ADCI DYE CHEM P.LTD. V. DY.COMMISSIONER OF INCOME TAX

TAXAP/1346/2005

AI Insights

ADCI DYE CHEM P.LTD, a company engaged in manufacturing dyes and chemicals, filed tax appeals against the Deputy Commissioner of Income Tax concerning deductions claimed under Section 80IA of the Income Tax Act, 1961 for the assessment years 1994-95, 1995-96, and 1996-97. The primary contention was whether the Central Excise Duty set off and Sales Tax set off could be excluded from total turnover for the purpose of computing deductions under Section 80IA. The Assessing Officer initially rejected these claims, which were later allowed by the CIT(A). However, the Tribunal reversed the CIT(A)'s decision, leading to the current appeals. The High Court upheld the Tribunal's decision, referencing the Supreme Court's decisions in Liberty India Limited and Sterling Foods, which supported the view that such receipts, being linked to export profits, do not qualify for deductions under Section 80IA.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 696042 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 18-07-2014
• Assessment Year: misc
• Other Referred Cases: CIT vs. Sterling Foods, Liberty India Limited vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: S N DIVATIA
• Keywords: Central Excise Duty set off; Deduction under section 80IA; Export incentive; Income tax appellate tribunal; Sales tax set off
• Section: 80HHC; 80IA

Judgement Text

"O/TAXAP/1346/2005 CAV JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1346 of 2005 With TAX APPEAL NO. 1347 of 2005 TO TAX APPEAL NO. 1348 of 2005 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH ­ sd/­ and HONOURABLE MR.JUSTICE R.P.DHOLARIA ­ sd/­ ============================================ 1. Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2. To be referred to the Reporter or not ? NO 3. Whether their Lordships wish to see the fair copy of the judgment ? NO 4. Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5. Whether it is to be circulated to the civil judge ? NO ============================================ ADCI DYE CHEM P.LTD.....Appellant(s) Versus DY.COMMISSIONER OF INCOME TAX....Opponent(s) ============================================ Appearance: MR SN DIVATIA, ADVOCATE for the Appellant(s) No. 1 MRS MAUNA M BHATT, ADVOCATE for the Opponent(s) No. 1 ============================================ CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE R.P.DHOLARIA Date : 18/07/2014 CAV JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1.0. As common question of law and facts arise in this group of appeals and pertain to the same assessee and when heard together as a matter of convenience, therefore, we dispose of all these appeals Page 1 of 8 O/TAXAP/1346/2005 CAV JUDGMENT together by this common order. 2.0. Feeling aggrieved and dissatisfied with the impugned common judgment and order passed by the learned Income Tax Appellate Tribunal (hereinafter referred to as the “Tribunal”) dated 07.01.2005 passed in ITA No.806/AHD/1999 for the AY 1994­95, ITA No.807/ AHD/ 1999 for the AY 1995­ 96 and ITA No.1475/AHD/2000 for the AY 1996­97, common appellant – assessee has preferred present Tax Appeals to consider the following substantial questions of law. Tax Appeal No.1346 of 2005 Whether on facts and in the circumstances of the case, Income Tax Appellate Tribunal, was right in law in confirming that the appellant was not entitled to the deduction under Section 80IA of the Income Tax Act, 1961 in respect of Central Excise Duty set off of Rs. 41,43,478/­ and Sales Tax set off Rs. 19,970/­? Tax Appeal No.1347 of 2005 Whether on facts and in the circumstances of the case, Income Tax Appellate Tribunal, was right in law in confirming that the appellant was not entitled to the deduction under Section 80IA of the Income Tax Act, 1961 in respect of Central Excise Duty set off of Rs. 83,97,099/­? Tax Appeal No.1348 of 2005 Whether on facts and in the circumstances of the case, Income Tax Appellate Tribunal, was right in law in confirming that the appellant was not entitled to the deduction under Section 80IA of the Income Tax Act, 1961 in respect of Central Excise Duty set off of Rs. 62,29,316/­? 3.0. For the sake of convenience, we will take the facts of Tax Appeal No.1346 of 2005 arising out of the judgment and order passed Page 2 of 8 O/TAXAP/1346/2005 CAV JUDGMENT by the learned Tribunal passed in ITA No.806/AHD/1999 for the AY 1994­95. 3.1. That the assessee is a closely held company engaged in the business of mfg of dyes and chemicals filed its return of income for AY 1994­95 on 28.11.1994 declaring total income at Rs. NIL after claiming inter alia the deduction of Rs.5,52,485/­ under Section 80IA. That the said deduction was arrived at by computing the profits of the business after including the following receipts: (I) Export benefit: Rs. 1,86,102/­ (II) Central Excise set off: Rs.41,43,478/­ (III) Misc Income: Rs. 12,819/­ (IV) Interest income: Rs. 3,70,573/­ (V) Sales Tax set off: Rs. 19,970/­ 3.2. That the Assessing Officer passed the assessment order rejecting the assessee’s claim to exclude the Central Excise and Sales Tax from total turnover for the purpose of computing deduction under Section 80HHC of the Act. The Assessing Officer also held that interest income, export incentive, central excise set off and the sales tax set off shall not be included for computing deduction under Section 80IA of the Act. 3.3. Feeling aggrieved and dissatisfied with the order passed by the Assessing Officer not accepting the claim of the assessee to exclude the Central Excise set off from total turnover for the purpose of computing deduction under Section 80HHC as well as to exclude interest income, export incentive, central excise set off and sales tax set off for computing deduction under Section 80IA of the Act, the assessee preferred appeal before the learned CIT(A) and the learned CIT(A) Page 3 of 8 O/TAXAP/1346/2005 CAV JUDGMENT allowed the said appeal and directed to exclude the central excise and sale tax from total turnover for the purpose of computing deduction under Section 80HHC of the Act as well as to include interest income, export incentive, central excise set off and sales tax set off for computing deduction under Section 80IA of the Act. 3.4. Feeling aggrieved and dissatisfied with the order passed by the learned CIT(A), the revenue preferred appeal before the learned ITAT and considering the decision of the Hon'ble Supreme Court in the case of CIT vs. Sterling Foods reported in 237 ITR 579, the learned Tribunal has partly allowed the said appeal and has quashed and set aside the order passed by the learned CIT(A) directing to include the central excise set off and sales tax set off for computing deduction under Section 80IA of the Act and has consequently restored the order passed by the learned AO. 3.5. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Tribunal, the assessee has preferred the present Tax Appeals to consider following substantial question of law. Whether on facts and in the circumstances of the case, Income Tax Appellate Tribunal, was right in law in confirming that the appellant was not entitled to the deduction under Section 80IA of the Income Tax Act, 1961 in respect of Central Excise Duty set off of Rs. 41,43,478/­ and Sales Tax set off Rs. 19,970/­? 4.0. Shri S.N. Divatia, learned advocate has appeared on behalf of the assessee and Shri Manish R. Bhatt, learned advocate has appeared on behalf of the revenue. Page 4 of 8 O/TAXAP/1346/2005 CAV JUDGMENT 5.0. Shri Divatia, learned advocate for the assessee has vehemently submitted that learned Tribunal has materially erred in holding that assessee would not be entitled to deduction under Section 80IA of the Act as claim of Central Excise set off and Sales Tax set off. 5.1. Shri Divatia, learned advocate for the assessee has submitted that with respect to the Central Excise Duty set off and Sales Tax set off and denying the deduction under Section 80IA of the Act claimed by the assessee claimed on the aforesaid items, the learned Tribunal in page 4 and 5 has observed as under: “From the above, it is evident that the assessee himself has claimed the central excise set off to be in the nature of duty draw back linked with export profit. The assessee cannot take different stand while claiming deduction u/s 80IA and 80HHC. We find that before the CIT(A) the assessee claimed that the sales tax set off is also in the nature of the export incentive .... since the assessee itself has claimed the sales tax set off to be export incentive, the decision of the Hon'ble Apex Court in the case of Sterling Foods (Supra) would be squarely applicable in this regard also.” 5.2. It is submitted by Shri Divatia, learned advocate for the assessee that above said observations and conclusion reached by the Tribunal are based solely on ground that before the CIT(A) the assessee has claimed both the aforesaid receipts to be in the nature of export incentive. It is submitted that in fact observations made by the learned CIT(A)in para 8.2 relates to the ground of appeal relating to Section 80 HHC and not Section 80IA. It is submitted that as such the assessee did not claim both the said receipts to be in nature of export incentive. It is submitted that even from the contention raised before the Assessing Officer during the course of assessment proceedings would also show Page 5 of 8 O/TAXAP/1346/2005 CAV JUDGMENT that the appellant had not claimed aforesaid receipts to be in the nature of export incentives. It is submitted that all throughout the contention of the assesseee before both the lower authorities was that the set off had direct and proximate link with its business activities. 5.3. It is submitted that even otherwise and even assuming for the sake of argument that assessee had so contended but the Tribunal was supposed to examine the nature of said receipts instead of mechanically accepting the nature. It is submitted that though the decision in the case of Liberty India Limited reported in 317 ITR 218(SC) has examined the scheme of DEPB so as to come to the conclusion that the profit from DEPB was in nature of export incentive but it does not deal with the nature of central excise duty set off and sales tax set off. It is submitted that in view of the above facts of the case, the impugned order passed by the learned Tribunal completely overlooks the facts and contention relating to the aforesaid ground and as held against the assessee without considering the fully and properly the material available on record. It is submitted that it has also failed in passing reasoned and speaking order so as to reverse the finding and conclusion of the CIT(A). 5.4. Making above submissions and relying upon decision of the Income Tax Appellate Tribunal, Lucknow Bench, Lucknow passed in the case of Arvind Footwear Pvt Ltd vs. Deputy Commissioner of Income Tax Range 6, Kanpur rendered in ITA No.363/Luck/2010 and other allied appeals, it is requested to quash and set aside the impugned order passed by the learned Tribunal and restored the matter back to the file of the Tribunal so as to decide the appeal on its merits in accordance with law and after considering the material produced by the assessee. Page 6 of 8 O/TAXAP/1346/2005 CAV JUDGMENT 6.0. All these appeals are opposed by Shri Manish Bhatt, learned advocate for the revenue. It is submitted that as such the issue involve in the present appeals is squarely covered by the decision of the Hon'ble Supreme Court in the case of Liberty India Limited (supra). 6.1. It is rightly observed by the learned Tribunal on the basis of material on record that when the assessee claim deduction under Section 80HHC and claim the central excise set off to be in the nature of duty draw back linked with export profit, the said fact is to be considered for the purpose of Section 80IA. It is submitted that the learned Tribunal has rightly observed that assessee cannot take too different stand while claiming deduction under Section 80HHC as well as under Section 80IA of the Act. It is submitted that therefore, the learned Tribunal has relied upon the decision of the Hon'ble Supreme Court in the case of Sterling Foods (supra) as rightly held that the assessee shall not be entitled to deduction under Section 80IA of the Act claim on the aforesaid two items i.e. Central Excise duty set off and Sales Tax set off. Therefore, it is requested to dismiss the present appeals. 7.0. Heard the learned advocates for the respective parties at length. The question which is posed for consideration of this Court is whether the learned Tribunal was right in law in confirming that appellant was not entitled to deduction under Section 80IA of the Income Tax Act, 1961 in respect of Central Excise Duty set off and sales tax set off ? At the outset, it is required to be noted that the aforesaid issue is squarely covered against the assessee in view of the decision of the Hon’ble Supreme Court in the case of Liberty India vs. CIT reported in 317 IT 218(SC) as well as in the case of Sterling Foods (supra). It is required to be noted that with respect to export incentive under the scheme of Page 7 of 8 O/TAXAP/1346/2005 CAV JUDGMENT DEPB, it is held by the Hon’ble Supreme Court in the case of Liberty India (supra) that in respect of DEPB and duty drawback the assessee is not entitled to deduction under Section 80IB of the Act. In the facts and circumstances of the case and so observed by the learned Tribunal, the assessee must claim the Central Excise Duty set off to be in the nature of duty drawback linked with export profit while claiming deduction under Section 80HHC of the Act. Therefore, it is rightly observed by the Tribunal that for claiming deduction under Section 80HHC, the assessee itself claimed that Central Excise Duty set off is export incentive by way of duty drawback, the assessee cannot take different stand while claiming deduction under Section 80IA of the Act. Under the circumstances and if that be so applying the decisions of the Hon’ble Supreme Court in the case of Liberty India(supra) and Sterling Food (supra) and the stand taken by the assessee while claiming deduction under Section 80HHC under the Act, the learned Tribunal has rightly held that the assessee shall not be entitled to deduction under Section 80IA of the Act on the Central Excise Duty set off as well as Sales Tax set off. Under the circumstances, question of law raised in the present Tax Appeals in the aforesaid facts and circumstances of the case is held against the assessee and in favour of the revenue. Consequently, all the appeals deserve to be dismissed and are accordingly dismissed. sd/­ (M.R.SHAH, J.) sd/­ (R.P.DHOLARIA,J.) Kaushik Page 8 of 8 "