DCIT, CIRCLE-12(1), KOLKATA, KOLKATA vs. M/S HINDUSTHAN GUM & CHEMICALS LTD., KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : KOLKATA [Before Hon’ble Shri M.Balaganesh, AM & Shri S.S.Viswanethra Ravi, JM] I.T.A No. 1410/Kol/2016 Assessment Year : 2010-11 Hindustan Gum & Chemicals Ltd. -vs- DCIT, Circle-12(1), Kolkata [PAN: AAACH 7214 E] (Appellant) (Respondent) I.T.A No. 1601 /Kol/2016 Assessment Year : 2010-11 DCIT, Circle-12(1), Kolkata -vs- Hindustan Gum & Chemicals Ltd. [PAN: AAACH 7214 E] (Appellant) (Respondent) For the Appellant : Shri J.P. Khaitan, Sr. Advocate Shri Vinod Sharma, CA For the Respondent : Shri Sallong Yaden, Addl. CIT

Date of Hearing : 06.02.2018 Date of Pronouncement : 14.02.2018

ORDER Per M.Balaganesh, AM

2 ITA Nos.1410&1601/Kol/2016 Hindustan Gum & Chemicals Ltd. A.Yr. 2010-11 2. Disallowance u/s 14A read with Rule 8D of the Rules: Ground No.1 of assessment year 2010-11 Ground No. 3 of assessment year 2010-11 The brief facts of this issue is that the assessee engaged in the business of manufacturing/trading guar gum etc. and wind power generation. The assessee is having 100% export oriented unit at Viramgram. The assessee received dividend income of Rs. 76,14,772/- and claimed the same as exempt in the return of income. The ld. AO sought to invoke the provision of 14A read with Rule 8D of the Rules and show caused the assessee in this regard. In response to this, the assessee replied vide letter dated 28.02.2014 as under: “It is engaged in the business of manufacture and sale of Guar Gum, Powder Gum, Guar (Split etc. All expenses incurred were in relation to its business only. The shares on which Dividend was received were purchased out of its own fund and no funds were borrowed on interest. Further, it was also submitted that the dividend in respect of units of mutual funds in most of the cases has been reinvested in the respective schemes without being actually received by the assessee. The dividend warrants received from companies/ mutual funds are required to be deposited in the assessee's bank account for which practically no expenditure was incurred. Your kind attention is also draw to column 17(c) of our Tax Audit Report dated 08.09.2010, wherein the auditor has qualified the following: . "We have examined the records/details with a view to ascertain whether there exist any item of direct expenditure which is inadmissible u/s. 14A of the IT Act, 1961. For this purpose we have formed substantial checks. Such substantial checks did not reveal any specific expenditure which is inadmissible u/s. 14A. As informed to us the company has given standing instructions to BNP Paribas Bank to invest the surplus fund in debt schemes of Mutual Fund and there is no day to day involvement of the company in managing the fund. Further the company has not paid any fee/charges to BNP Paribas. Further expenditure incurred by 100% EOU unit, has been deducted for computing exempted income u/s. 10B, hence not given here." Further, it would be seen from Schedule 5 to the assessee's accounts (internal page 17 of the accounts) that no fresh investment was made in any shares during the relevant previous year. The aggregate amount which stood invested in shares was Rs.43,80,732/- both as on March 31, 2009 and as on March 31, 2010. Even as on March 31, 2004 to March 31, 2008, the aggregate amount which stood invested in

3 ITA Nos.1410&1601/Kol/2016 Hindustan Gum & Chemicals Ltd. A.Yr. 2010-11 shares was Rs.43,80, 732/-. Therefore, it is evident that the shares were acquired by the assessee a long time ago out of its own funds without resorting to any borrowings. The current investment as on March 31, 2009 was Rs. 705.16 lacs invested in units of Debt schemes of Mutual Funds. During the previous year ended March 31, 2010, the assessee sold the units of Debt schemes of Mutual Funds held by it as on 31.03.2009. Besides, during the year under reference, the company purchased and sold units of Debt schemes of various mutual fund. In respect of such Debt schemes of Mutual Funds, only the dividend was exempt because of payment of dividend distribution tax by the Mutual Funds but in any case, tax was payable on the gain, if any, made upon disposal/redemption of the units. As confirmed by the Tax Auditor also, investments in units of mutual funds were entrusted by the assessee to BNP Paribas Bank which did not charge any fee for such wealth management service. The dividend of Rs. 76,14,772/- received by the assessee during the relevant previous year comprised of Rs. 18,90,100/- in respect of its shareholding in Birla Corporation Limited, Rs. 100/- in respect of shares held in Universal Cables Ltd. and the remaining amount of Rs. 57,24,672/- was in respect of units of Debt schemes of Mutual Funds and therefore the only activity of the company was to deposit 3 dividend warrants in its bank account during the entire year. On basis of above submission you will find that almost the entire expenses incurred by the assessee are in connection with its business of manufacturing and trading in Guar Gum products. Only the surplus business funds of the assessee are invested in safe and liquid investments. BNP Paribas looks after the investments and provides the wealth management service without any charge whatsoever. The assessee's share investments are non-moving. Accordingly it is submitted that the company did not incur any expenditure to earn Dividend income.”

The ld. AO did not accept the explanations given by the assessee and resorted to make disallowance under second and third limb of Rule 8D(2) and worked out the disallowance figure of Rs. 4,41,712/-. The Ld. CIT(A) appreciating the strong evidences of the assessee held that it had sufficient own funds to make investments in shares and debt funds of mutual funds and deleted the disallowance made under second limb of Rule 8D(2). However, he upheld the disallowance made under third limb of Rule 8D(2) of the Rules. Aggrieved both the assessee as well as revenue are in appeal before us on the following grounds: I.T.A. No. 1410/Kol/2016 Assessment year 2010-11 1. That on the facts and circumstances of the case, the learned CIT(Appeals) erred in not holding that no expenses have been incurred to earn dividend 3

4 ITA Nos.1410&1601/Kol/2016 Hindustan Gum & Chemicals Ltd. A.Yr. 2010-11 income rather erred in confirming the disallowance made u/s 14A read with Rule 8D(2)(iii).

I.T.A. No. 1601/Kol/2016 Assessment year 2010-11

2.1. We have heard the rival submissions. We find that the assessee had derived dividend income in the following manner: Birla Corporation Ltd. Shares Rs. 18,90,100/- Mutual Debt Schemes Rs. 57,24,672/- Total Rs. 76,14,772/- The assessee had sold the entire mutual funds debt schemes amounting to Rs. 705.16 lacs. during the year under appeal. The assessee had sufficient own funds which is quite evident from the perusal of the balance sheet and accordingly it could be safely concluded that all the investments were made only out of own funds of the assessee by placing reliance on the following decisions of various High Courts: i) Hon’ble Bombay High Court in the case of Reliance Power Utilities and Power Ltd. reported in 313 ITR 340 (Bom); ii) HDFC Bank reported in 366 ITR 505 (Bom);

We find that own funds available in the form of capital and reserves and surplus were Rs. 15769.49 lacs and whereas the investments in mutual funds were only Rs. 43.81 lacs as on 31.03.2010. The net profit earned during the year and available for appropriation was Rs. 1736.90 lacs. These facts clearly prove that the investments were made only out of own funds. Accordingly, we hold that the Ld. CIT(A) rightly deleted the disallowance made under second limb of Rule 8D(2) of the Rules. With regard to the disallowance made under third limb of rule 8D(2), we hold that only dividend bearing investments in shares and mutual fund debt schemes should be considered by the ld. AO 4

5 ITA Nos.1410&1601/Kol/2016 Hindustan Gum & Chemicals Ltd. A.Yr. 2010-11 for working out the disallowance at 0.5% of average value of investment. This finding is in consonance with the decision rendered by this Tribunal in REI Agro Ltd. reported in 144 ITD 141. Accordingly, ground no.1 raised by the assessee is partly allowed and ground no. 4 raised by the revenue is dismissed.

I.T.A. No. 1410/Kol/2016- Assessment year 2010-11

3.1. We have heard the rival submissions. We find that though the Hon’ble Calcutta High Court in the case of Exide Industries Ltd vs Union of India reported in 292 ITR 470 (Cal) had struck down the provisions of section 43B(f) of the Act as unconstitutional. The revenue had carried the matter further to the Hon’ble Supreme Court which initially in Special Leave to Appeal (Civil) CC 12060 / 2008 dated 8.9.2008 had held as under:-

“The petition was called on for hearing today. Upon hearing counsel the court made the following Order. Issue Notice. In the meantime, there shall be stay of the impugned judgement, until further orders.” 5

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Later the Hon’ble Supreme Court in Special Leave to Appeal (Civil) No(s). CC 22889 / 2008 dated 8.5.2009 had held as under:-

“The petition was called on for hearing today. Upon hearing counsel the court made the following Order Delay condoned. Leave granted. Pending hearing and final disposal of the Civil appeal, Department is restrained from recovering penalty and interest which has accrued till date. It is made clear that as far as the outstanding interest demand as of date is concerned, it would be open to the department to recover that amount in case Civil Appeal of the department is allowed.

We further make it clear that the assessee would, during the pendency of this Civil Appeal , pay tax as if Section 43B(f) is on the statute book but at the same time it would be entitled to make a claim in its returns.”

Hence from the aforesaid Supreme Court judgement, it could be inferred that the Hon’ble Supreme Court had not stayed the judgement of the Hon’ble Calcutta High Court during Leave proceedings. But the Hon’ble Supreme Court had only passed an interim order on the impugned issue. Hence we deem it fit and appropriate , in the interest of justice and fair play, to remand this issue to the file of the ld AO to pass orders based on the outcome of the main appeal on merits by the Hon’ble Supreme Court as stated supra. Accordingly, the Ground No. 2 of assessee appeal for Asst Year 2010-11 is allowed for statistical purposes.

7 ITA Nos.1410&1601/Kol/2016 Hindustan Gum & Chemicals Ltd. A.Yr. 2010-11 year 2009-10, the assessee claimed deduction towards the same in the return of income filed for assessment year 2010-11 in order to avoid double taxation. This was not granted by the ld. AO.

4.1. The Ld. CIT(A) dismissed the plea of the assessee by observing as under: “In this ground the assessee has claimed that the mark-to-market loss pertaining to A.Y.2009-10 and reserved in the assessee’s books during the current year be allowed to be deducted since in the assessment order for A.Y. 2009-10, the loss was disallowed. I however find that my predecessor in his appellate order for A.Y. 2009-10 allowed the assessee’s claim for deduction of MTM loss amounting to Rs. 2,12,48,372/-. As such on reversal of the said loss, no deduction is permissible to the appellant in A.Y. 2010-11. For these reasons therefore, ground no. 8 is dismissed.”

4.2. Aggrieved the assessee is in appeal before us on the following grounds: 3. That on the facts and circumstances of the case the learned DCIT be directed to exclude a sum of Rs. 2,12,48,372/- being provision for mark to market loss pertaining to Assessment year 2009-10 reversed during the year in case the dept’s appeal on the issue is allowed in their favour and deduction for provision made is withdrawn.

8 ITA Nos.1410&1601/Kol/2016 Hindustan Gum & Chemicals Ltd. A.Yr. 2010-11

9 ITA Nos.1410&1601/Kol/2016 Hindustan Gum & Chemicals Ltd. A.Yr. 2010-11

Accordingly, we find that the assessee would be given double deduction if relief is granted in assessment year 2010-11 for the very same provision of Rs. 2,12,48,372/-, Hence, we hold that the Ld. CIT(A) had rightly dismissed the plea of the assessee. Accordingly, ground no.3 raised by the assessee is dismissed.

10 ITA Nos.1410&1601/Kol/2016 Hindustan Gum & Chemicals Ltd. A.Yr. 2010-11 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 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 10

11 ITA Nos.1410&1601/Kol/2016 Hindustan Gum & Chemicals Ltd. A.Yr. 2010-11 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 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 11

12 ITA Nos.1410&1601/Kol/2016 Hindustan Gum & Chemicals Ltd. A.Yr. 2010-11 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, 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:- 12

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“(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 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 13

14 ITA Nos.1410&1601/Kol/2016 Hindustan Gum & Chemicals Ltd. A.Yr. 2010-11 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.” 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 no. 1 is 9 answered in the negative and in favour of the assessee. The appeal is, therefore, dismissed.” 14

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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.

16 ITA Nos.1410&1601/Kol/2016 Hindustan Gum & Chemicals Ltd. A.Yr. 2010-11 assessee at the rates prescribed for plant and machinery. With these observations, he disallowed the remaining portion of unclaimed additional depreciation pertaining to assessment year 2009-10 (i.e. balance 10%) in the assessment and granted only regular depreciation. The ld CITA granted relief to the assessee and directed the ld AO to allow the remaining portion of additional depreciation of Rs 21,71,119/- in the year under appeal.

7.1. Aggrieved the revenue is in appeal before us on the following grounds:

7.2. We have heard the rival submissions. We find that this issue is covered by this order of this Tribunal in assessee’s own case for assessment year 2008-09 in I.T.A. No. 462 and 752/Kol/2014 dated 08.03.2017 wherein it was held that: 6.3. We have heard the rival submissions. We find that the issue under dispute is squarely covered by the decision of the co-ordinate bench of this tribunal supra wherein it was held as under :- “4. Ground no. 1 relating to depreciation on plant and machinery which were put to use less than 180 days during the said financial year. During the previous assessment year (2006-07) the assessee claimed 50% of depreciation and it was allowed. Now for the year under consideration, the assessee claimed further 10% depreciation to the extent of Rs.20,97,495/- under second proviso to Sec. 32(1)(iia) of the Act. The AO denied the same on the ground that the Act does not have option where assessee can claim remaining depreciation in subsequent year. The CIT(A) confirmed the order of the AO, however, directed the AO to recalculate the amount of depreciation on written down value (WDV). 5.The Ld AR before us submits that the case in hand is squarely covered by the decision of the Hon’ble Karnataka High Court in the case of CIT & Anr Vs. Rittal India Pvt. Ltd reported in (2016) 380 ITR 423(Karn). 6.The Ld. Sr. DR relied on the orders of the authorities’ below. 7. Heard both the parties and perused the relevant material on record. In this regard, we may refer to the decision of the Hon’ble High Court of Karnataka in the case of CIT and another vs Rittal India Private Ltd (supra). The facts of the case therein are that the assessee being an existing industrial undertaking had acquired and installed new plant and machinery in the F.Y 2006-07 and claimed 50% of additional 20% depreciation i.e, 10% additional depreciation under section 32(1)(iia) of the Act in the corresponding assessment year 2007-08 for the reason that the new machinery was acquired after 01-10-2006. The relevant portions at page no’s at 9 and 10 of which is reproduced herein below for better understanding:- 16

17 ITA Nos.1410&1601/Kol/2016 Hindustan Gum & Chemicals Ltd. A.Yr. 2010-11

“The language used in clause (iia) of the said section clearly provides that “a further sum equal to 20 per cent. of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii)". The word "shall" used in the said clause is very significant. The benefit which is to be granted is 20 per cent. additional depreciation. By virtue of the proviso referred to above, only 10 per cent. can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year. This would necessarily mean that the balance 10 per cent. additional deduction can be availed of in the subsequent assessment year, otherwise the very purpose of insertion of clause (iia) would be defeated because it provides for 20 per cent. deduction which shall be allowed. It has been consistently held by this court, as well as the apex court, that the beneficial legislation, as in the present case, should be given liberal interpretation so as to benefit the assessee. In this case, the intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one assessment year, if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent assessment year. The Tribunal, in our view, has rightly held, that additional depreciation allowed under section 32(1)(iia) of the Act is a one-time benefit to encourage industrialisation, and the provisions related it have to be construed reasonably, liberally and purposively, to make the provision meaningful while granting the additional allowance. We are in full agreement with such observations made by the Tribunal.” 8. Heard both parties and perused the relevant material on record. By reading of Clause (iia) to sub-section (1) of section 32 provides for allowance of initial depreciation equal to 20% of the actual cost of new plant and machinery acquired and installed after March 31, 2005 with effect from the assessment year 2006-07 to those who engaged in the business of manufacture or production of any article or thing. Therefore, the assessee is entitled to claim 20% of depreciation equal to the actual cost of plant and machinery, but, where as the 2nd proviso to section 32(1) of the Act restrains the authority to allow depreciation to 50% of such 20% if the subjected plant and machinery acquired during the previous year and is put to use for a period of less than 180 days in that previous year. According to AO in his order at page no-4 referred that the assessee put to use new plant and machinery for less than 180 days and confirmed by the CIT-A in para-8 of impugned order and it is a requirement under 2nd proviso to section 32(1) which lifts the restriction on AO allow the further depreciation of 10% of which remained unclaimed out of 20% as referred in Clause (iia) to sub-section (1) of section 32 of the Act. The facts of the present are similar to the decision supra relied on by the assessee. Therefore, we are of the view that the law laid down by the Hon’ble High Court of Karnataka in the case of CIT and another vs Rittal India Private Ltd supra is applicable to the present case, thus we hold that the assessee is entitled to claim remaining 50% depreciation of such 20% which is equal to the actual cost of new plant and machinery, accordingly ground no-1 raised by the assessee is allowed.”

Respectfully following the same, we dismiss Ground No. 2 raised by the revenue.

Respectfully following the same ground no. 3 raised by the revenue is dismissed.

18 ITA Nos.1410&1601/Kol/2016 Hindustan Gum & Chemicals Ltd. A.Yr. 2010-11 8. Disallowance of provision for mark to market loss – Rs. 38,29,247/- Ground no. 5 of revenue appeal The brief facts of this issue is that the assessee made a provision for mark to market loss of Rs. 38,29,347/- on restatement of forward exchange contracts and the same was disallowed by the assessee in the return of income while computing the business income. Later in the course of assessment, the assessee vide letter dated 28.02.2014, requested to allow the deduction for such loss in view of the fact that similar claim was allowed by the Ld. CIT(A) while deciding the assessee’s appeal for assessment year 2009-10. The ld. AO however did not deal with the said submission of the assessee and proceeded to assess the total income with reference to the business income as returned by the assessee. Accordingly, the assessee preferred an appeal on this ground before the Ld. CIT(A). The Ld. CIT(A) by placing reliance on the decision of Hon’ble Apex Court in the case of CIT vs. Woodward Governor India Pvt. Ltd. reported in 312 ITR 154 (SC) and ONGC vs. CIT reported in 323 ITR 180 (SC) granted relief to the assessee by observing as under: “8.2. I have carefully considered the submissions of the AR and have perused the details of such loss. The issue with regard to allowability of mark-to-market loss arising out of re-statement of foreign exchange liabilities has been decided by the Apex Court in the case of CIT vs. Woodward Governor India (P) Ltd. (312 ITR 154) and O.N.G.C Vs. CIT (322 ITR 180). In these decisions the Apex Court has held that the loss incurred on restatement of foreign currency liabilities in conformity with exchange rate prevailing on the balance sheet date is not a contingent liability but defined and ascertained liability and therefore the loss incurred on restatement is liable to be allowed in the case of an assessee who follows mercantile system of accounting. Further such loss is allowable if the underlying asset or underlying liability is incurred on trading account. In the appellant’s case, it had entered into foreign exchange forward contracts for hedging exchange fluctuation risks in respect of export orders. As such the underlying transaction in relation to forward contract entered into by the assessee was trading transaction and therefore any loss connected with such trading transaction and was in the revenue field and therefore to be allowed in view of the ratio laid down by the Hon'ble Supreme Court in the case of CIT vs. Woodward Governor India (P) Ltd. (supra) and O.N.G.C. vs. CIT(Supra). In fact this view finds support in the appellate order passed by my predecessor for A.Ys. 2008-09 and 2009-10 respectively. Following these appellate orders, the AO is directed to allow the deduction for mark-to-market loss of Rs. 38,29,347/-. Ground no. 7 is allowed.”

19 ITA Nos.1410&1601/Kol/2016 Hindustan Gum & Chemicals Ltd. A.Yr. 2010-11 8.1. Aggrieved the revenue is in appeal before us on the following grounds: 4. That on the facts and in the circumstances of the case Ld. CIT(A) erred in allowing the claim of mark-to-market loses.

8.2. We have heard the rival submissions. We find that on perusal of the fact that the issue has already been decided in favour of the assessee by the decision of this tribunal in assessee’s own case for assessment year 2009-10 in I.T.A Nos. 1798 & 2161/kol/2014 dated 25.10.2017. The relevant portion has already been reproduced elsewhere in this order. The same are not reproduced here for the sake of brevity. Accordingly, ground no. 5 raised by revenue is dismissed.

Sd/- Sd/- [S.S. Viswanethra Ravi] [ M.Balaganesh ] Judicial Member Accountant Member

Dated : 14.02.2018 SB, Sr. PS

Copy of the order forwarded to: 1. Hindustan Gum & Chemicals Ltd., Birla Building, 4th Floor, 9/1, R.N. Mukherjee Road, Kolkata-700001. 2. DCIT, Circle-12(1), Kolkata, Aayakar Bhawan, 7th Floor, P-7, Chowringhee Square, Kolkata-700069. 3..C.I.T.- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.