the case of CIT vs. Motorola India Electronics (P.) Ltd. reported in [2014] 46 Taxmann.com 167 (Karnataka) as follows : “In the instant case, the assessee is a 100% EOU, which has exported software and earned the income. A portion of that income is included in EEFC account. Yet another portion of the amount is invested within the country by way of fixed deposits, another portion of the amount is invested by way of loan to sister concern which is deriving interest or the consideration received from sale of the import entitlement, which is permissible in law. Now the question is whether the interest 6 received and the consideration received by sale of import entitlement is to be construed as income of the business of the undertaking. There is a direct nexus between this income and the income of the business of the undertaking. Though it does not partake the character of a profits and gains from the sale of an article, it is the income which is derived from the consideration realized by export of articles. In view of the definition of income from Profits and Gains incorporated in Subsection (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated under Section 10B of the Act. Therefore, the Tribunal was justified in extending the benefit to the aforesaid amounts also. We do not find any merit in these appeals. Therefore, the first substantial question of law raised in ITA No. 428/2007 is answered in favour of the revenue and against the assessee and the first substantial question of law in ITA No. 447/2007 is answered in favour of the assessee and against the revenue. In the light of the aforesaid findings, the second question of law in both the appeals do not arise for consideration.”

ITA No.61/K/16 & 1830-31/K/18 A.Y. 2011-12 DCIT, Cir-10(2), Kol. Vs. M/s Yamai Fashion Pvt. Ltd. Page 10 Mr. Dudhoria, learned Advocate appearing for the revenue drew our attention to a judgment of the Madras High Court in the case of International 7 Components India Ltd. vs. Assistant Commissioner of Income Tax reported in 2015 - (372) – ITR- 0190 - Madras wherein the following view was taken : “In the light of the above said decision, we are of the firm view that the interest earned from deposits with Corporation Bank, Electricity Board and on staff advances does not have direct or immediate nexus with the business of the assessee’s undertaking and, consequently, they are not eligible for grant of deduction under Section 10B of the Act, which is akin to Section 80HH of the Act dealt with in the decision referred supra.” Mr. R.N.Bajoria, Learned senior advocate rightly pointed out that the judgment of the Madras High Court is of no relevance for the simple reason that sub-section (4) of Section 10B was not taken into account by the Hon’ble Madras High Court. Therefore, this judgment is of no assistance in deciding the issue. The learned Tribunal has passed the following order: “There is no requirement for the purposes of section 10B to establish direct nexus between the income and the undertaking. The entire business income of the 100% EOU will be the “profits of the business of the undertaking”. It has been held above that the interest earned on temporarily surplus business funds of the 100% EOU deposited with banks for short periods is business income and has in fact been so assessed. It is not in dispute that the surplus funds were of the 100% EOU. As such, the interest earned thereon has to be regarded as part of the “profit of the business of the undertaking”. We 8 further find that the Tribunal in the case of Cheviot Co. Ltd. for assessment years 2003-04 and 2004-05, relied upon by the assessee, has dealt with similar issue. In those cases, the difference between the provisions of sections 10B and 80HH was noted and after considering the judgments of the Hon’ble Supreme Court in Sterling Foods (supra) and in P.R.Prabhakar versus CIT (284 ITR 548 (SC) ) approving the Special Bench decision of the Tribunal in International Research Park Laboratories Limited versus Assistant C.I.T. (212 ITR (AT) 1 (SB) ), it was held that the profits of the business of the undertaking would include its entire business income. Keeping in view the above decision and the decision of the Tribunal, we are of the considered opinion that the assessee has to succeed. The Assessing Officer is directed to treat the interest of Rs. 28,74,473/- as part of the profits of the business of the 100% EOU eligible for deduction under section 10B and compute the deduction accordingly. The Assessing Officer should deduct the sum of Rs. 8,01,30,294/- (Rs. 7,72,54,821/- + Rs. 28,74,473/-) and not only Rs. 7,72,54,821/- from the profit as per profit and loss account for the purpose of separate consideration under section 10B Ground Nos. 3,4 and 5 of the assessee’s appeal are thus allowed.” We are of the opinion that the Tribunal was right in the view they took for the reasons discussed by us. In that view of the matter, the question

ITA No.61/K/16 & 1830-31/K/18 A.Y. 2011-12 DCIT, Cir-10(2), Kol. Vs. M/s Yamai Fashion Pvt. Ltd. Page 11 no. 1 is 9 answered in the negative and in favour of the assessee. The appeal is, therefore, dismissed.” 5.3.1. We also agree with the argument of the ld AR that the decisions relied upon by the ld AO and ld DR were rendered in the context of deductions u/s 80HH / 80HHC / 80IA / 80IB of the Act and the words used thereon cannot be imported into section 10B of the Act when the language stipulated in section 10B (4) of the Act is very categorical and unambiguous. 5.3.2. In view of our aforesaid findings and respectfully following the decision of the Hon’ble Jurisdictional High Court in assessee’s own case supra, we do not find any infirmity in the order of the ld CITA in this regard. Accordingly, we dismiss the Ground No. 1 raised by the revenue.” Respectfully following the same the ground nos. 1 and 2 raised by the revenue are dismissed.”

We further find that hon'ble apex court’s recent decision in CIT vs. Meghalaya Steels Ltd (2016) 383 ITR 217 (SC) has settled the law about the similar kind of interest subsidy reducing revenue expenditure as eligible for sec. 80I deduction. Be that as it may, learned co-ordinate bench has declined Revenue’s similar arguments in preceding paragraph. We therefore adopt the said reasoning mutatis mutandis affirm the CIT(A)’s findings under challenge. The Revenue’s appeal ITA No. 61/Kol/2016 fails accordingly.

ITA No.61/K/16 & 1830-31/K/18 A.Y. 2011-12 DCIT, Cir-10(2), Kol. Vs. M/s Yamai Fashion Pvt. Ltd. Page 12 Revenue’s latter these two appeals are dismissed as involving lower than the prescribed tax effect of ₹20 lac therefore.