M/S. PARAMOUNT PHARMA,NEW DELHI vs. ITO, NEW DELHI

ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 22/04/2014 of learned Commissioner of Income-tax( Appeals)-XXIV, New Delhi (in short ‘the CIT-A’) for assessment year 2010-11 raising following grounds: “

2. That the Assessee was under the bona fide belief that interest on F.D.R was also eligible for deduction U/s 801B.

3. That the Ld. Assessing Officer had not considered the TDS on interest on FDR and drafted the notice of demand accordingly.

4. That there need not necessary be direct nexus between the activity of the undertaking and profit and gains assertion 80IC of the Income Tax Act requires that the profit and should be derived from any business of the undertaking. We rely upon the following court judgments: • CIT V Koshika Telecom Ltd 287 ITR 479 (DELHI) • CIT V Eastern Tar P Ltd 301 ITR 427(JHARKHAND) • DCIT V Sudhir Genset Ltd 17 DTR 496 (DELHI)

5. That the assessee craves leave to add/alter any of the grounds of appeal before or at the time of hearing.”

2. The facts in brief of the case are that that the assessee, a partnership firm, was engaged in business of manufacturing basic drugs at Khatua (Jammu and Kashmir) during relevant period. During scrutiny proceedings, the Assessing Officer noted that the assessee had credited interest of Rs.3,70,768/- received from fixed deposit in banks and Rs.10,800/- received as freight and cartage as other incomes in the profit and loss account and claimed deduction under section 80IB of the Act on said amounts treating the same as business income. However, according to the Assessing Officer said interest income was not derived from the undertaking engaged in the specified business in terms of section 80IB of the Act and therefore rejecting the claim of the assessee to treat the said interest income as business income, he treated the interest income earned on fixed deposit as “income from other sources” and disallowed the claim of deduction under section 80IB of the Act on the said interest income. The Ld. CIT-A also upheld the finding of the Assessing Officer. Aggrieved, the assessee in appeal before the Tribunal raising the grounds as reproduced above.

3. In the grounds raised, the only grievance of the assessee is in respect of not allowing deduction under section 80IB of the Act on interest income received from fixed deposit made with the banks.

4. Before us, the Ld. counsel filed the paper book containing pages 1 to 93 and, submitted that the assessee availed cash credit facility from the Punjab National Bank, New Delhi and imported raw material on the strength of ‘Foreign Letter of Credit’ , which required fixed deposit as margin money. Being one of the conditions of keeping margin money with the bank, the fixed deposits were made with the bank and thus the interest earned on those fixed deposit was part of business income of the eligible business. In this reference, he brought our attention to page No. 14 -19 of the paper book, which is a bank loan sanction letter issued by the Punjab National Bank, New Delhi. He further submitted that alternatively netting off of the interest paid to bank should be allowed against the interest income earned. In support of the contention, decision of the Tribunal in the case of M/s Classy Kontainers Vs. ITO in & 4814/MUM/2012 and Mahendra R. Patel Vs. ITO in ITA Nos. 410/AHD/2012.

80-IB.(4) The amount of deduction in the case of an industrial undertaking in an industrially backward State specified in the Eighth Schedule shall be hundred per cent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from such industrial undertaking: Provided that the total period of deduction does not exceed ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) subject to fulfilment of the condition that it begins to manufacture or produce articles or things or to operate its cold storage plant or plants during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2004: Provided furtherthat in the case of such industries in the North- Eastern Region, as may be notified by the Central Government, the amount of deduction shall be hundred per cent of profits and gains for a period of ten assessment years, and the total period of deduction shall in such a case not exceed ten assessment years: Provided also that no deduction under this sub-section shall be allowed for the assessment year beginning on the 1st day of April, 2004 or any subsequent year to any undertaking or enterprise referred to in sub-section (2) of section 80-IC: Provided also that in the case of an industrial undertaking in the State of Jammu and Kashmir, the provisions of the first proviso shall have effect as if for the figures, letters and words 31st day of March, 2004", the figures, letters and words "31st day of March, 2012" had been substituted : Provided also that no deduction under this sub-section shall be allowed to an industrial undertaking in the State of Jammu and Kashmir which is engaged in the manufacture or production of any article or thing specified in Part C of the Thirteenth Schedule.

The decision is pronounced in the open court on 13th April, 2017.