In the Office of the Commissioner of Income Tax (Appeals)-XXXII, Mumbai Date of Order: 28/04/2008 Appeal No. CIT(A)XXXII/IT-208/06-07   1 Date of Institution of Appeal : 18.12.2006 2 Name & Designation of the Officer who made the order : Shri Mudit Nagpal, Dy.C.I.T.Circle-3(3), Mumbai 3 Assessment year : 2004-05 4 Name of the Appellant : M/s Vijay Silk House (Surat) Ltd, 7/23 Grants Building, Arthur Bunder Road, Colaba, Mumbai-400 005 5 PAN : AAACV3544P 6 Income/Wealth assessed : Rs. 82,61,050/- 7 Income Tax/Super Tax/Penalty/Fine demanded : Rs. 2,00,026/- 8 Section under which order appealed against was passed : U/s. 143(3) of the Income Tax Act, 1961 1 Date of hearing : 17/04/2008 2 Present for Appellant : Shri Ishwar Rathi, C.A. 3 Present for Department : None    APPEALLATE ORDER AND GROUNDS OF DECISION This appeal has been filed against the order dated 08/11/2006 passed u/s. 143(3) by the Dy. C.I.T., Circle -3(3), Mumbai. Following grounds of appeal have been raised: 1 That the learned Dy. Commissioner of Income Tax has erred in reducing the deduction u/s 80HHC of the Income Tax Act to Rs. 27,43,932/- as against a claim of Rs. 33,01,494/-. 2 On the facts and in the circumstances of the case and in law, the learned Dy.CIT has erred in reducing 90% the gross interest receipts of Rs. 9,28,446/- ( as against Rs. NIL) while calculating the profits of the business under explanation "baa" under section 80HHC, though the same was assessed as business income and the payment of interest was more than the interest receipts, further there was a clear nexus between such interest receipts and the interest payments. 3 That the learned Dy.CIT has erred in excluding Rs. 92,45,402/- from the eligible export turnover of the appellant while calculating the deduction u/s 80-HHC, due to non receipts of foreign currency within stipulated time, despite the fact that the appellant has realized all such proceeds and the application to the competent authority made for post facto approval was pending. 2. Ground No. 1: 2.1 This ground of appeal is general in nature and relates to issues which are specifically covered by other grounds of appeal. Hence, this ground does not require any adjudication. 3 Ground No. 2: 3.1 The appellant has argued that the AO has reduced 90% of gross amount of interest receipt in view of clause (baa) to explanation below section 80HHC, whereas as per facts of the case the net interest should have been considered for the same. The appellant has given following detailed submissions. "As per the facts of the case the appellant has maintained bank deposits to obtain bank loan facilities and used the same as collateral security for bank facilities for the purpose of the export business. The gross interest earned thereon was Rs. 7,63,245/- at the same time they had paid interest on borrowed funds and the same was more than the amount of interest received. As no amount of interest was credited to the profit and loss account nothing was required to reduced under explanation "baa" while calculating the deduction u/s 80HHC. These bank deposits were maintained for the purpose of the business and also the funds were borrowed for the purpose of the business both has the direct nexus with each other and hence the netting of the interest should be allowed as has been held by the Honorable Special Bench of the Delhi Tribunal in the case of M/s Lalsons Enterprises." 3.1 It is thus pleaded that the Hon’ble Delhi Tribunal in the case of Lalsons Enterprises have held that net interest should be considered for deduction under clause (baa) of explanation below section 80HHC. It is also pointed out that the Hob’ble Mumbai Tribunal in the appellant’s sister concern M/s Vijay Silk House (Mumbai) Ltd. has allowed the appeal for the A.Y. 2001-02 with a direction to follow the decision of Lalsons Enterprises and the AO has allowed the netting as per direction of the Hon’ble ITAT. 3.2 I have considered the issue pertaining to this ground of appeal. In view of order of the Hon’ble Delhi ITAT in the case of M/s Lalsons Enterprises and Hon’ble Mumbai ITAT in appellant’s sister concern, it is evident that the appellant is entitled for deduction of 90% of net interest for the purpose of explanation (baa). Therefore the AO is directed to consider only net interest under explanation (baa) to section 80HHC. 3.3 This ground of appeal is allowed 4 Ground No. 3 4.1 This ground of appeal relates to claim of deduction u/s 80 HHC on export proceeds realized after the specified date. As claimed by the appellant the AO has rectified the order u/s 154 and the appellant has withdrawn this ground of appeal. 4.2 This ground of appeal is, therefore, treated as dismissed on account of being withdrawn. 5 In the result, the appeal of the appellant is partly allowed. Sd/ Ajit Kumar Sinha Commissioner of Income Tax (Appeal)XXXII, Mumbai *******  In the Office of the Commissioner of Income Tax (Appeals)-XXXII, Mumbai Date of Order: 28/04/2008 Appeal No. CIT(A)XXXII/IT-209/06-07   1 Date of Institution of Appeal : 18.12.2006 2 Name & Designation of the Officer who made the order : Shri Mudit Nagpal, Dy.C.I.T.Circle-3(3), Mumbai 3 Assessment year : 2004-05 4 Name of the Appellant : M/s Vijay Silk House (Varanasi) Ltd, 7/23 Grants Building, Arthur Bunder Road, Colaba, Mumbai-400 005 5 PAN : AAACV3476E 6 Income/Wealth assessed : Rs. 1,19,10,550/- 7 Income Tax/Super Tax/Penalty/Fine demanded : Rs. 12,07,165/- 8 Section under which order appealed against was passed : U/s. 143(3) of the Income Tax Act, 1961 1 Date of hearing : 25/04/2008 2 Present for Appellant : Shri Ishwar Rathi, C.A. 3 Present for Department : None APPEALLATE ORDER AND GROUNDS OF DECISION This appeal has been filed against the order dated 7/11/2006 passed u/s. 143(3) by the Dy. C.I.T., Circle -3(3), Mumbai. Following grounds of appeal have been raised: 1 That the learned Dy. CIT has erred in charging tax on the amount of "any profit on transfer of DEPB…." as defined under section 28(iiid), whereas the sum covered under section 28(iiid) should be excluded from the total income as the same is not included in the definition of "INCOME" under section 2 (24) of the Income Tax Act. 2 That the learned Dy. Commissioner of Income Tax has erred in charging tax on the amount of "any profit on transfer of DFRC…." as defined under section 28(iiie), whereas the sum covered under section 28(iiie) should be excluded from the total income as the same is not included in the definition of "INCOME" under section 2(24) of the Income Tax Act. 3 Without prejudice to the above, the learned Dy. Commissioner of Income Tax has erred in reducing the deduction u/s 80HHC to Rs. 3,60,758/- as against a claim Rs.36,81,392/-. 4 On the facts and in the circumstances of the case and in law, the learned Dy.CIT has erred in reducing 90% the gross interest receipts of Rs. 4,68,552 (as against Rs. NIL) while calculating the profits of the business under explanation "baa" under section 80HHC, though the same was assessed as business income and the payment of interest was more than the interest receipts, further there was a clear nexus between such interest receipts and the interest payments. 5 Without prejudice to the above, the learned Dy. Commissioner of Income Tax has erred in not allowing benefits of third and forth proviso to section 80HHC(3) (i.e. granting benefit to 80HHC on DEPB and DFRC, without fulfilling two conditions) though the assessed export turnover was Rs.9,77,47,090/- i.e. below Rs. 10 cr. 6 That the learned Dy. Commissioner of Income Tax has erred in considering the entire DEPB benefit of Rs. 1,15,34,005/- as profit on transfer of DEPB u/s 28(iiid), as against actual profit on transfer of DEPB as amount realized over and above the face value of DEPB entitlement, whereas during this year, the DEPB’s were sold at discount and there was no profit on transfer of such DEPB. 7 That the learned Dy. Commissioner of Income Tax has erred in considering the entire DFRC benefit of Rs. 1,16,443 /- as profit on transfer of DFRC u/s 28(iiie), as against actual profit on transfer of DFRC as amount realized over and above the entitlement value of DFRC, whereas during this year the DFRC’s were sold at discount and there was no profit on transfer of such DFRC. 8 That the learned Dy. Commissioner of Income Tax has erred in not considering the DEPB/DFRC entitlements accrued on export performance as export incentives u/s 28(iiia) or (iiib) or (iiic) or business income u/s 28 (i) or 28 (iv) while calculating the deduction u/s 80HHC or the same ought to have been reduced from the cost of exports. 9 That the learned Dy. Commissioner of Income Tax erred in charging interest u/s 234D at Rs. 15,888/- as against the direction of CBDT vide their circular No.2 dated 17-01-06 for not to charge interest in cases of reduction of 80HHC claims on account of DEPB and DFRC. 2. Ground Nos. 1 & 2  2.1 These grounds of appeal relate to chargeability of tax on receipts in the nature of profit on transfer of DEPB/DFRC as defined u/s 28(iiid) and 28(iiie). It was argued that sections 28(iiid) and 28(iiie) are deeming provisions inserted by the taxation law amendment act 2005, under which certain receipts are held to be treated as business income w.e.f. 1.4.1998, but section 2 (24) i.e. the definition of Income has not been amended. Hence, if the receipts are not being deemed to be treated as income u/s 2(24), same cannot be taxed as business income though defined u/s 28(iiid) and 28(iiie). This sections 28(iiid) and 28(iiie) being deeming provisions, can not override the basic definition of income as contemplated u/s 2(24).  2.2 I have carefully considered the facts and submissions and I am not convinced with the AR’s arguments. The provision of section 28 (iiid) and 28 (iiie) specifically cover DEPB/DFRC benefit and therefore the same has to be treated as part of business profit. So far as section 2(24) of the Act is concerned, same gives an inclusive definition of income and not an exhaustive definition. Which means that any other items which are in the nature of income chargeable to tax can also be taxed. Since section 28(iiid) and (iiie) specifically provide for chargeability of DEPB/DFRC profits, same has been rightly taxed by the A.O. It is not correct on the part of the appellant that section 28(iiid) and (iiie) which are deeming provisions, cannot override section 2(24) because this is not the case at all by virtue of the reason that section 2(24) provides only an inclusive definition of "Income". Therefore the appellant’s contention is not maintainable and the same is hereby rejected.  2.3 These grounds of appeal are dismissed.  3 Ground No. 3: 3.1 This ground of appeal is general in nature and relates to deduction u/s 80HHC which is specifically covered by other grounds of appeal No. 5 to 8. Hence, this ground does not require any adjudication.  4 Ground No.4:  4.1 The appellant has argued that the AO has reduced 90% of gross amount of interest receipt on view of clause (baa) to explanation below section 80HHC, whereas, as per facts of the case the net interest should have been considered for the same. The appellant has given following detailed submissions. "As per the facts of the case the appellant has maintained bank deposits to obtain bank loan facilities and used the same as collateral security for bank facilities for the purpose of the export business. The gross interest earned thereon was Rs. 4,68,552/- at the same time they had paid interest on borrowed funds and the same was more than the amount of interest received. As no amount of interest was credited to the profit and loss account nothing was required to reduced under explanation "baa" while calculating the deduction u/s 80HHC. These bank deposits were maintained for the purpose of the business and also the funds were borrowed for the purpose of the business both has the direct nexus with each other and hence the netting of the interest should be allowed as has been held by the Honorable Special Bench of the Delhi Tribunal in the case of M/s Lalsons Enterprises."  4.2 It is thus pleaded that the Hon’ble Delhi Tribunal in the case of Lalsons Enterprises have held that net interest should be considered for deduction under clause (baa) of explanation below section 80HHC. It is also pointed out that the Hon’ble Mumbai Tribunal in the case of the appellant’s sister concerned M/s Vijay Silk House (Mumbai) Ltd. has allowed the appeal for the A.Y. 2001-02 with a direction to follow the decision of Lalsons Enterprises and the AO has allowed the netting as per the direction of the Hob’ble ITAT. 4.3 I have considered the issue pertaining to this ground of appeal. In view of order of the Hon’ble Delhi ITAT in the case of M/s Lalsons Enterprises and Hon’ble Mumbai ITAT in the case of appellant’s sister concern, it is evident that the appellant is entitled for deduction of 90% of net interest for the purpose of explanation (baa). Therefore the AO is directed to consider only net interest under explanation (baa) to section 80HHC.  4.4 This ground of appeal is allowed.  5. Ground Nos. 5 to 8:  5.1 These grounds of appeal relate to claim of deduction u/s 80HHC on DEPB/DFRC benefits earned on export performance. The issue relates to the scope of sections 28(iiid) and (iiie), and the deduction u/s 80 HHC as per the 2nd proviso to section 80 HHC (3), both inserted by the taxation law amendment act 2005 with retrospective effect from A.Y.1998-99. 5.2 The appellant has argued that sections 28(iiid) and (iiie) refer to profit on transfer of DEPB/DFRC and not the entire sale proceeds of DEPB/DFRC and hence while calculating the profits of the business as computed under clause (baa) to explanation below section 80 HHC, 90% of profits on transfer of DEPB/DFRC should only be reduced and not the entire sales proceeds of DEPB/DFRC. It was further argued that the entitlement value of the DEPB/DFRC should be considered as business income u/s 28(iv) and the same should not be reduced while calculating the profits of the business under explanation (baa) to section 80HHC. The appellant has given following submissions:  "While calculating deduction u/s 80HHC the profit on transfer of DEPB u/s 28 (iiid) should be restricted to the amount realized over the value of the DEPB. And the disentitlement of deduction u/s 80HHC on DEPB read with 3rd proviso to 80 HHC (3) should be restricted to the profit element on transfer of DEPB only and not the entire sales proceeds of DEPB. Further the value of DEPB should be treated as income u/s 28(iv) and the same can not be reduced under explanation "baa". The same proposition has been accepted by the jurisdictional ITAT in the case of Vijay Silk House (Surat) Ltd v/s DCIT ITA No. 6148/M/06. And has further been followed by the ITAT Rajkot in the case of the Economic Traders and others."  5.3 The case was argued with reference to the decision of the Vijay Silk House (Surat) Ltd. V/s DCIT ITA No.6148/M/06 decided by the Hon’ble ITAT Mumbai. The copy of the decision was filed along with the other relevant decision of ITAT Rajkot in the case of the Economic Traders and others, wherein it was held that "the assessing officer in the present case is also directed to re-compute the deduction u/s 80HHC by taking only profit earned on account of transfer of DEPB license and not the entire receipts after affording reasonable opportunity of being heard" to the assessee". Thus in this case also the aforesaid proposition was followed and it was further held considering the scheme of the DEPB and the speech of the Finance Minister given in the Parliament during the debate of the aforesaid amendments, that the cost of acquisition of DEPB should be the credit value given to the exporter under the DEPB scheme and held as under; "Therefore, in view of the aforesaid discussions we are of the opinion that it is only the profit on transfer of DEPB Scheme which are chargeable to tax under the head income from business or profession. Therefore, while computing the profits of the business under explanation (baa) of section 80HHC 90% of profit on transfer of DEPB should be excluded, not the total amount received by the assessee on the transfer of DEPB credit. The cost of acquisition in the case of DEPB can not be NIL but it will be the credit value given to the assessee under the scheme as that represents the incidence of the customs duty on the import contents of the export product which the assessee has already paid at the time of import. Thus, the order of CIT(A) is set aside on this issue and the AO is directed to allow deduction to the assessee u/d 80 HHC after co-computing it in the above manner. Thus, Ground No. 1 and 2 are allowed."  5.4 I have considered the above submissions and decisions on Hon’ble Mumbai and Rajkot Tribunal in the case of appellant’s group concern M/s Vijay Silk House (Surat) Ltd. and M/s Economic Traders and others respectively. I agree with the appellant that sections 28(iiid) and (iiie) provide for chargeability of only the "Profits on transfer of DEPB/DFRC" and not the whole value of sale receipts. The principal value of entitlement will have to be taxed u/s 28(iv) of the Act. Therefore, in view of this legal position, what has to be reduced under clause (baa) to Explanation below section 80HHC is only the said profit on transfer of DEPB/DFRC and not the full value of its consideration. The above decisions of ITAT, Mumbai and Rajkot also support the same view. Therefore, respectfully agreeing with the orders of the Hon’ble ITAT in the case of Vijay Silk House (Surat) Ltd v/s DCIT ITA No. 6148/M/06 and ITAT Rajkot in the case of the Economic Traders and others ITA No. 70 & 71/RJT/2003-04, I hold that 90% of only the profit on transfer of DEPB/DFRC should be considered for exclusion under clause (baa) to explanation below section 80HHC. The A.O. is directed to allow deduction to the assessee u/s 80HHC accordingly. Only 90% of profit on transfer of DEPB/DFRC should be excluded, not the entire sales proceeds of DEPB/DFRC, while computing the "profits of the business" under explanation (baa) of section 80HHC. Also, since the export turnover of the appellant is below Rs. 10 crores the AO is directed to follow the provisions of 2nd proviso to section 80HHC(3).  5.5 Ground Nos. 5 to 8 are allowed subject to the aforesaid directions.  6 Ground No. 9:  6.1 This ground of appeal relates to chargeability of interest u/s 234D. The AR has argued that as per the circular No. 2 dt. 17/01/2006 no interest should be charged in case, if any demand is arising because of reduction in 80-HHC claim on account of DEPB/DFRC as per the retrospective amendment made by the taxation law amendment act 2005. The appellant’s case is squarely covered under the aforesaid circular. Therefore the AO is directed to follow the aforesaid circular.  6.2. This ground of appeal is allowed.  7 In the result, the appeal of the appellant is partly allowed Sd/ (Ajit Kumar Sinha) Commissioner of Income Tax Appeal XXXII, Mumbai ********* In the Office of the Commissioner of Income Tax (Appeals)-XXXII, Mumbai Date of Order: 28/04/2008 Appeal No. CIT(A)XXXII/IT-210/06-07   1 Date of Institution of Appeal : 18.12.2006 2 Name & Designation of the Officer who made the order : Shri Mudit Nagpal, Dy.C.I.T.Circcle-3(3), Mumbai 3 Assessment year :  2004-05 4 Name of the Appellant : M/s Vijay Silk House (Tirupur) Ltd, 7/23 Grants Building, Arthur Bunder Road, Colaba, Mumbai-400 005 5 PAN : AAACV7283P 6 Income/Wealth assessed : Rs. 26,01,590/ 7 Income Tax/Super Tax/Penalty/Fine demanded : Rs. 49,830/- 8 Section under which order appealed against was passed : U/s. 143(3) of the Income Tax Act, 1961 1 Date of hearing : 17/04/2008 2 Present for Appellant : Shri Ishwar Rathi, C.A. 3 Present for Department : None APPEALLATE ORDER AND GROUNDS OF DECISION This appeal has been filed against the order dated 8/11/2006 passed u/s. 143(3) by the Dt. C.I.T., Circle -3(3), Mumbai. Following grounds of appeal have been raised: 1 That the learned Dy. Commissioner of Income Tax has erred in reducing the deduction u/s 80HHC of the Income Tax Act to Rs. 8,81,652/- as against a claim of Rs. 10,20,548/-. 2 On the facts and in the circumstances of the case and in law, the learned Dy. Commissioner of Income Tax has erred in reducing 90% the gross interest receipts of Rs. 4,60,000/- (as against Rs. NIL) while calculating the profits of the business under explanation "baa" under section 80HHC, though the same was assessed as business income and the payment of interest was more than the interest receipts, further there was a clear nexus between such interest receipts and the interest payments. 3 That the learned Dy. Commissioner of Income Tax has erred in excluding Rs. 12,91,342/- from the eligible export turnover of the appellant while calculating the deduction u/s 80-HHC, due to non receipts of foreign currency within stipulated time, despite the fact that the appellant has realized all such proceeds and the application to the competent authority made for post facto approval was pending. 2. Ground No. 1: 2.1 This ground of appeal is general in nature and relates to issues which are specifically covered by other grounds of appeal. Hence, this ground does not require any adjudication. 3 Ground No. 2: 3.1 The appellant has argued that the AO has reduced 90% of gross amount of interest receipt in view of clause (baa) to explanation below section 80HHC, whereas as per facts of the case the net interest should have been considered for the same. The appellant has given following detailed submissions. "As per the facts of the case the appellant has maintained bank deposits to obtain bank loan facilities and used the same as collateral security for bank facilities for the purpose of the export business. The gross interest earned thereon was Rs.4,60,000/- at the same time they had paid interest on borrowed funds and the same was more than the amount of interest received. As no amount of interest was credited to the profit and loss account nothing was required to reduced under explanation "baa" while calculating the deduction u/s 80HHC. These bank deposits were maintained for the purpose of the business and also the funds were borrowed for the purpose of the business both has the direct nexus with each other and hence the netting of the interest should be allowed as has been held by the Honorable Special Bench of the Delhi Tribunal in the case of M/s Lalsons Enterprises." 3.2 It is thus pleaded that the Hon’ble Delhi Tribunal in the case of Lalsons Enterprises have held that net interest should be considered for deduction under clause (baa) of explanation below section 80HHC. It is also pointed out that the Hob’ble Mumbai Tribunal in the appellant’s sister concern M/s Vijay Silk House (Mumbai) Ltd. has allowed the appeal for the A.Y. 2001-02 with a direction to follow the decision of Lalsons Enterprises and the AO has allowed the netting as per direction of the Hon’ble ITAT. 3.3 I have considered the issue pertaining to this ground of appeal. In view of order of the Hon’ble Delhi ITAT in the case of M/s Lalsons Enterprises and Hon’ble Mumbai ITAT in appellant’s sister concern, it is evident that the appellant is entitled for deduction of 90% of net interest for the purpose of explanation (baa). Therefore the AO is directed to consider only net interest under explanation (baa) to section 80HHC. 3.4 This ground of appeal is allowed 4 Ground No. 3 4.1 This ground of appeal relates to claim of deduction u/s 80 HHC on export proceeds realized after the specified date. As claimed by the appellant the AO has rectified the order u/s 154 and the appellant has withdrawn this ground of appeal. 4.2 This ground of appeal is, therefore, treated as dismissed on account of being withdrawn. 5 In the result, the appeal of the appellant is partly allowed.  Sd/ Ajit Kumar Sinha Commissioner of Income Tax (Appeal)XXXII, Mumbai ******* In the Income Tax appellate Tribunal (Delhi Bench ‘C’ New Delhi) Before Shri N K Karhail, Judicial Member and I.T.A. No. 2383/Del/2006 Assessment Year: 2003-04   M/s Riviera Textile ITO, Ward -2 Behind Khadi Ashram, Vs Panipat Shiv Nagar, Panipat (Appellant) (Respondent)   Appellant by: Dr. Rakesh Gupta, Advocate & Shri Ashwini Taneja, AR. Respondent by: Shri M P Singh,Sr. DR.   ORDER   PER N.K.KARHAIL, JM This appeal of the assessee is directed against the order dated 9.5.2006 passed by CIT(Appeals), Karnal for assessment year 2003-04. The first ground of the appeal reads as under:- "As per section 28(iii)(d) of the Taxation Laws Amendment Act, 2005 Profit on sale of DEPB license is chargeable as income of business or profession, not the whole sale proceeds of DEPB license. During the year under consideration profit on sale of DEPB License is Rs. Nil, while whole sale consideration of DEPB License is Rs. 26,83,812/-. The learned CIT(A) has not reduced face value of DEPB License from the sale value of DEPB" Stated that there is no cost of acquisition of DEPB. Since DEPB is a duty remission scheme, face value of DEPB is its cost of acquisition. Moreover, 2nd Proviso to para. 4 of Taxation Laws Amendment Act No.55 of 2005 being applicable to the exporter having total turnover exceeding Rs. 10.00 crore is a Discriminatory in nature, so bad in law. Therefore, reduction of deduction u/s 80 HHC on the amount of sale of DEPB Rs. 26,83,812/- instead of profit on sale of DEPB Rs. Nil is highly undesirable and uncalled for. 2. Briefly stated facts are that the assessee claimed deduction of Rs. 1,96,92,492/- under section 80 HHC of the I.T.Act. The AO has mentioned that the turnover of the assessee is more than Rs. 10 crores. Therefore, in view of Taxation (Amendment) Act, 2005 the assessee was required to explain as to how he fulfills the conditions laid down for claiming deduction u/s 80 HHC on DEPB amount. The assessee in its written reply has stated that sale of DEPB is Rs. 26,83,812/- as per para 3a of the Amendment Act "any profit on transfer of DEPB will be chargeable to income-tax under the head profit and gains and in its case, profit of sale of DEPB is nil. However, assessee also filed recasted trading a/c and revised calculation of deduction u/s 80HHC also. It has further stated that the amendment is discriminatory in nature and it is violation of the Constitution of India. The AO has considered the submission of the assessee and the same has not found out not tenable. According to him, there is no cost of acquisition of DEPB. Whatever incentive is received, it is the profit. Since the Taxation Law (Amendment) Act, 2005 has been passed, no plea regarding its discriminatory in nature can be entertained at this stage. Deduction u/s 80HHC is allowable on DEPB amount only when sale of draw back credit was higher than the sale of credit allowable under DEPB scheme. The assessee has not fulfilled the above condition. Hence, he has not allowed deduction u/s 80HHC on DEPB amount is allowed while working deduction under this head. On appeal before the CIT(A) it has been argued that the face value of DEPB is deemed to be reduced from the cost of raw material/inputs procured by the assessee, therefore, only profit on sale of DEPB after reducing the face value of DEPB should be considered u/s 28(iiid) of the Act. However, the Ld. CIT(A) has found no merit in the argument of the assessee. He has observed that since no cost is paid by the assessee to acquire DEPB obviously whole of sale value of DEPB is the profit on sale of DEPB. Hence, he has upheld the action of the AO. 3. We have heard the parties and perused the record of the case. The question for consideration is whether the value of DEPB as a whole has to be taken into account for the purpose deduction under section 80HHC or profit on transfer of DEPB. It is seen that ITAT, Mumbai in ITA No.5979/Mum./2006 (A.Y.2002-03). M/s. Glemark Laboratories Ltd. V/s. DCIT in its dated 27.12.2007 has held that the value received on transfer of DEPB does not constitute profit and thus cannot be taxed and has directed the AO to consider only profit on transfer of deduction u/s 80HHC and not the entire receipt against transfer of DEPB for the purpose of deduction u/s 80HHC and not the entire receipt against transfer of DEPB. The relevant observation of the Tribunal reads as under:- "We have heard rival submissions and considered them carefully. We have considered case laws on which reliance was placed by the Ld counsel of the assessee. After considering all the relevant material, we find that there is no dispute that the value of DEPB incentive falls within the meaning of sec. 28(iv) of the Act. We also found that as per clause (iiid) only the profits on sale / transfer of DEPB can be taken into consideration. The language of section 28(iv) and 28(iiid) are very clear. In this regard we have also noted the decision in the case of Amar International on which reliance was placed by Ld counsel of the assessee. Therefore, the value of license fall within section 28(iv) and only the profit on transfer of license fall within section 28(iiid). The aspect that what is the value of the DEPB incentive on the date of receipt was neither examined at all at the end of the Assessing Officer or at the CIT (A). The issue of apportionment of indirect cost has been examined by the Special Bench in the case of Surendra Engineering. In this case in respect of indirect cost attributable to trading export was discussed in detail and it was held that 10% of the indirect cost is to be attributable to the trading export. In a recent decision in the case of Hero Export decided in appeal No. 5315 of 2007, the Hon’ble Supreme Court has affirmed the identical view which was taken by the Special Bench. The argument of the department as well as the appellant was taken into consideration and after discussing the issue in detail, the Hon’ble Supreme Court has given its findings in para 11 to 15 which are as under:- "11. We have considered the rival submissions. It is not disputed by the Department that the assessee, in addition to the income derived from export of trading goods also derived income from Export Incentives etc. of Rs.1,60,000/-against FOB value of exports amount to Rs. 6,50,000/- in the above illustration. It is not the case of the Department that the assessee could have earned Rs.1,60,000/-without incurring any expenditure (Rs. 50,000/- in the above example). It is not in dispute that the case falls under section 80HHC(3)(a). It is not the case of the Department that assessee had not income by way of incentive, interest etc. (Rs.1,60,000/- in the example). The basic case of the department was that the words "indirect costs’ in clause (e) in the explanation did not provide for exclusion of expenses incurred for earning incentives, commission, rent etc. and therefore the entire amount of expenses (Rs. 50,000/- in the above example) spent for earning such other incomes did not fall within the meaning of word ‘indirect cost’ in clause (e). According to the department, section 80HHC (3) o(b) provides for a statutory formula to calculate export profits by deducting direct and indirect costs from export turnover, however, expenses incurred for earning incentives, commission etc. (other income) does not fall in the definition of indirect cost. That, the assessee was not entitled to claim 10% of the receipts from its other income Rs. 1,60,000/- in the above example) as expenses to be deducted from the indirect cost (Rs. 50,000/-) in the above example. Accordingly, the Assessing Officer deducted full Rs.50,000/- as indirect cost from the export turnover. Therefore, even according to the department it is not in dispute that the assessee had incurred an expense of Rs. 16,000/- (in the above example) to earn other incomes of Rs. 1,60,000/-but it denied the proportionate deduction from Rs. 50,000/- on account of strict interpretation of the words "indirect cost" in clause (e). However, in the above stand of the department, there is a fallacy. Under section 80HHC (3)(b) which is the main section, the Legislature has provided that in case falling u/s 80 HHC (3)(b) direct and indirect costs attributable to such exports have to be deducted from the export turnover to arrive at Export Profits. Similar provision is made in clause (d) which defines the word direct costs to mean costs attributable to exports of trading goods. Moreover, clause (e) of the Explanation defines indirect costs as costs which is not direct costs as defined in clause (d). The word attributable is wider than the word derived. The department, in this case, as can be seen from above example, itself says that Rs. 50,000/- in full in the indirect cost which has to be deducted in full as clause (e) does not provide for proportionate deduction. Accordingly to the department the definition of indirect costs will not cover expenses incurred for earning other incomes. However, at the same time, department concedes that the assessee had earned export turnover of Rs. 6,50,000/- plus Rs. 1,60,000/- as other incomes. It also concedes that Rs. 50,000/- is the indirect expenses. If so, what should be the expenses allocated to the earning of the two incomes and in what proportion is the question. 12. According to the Department the question of allocation does not arise in cases falling under section 80HHC (3)(b). We do not find merit in the contention. Firstly clause (e) to the Explanation which refers to allocation of costs applies to section 80 HHC (3)(b) and 80 HHC (3)(c). Secondly, section 80HHC (3) (b) equates export profits to export turnover less direct and indirect costs attributable to the exports of trading goods. Therefore, the principle of attribution is retained. Thirdly, keeping in mind the provisions of section 80HHC (3)(b) read with clause (d) and (e) of the Explanation it is clear that Legislature intended allocation of costs between export turnover and total turnover. It is urged that the apportionment would not apply to cases under section 80 HHC (3)(b). It is true that in most cases it may not. But in certain cases falling u/s 80HHC(3)(b), ratio still applies. For example in the case where the assessee exports all bought out items, but brings back only a part of the export proceedings into India, in such cases, the ratio will apply and therefore, if one is to read clause (e), it retains the words indirect costs to be allocated in the ratio of export turnover to the turnover. The question, which, however, needs to be decided is whether in the above example the assessee is entitled to reduction of Rs. 16,000/- from Rs. 50,000/- being the total indirect expenses for earning both the incomes. Department reduces the FOB value by Rs. 50,000/- whereas the assessee contends that it should be reduced by Rs. 34,000/- (Rs. 50,000/-) – Rs. 16,000/-) assessee claims apportionment at the rate of 10% of other income of Rs. 1,60,000/- (in the above example). This is opposed by the department saying that since apportionment does not apply to section 80HHC (3)(b), there is no question of applying the yardstick of 10%. According to the department, the word, indirect costs does not take into account the expenses to earn other incomes. In this case, reliance is placed on clause (e). However, the department has failed to notice the words "attributable" to exports in section 80HHC(3)(b). As stated above, in our opinion, the words "attributable" in section 80HHC(3) in the main section itself indicates that apportionment (principle of attribution) is not omitted from the said provision of section 80HHC(3)(b). As stated above, assessee has earned other income of Rs. 1,60,000/-. If so the next question which arises is how to allocate the costs? As stated above assessee has two incomes with one common pool of expenses and since principle of attribution has been retained in the scheme of section 80HHC, both in terms of section 80HHC(3), clause (e) to the Explanation to section 80HHC(3)(a),(b) and (c) and in clause (baa) to the Explanation to section 80HHC, instead of going into lengthy exercise of dividing such common expenses, the assessee has estimated the reduction of export turnover by 10% of the other income of Rs. 1,60,000/- (in the above example) Ultimately clause (baa) to the Explanation is itself based on the assumption that 10% of the income would be an expenses. We make if clear that we are not reading explanation (baa) into section 80HHC(3)(b). What we say is a guidance value factor, 10% of total other income of Rs. 1,60,000/- would be fair estimate. This guidance value is not flowing from clause 80HHC read with memorandum to the Finance Act of 1991. Take a reverse case, if allocation of expenses is to be done on actual basis, it would not only the very difficult but in some cases actual apportionment may not be in the interest even of the department. 15. In conclusion we may state that under section 80HHC(3)(b) one has to balance the principle of attribution with the concept of allocation. The concept of allocation is meant to reduce the incentive. However, when allocation has to be balanced with the principle of attribution, the object is to reduce the incentive and not to eliminate it. 6. The above findings of the Hon’ble Supreme Court which are binding on us, are very relevant to the present issue. In view of the judgment of the Special Bench and in view of the recent judgment of the Supreme Court, we hold that part of the direct cost is attributable to the value of DEPB license. To find out the direct cost relatable to trading export, one has to reduce that part of the direct cost attributable to earning of DEPB from the value of total direct cost. However, this aspect has not been examined by the Assessing Officer or by the CIT (A). Therefore, we restore this issue to the file of the Assessing Officer to ascertain the value of DEPB license on the date of receipt and reduce the same from total direct cost. We clarify that any difference in realization of DEPB license will be treated u/s 28(iiid) of the Act. Thereafter, the Assessing Officer is directed to re-compute the deduction u/s 80HHC. We order accordingly." Respectfully following the above observation of the Tribunal, we hold that part of the direct cost is attributable to the value of DEPB license and to find out the direct cost relatable to trading export one has to reduce that part of the direct cost attributable to earning of DEPB from the value of total direct cost. Since this aspect has not been examined by the AO/CIT(A), the matter is restored to file of the AO to ascertain the value of DEPB license on the date of receipt and reduce the same from total direct cost. It is also mentioned that any difference in realization of DEPB license will be treated u/s 28(iiid) of the Act. Thereafter AO is directed to recomputed the deduction u/s 80HHC of the Act. The assessee had issued cheque within due time. But the Bank had misplaced these cheques and the assessee issued fresh cheques within four days. So there was no delay on assessee’s part to delay deposit of E.S.I. & P.F. So disallowance of Rs. 229,213/- by the CIT(A) KNL is highly undesirable and uncalled for. 5. Briefly stated facts are that the AO noted that the assessee made payment for the month of February 2003 on account of employer share and employee share to Provident Fund late on 26.03.2003 as against the due date of 20.03.2003 amounting to Rs. 1,71,256/-. Similarly, the assessee made late payment of ESI for the month of February 2003 on account of employer’s share and employee’s share of Rs. 57,957/- on 26.03.2003 as against due date of 20.03.3003. The AO after having considered the explanation of the assessee made in this regard made disallowance of Rs. 7,29,213/- on account of late deposit of ESI and PF. On appeal the Ld. CIT(A) has confirmed the disallowance made by the AO. 6. We have heard the parties and perused the record of the case. In view of the decision of Delhi High Court in the case of CIT v/s. Dharmendra Sharma (2007) 213 CTR (Del.) 609 and the decision of jurisdictional High Court of P & H in the case of CIT V/s. Avery Cycle Industries (2007) 292 ITR 198 (P&H), we hold that so far the employer contribution towards PF and ESI though paid after due date but before the due date of filing the return of incomer are not disallowable. The AO is directed to allow the same. However, the employee contribution paid beyond the due date prescribed in the respective statute is disallowable. However, the case of the assessee is that if issued the cheque within the due date. But the Bank had misplaced these cheques and the assessee issued the fresh cheques within four days. Therefore, there was no delay on the assessee’s part to deposit ESI and PF contribution. In this regard a reference is made to letter’s addressed to the Chief Manager, Bank of India, Panipat stating that they had issued a cheque Nos.1000392 10000394100394 and 1003933 dated 12.03.2003 in favour of SBI in respect of account E.P.F. and ESI A/c of the assessee. However, the assessee has instructed the Bank to stop the payment of these cheques. The copy of these letters are placed at pages 11 and 12 of the Paper Book. In our opinion, if the above claim of the assessee is found to be correct after necessary verification the AO may allow the claim of the assessee as in such situation the small delay to deposit the employee contribution cannot be attributed to the assessee. 7. The third ground of appeal relating to disallowance of Rs. 3,000/- on account of traveling expenses since has not been pressed by the Ld Counsel for the assessee, the same is dismissed as not pressed. 8. The fourth ground of appeal states that the learned CIT(A) KNL has considered FDR interest of Rs. 196946/- as income from other sources. The assessee have to keep margin money as FDR with the Bank to meet out the business requirement. So the interest on margin money (FDR) should be treated as business income instead of income from other sources. So considering of Rs.196946/- by the CIT (A) Karnal as income from other sources is highly undesirable and uncalled for. 9. Briefly stated facts are that the assessee claimed that interest on margin money should be treated as a business income because the assessee had to keep margin money as FDR with the Bank to meet out the business requirement. The AO however treated the interest income to income from other sources. Accordingly, no deduction u/s 80 HHC was allowed. On appeal the Ld. CIT (A) has observed that ion view of