M/s. Kashmir Valvent Industries, Jammu V. The Dy. Commissioner of Inocme-tax, Jammu ( J&k)

ITA 191/ASR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0778 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-05-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 26-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMALENDU NATH MISRA
• Assessee Lawyers: P N ARORA
• Keywords: Earning of tax free income; Cost of acquisition; Capital receipt
• Section: 40A(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER [ I.T.A NO. 191(ASR)/2014 ASSESSMENT YEAR: 2009-10 M/S. KASHMIR VALNUT INDUSTRIES. BOHRI TALAB TILLO, JAMMU. PAN:AAGPK2470C VS. DCIT, CIRCLE-2, JAMMU (J&K) (APPELLANT) (RESPONDENT) APPELLANT BY: SH. P.N.ARORA (ADV.) RESPONDENT BY: SH. AMALENDU NATH MISRA ( DR.) DATE OF HEARING: 09.05. 2016 DATE OF PRONO UNCEMENT:13.05.2016 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE OR DER OF LEARNED CIT(A), DATED 12.10.2012, FOR ASST. YEAR 2009-10. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL. (I). THAT THE ASSESSMENT ORDER AS WELL AS THE ORDE R OF THE LD. CIT (APPEALS) ARE BOTH AGAINST THE FACTS OF THE CASE & UNTENABLE IN LAW. (II) THAT THE LD. CIT (APPEALS) :HAS GROSSLY ERRED IN CONFIRMING THE ORDER OF THE AO WITHOUT APPLYING HIS MIND AND APPRE CIATING THE FACTS OF THIS CASE. THE LD. CIT (APPEALS) DID NOT A PPRECIATE THAT DEDUCTION TO THE TUNE OF RS.1,69,41,468/- SHOULD HA VE BEEN ALLOWED UNDER SECTION 80IB OF THE INCOME-TAX ACT, 1 961, AS CLAIMED. THE LD. CIT (APPEALS) HAS GROSSLY ERRED IN COMING TO THE CONCLUSION THAT THE INCOME DERIVED BY THE ASSESSEE FROM DPEB LICENCES & V.K.O.Y LICENCES, ARE NOT INCOME FROM BU SINESS. IT IS CRYSTAL CLEAR THAT THE INCOME DERIVED BY THE ASSESS EE FROM DPEB & V.K.O.Y ARE CLEARLY INCOME DERIVED FROM BUSINESS AN D THE ASSESSEE WAS ENTITLED FOR DEDUCTION UNDER SECTION 80IB OF TH E INCOME-TAX ACT, ITA NO.191 (ASR)/2014 ASST. YEAR: 2009-10 2 1961 AS CLAIMED. THE LD. CIT (APPEALS) WAS NOT JUST IFIED IN CONFIRMING THE ADDITION OF RS.L,69,41,468/-.ON ACCO UNT OF DEDUCTION CLAIMED U/S 80IB OF THE INCOME-TAX ACT, 1961. THAT THE LD. CIT (APPEALS) WAS NOT JUSTIFIED IN CONFIRMING THE ADDIT ION OF RS.1,69,41,468/- AS THE ASSESSEE IS CLEARLY ENTITLE D FOR DEDUCTION UNDER SECTION 80IB OF THE INCOME-TAX ACT, 1961, WHI CH MAY KINDLY BE ALLOWED. (III). THAT SIMILARLY, THE LD. CIT (APPEALS) HAS GROSSLY ERRED IN CONFIRMING THE ADDITION OF RS.9,06,998/- ON ACCOUNT OF NON- DEDUCTION OF TDS ON COLD STORAGE PAYMENTS BY INVOKI NG THE PROVISIONS OF SECTION 40 (A) (IA) OF THE INCOME-TAX ACT, 1961. THE AO DID NOT APPRECIATE THAT THE PROVISIONS OF TDS ARE N OT AT ALL APPLICABLE ON THE PAYMENTS OF COLD STORAGE AND AS S UCH THE ADDITION MADE MAY BE DELETED. ALTERNATIVELY, THE LD. CIT (APPEALS) SHOULD HAVE ALLOWED DEDUCTION UNDER SECTION 80IB OF THE INCOME-TAX ACT, 1961, AT RS.9,06,998/- AS THE SAME HAS INCREASED THE INCOME BY RS.9,06,998/-. AS SUCH, THE DEDUCTION UNDER SECTION 80IB OF THE INCOME-TAX ACT, 1961, AS CLAIMED MAY BE ALLOWED. 3. THE BRIEF FACTS OF THE CASE AS NOTED IN THE ASSE SSMENT ORDER ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF PROCESS ING (GRINDING) OF WALNUT AND GIRI ETC. DURING THE YEAR UNDER CONSIDER ATION THE ASSESSEE FILED A RETURN DECLARING A NET PROFIT OF RS.8,75,07 ,465/- AND AGAINST WHICH THE ASSESSEE CLAIMED DEDUCTION U/S 80-IB OF T HE ACT. THE CASE WAS SELECTED FOR SCRUTINY. DURING THE ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER OBSERVED THAT ASSESSEE BESIDES OTHER INCOME HAS CREDITED TO ITS P&L ACCOUNT THE FOLLOWING TWO FIGURES (I) DEPB RS.5 1,75,526/- AND (II) VKOY RS.1,17,65,94,2/-. THE ASSESSEE WAS SHOW CAUSE D TO EXPLAIN THE REASONS FOR CLAIMING DEDUCTION 80-IB IN RESPECT OF THESE TWO INCOMES AND ASSESSEE SUBMITTED THAT THE INCOME FROM LICENSES OF VKOY AND DEPB WAS PART OF INDUSTRIAL ACTIVITY AND SUCH BENEFITS W ERE PART OF BUSINESS PROFITS AS THE OBJECT OF THESE BENEFITS IS TO NEUTR ALIZE THE CUSTOM DUTY ON ITA NO.191 (ASR)/2014 ASST. YEAR: 2009-10 3 IMPORT CONTENT ON THE EXPORT PRODUCTS AND THEREFORE , THESE INCOMES WERE INCOME DERIVED FROM INDUSTRIAL ACTIVITIES AND THERE FORE, WAS ELIGIBLE FOR DEDUCTION U/S 80-IB. THE ASSESSING OFFICER WAS HOWE VER NOT CONVINCED WITH THE ASSESSEES SUBMISSIONS AND HE DENIED THE D EDUCTION OF THESE ITEMS BY HOLDING AS UNDER: THE EXPLANATION GIVEN BY THE ASSESSEE CLEARLY SHOW S THAT THESE INCOMES ARE THE RESULT OF GOVT. SCHEMES AND THESE ARE WITHO UT ANY NEXUS WITH THE INDUSTRIAL ACTIVITY . THE ISSUE THAT THESE INCOMES ARE NOT RESULT OF INDUSTRIAL ACTIVITY IS HIGHLIGHTED IN THE FOLLOWING DISCUSSION AND CASE LAWS. DUTY DRAWBACK/DEPB BENEFITS ARE NOT ELIGIBLE FOR DEDUCTION - DEPB/DUTY DRAWBACK REMISSIONS ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY THE CENTRAL GOVERNMENT OR FROM SE CTION 75 OF THE CUSTOMS ACT, 1962. HENCE, INCENTIVE PROFITS ARE NOT PROFITS DERIVED FROM THE ELIGIBLE BUSINESS UNDER SECTION 80-1B. THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKINGS. ANALYSING T HE CONCEPT OF REMISSION OF DUTY DRAWBACK AND DEPB, IT IS EVIDENT THAT CUSTO MS ACTVSCHEMES(S) FRAMED BY THE GOVERNMENT OF INDIA. IN THE CIRCUMSTA NCES, THE PROFITS DERIVED BY WAY OF SUCH INCENTIVES DO NOT FALL WITHI N THE EXPRESSION PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING' IN SECTION 80- IB. FURTHER DUTY DRAWBACK, REPLACE, ETC., SHOULD NOT BE TREATED AS ADJUSTMENT (CREDITED) TO COST OF PURCHASE OR MANUFACTURE OF GO ODS. THEY SHOULD BE TREATED AS SEPARATE ITEMS OF REVENUE OR INCOME AND ACCOUNTED FOR ACCORDINGLY. THEREFORE, FOR THE PURPOSES OF AS-2, T HE CENVAT CREDITS SHOULD NOT BE INCLUDED IN THE COST OF PURCHASE OF INVENTOR IES. DUTY DRAWBACK, DEPB BENEFITS, REBATES, ETC., CANNOT BE CREDITED AG AINST THE COST OF MANUFACTURE OF GOODS DEBITED IN THE PROFIT AND LOSS ACCOUNT FOR PURPOSES OF SECTION 80-IA/80-IB; AS SUCH, REMISSIONS (CREDITS) WOULD CONSTITUTE INDEPENDENT SOURCE OF INCOME BEYOND THE FIRST DEGRE E NEXUS BETWEEN PROFITS AND THE INDUSTRIAL UNDERTAKING. THEREFORE, THE DEPARTMENT HAD CORRECTLY APPLIED ASJ2. THUS, THE DUTY DRAWBACK REC EIPT/DEPB BENEFITS DO NOT FORM PART OF THE NET PROFITS OF ELIGIBLE INDUST RIAL UNDERTAKING FOR THE PURPOSES OF SECTION 80-I/80-1A/80-1B -LIBERTY INDIA V. CIT [2009] 183 TAXMAN 349/317 ITR 218 (SC)/CIT V. J.B, EXPORTS LTD, [2006] 152 TAXMAN 189 (DELHI). ITA NO.191 (ASR)/2014 ASST. YEAR: 2009-10 4 RECEIPTS FROM SALE OF IMPORT ENTITLEMENTS - THE SOURCE OF THE IMPORT ENTITLEMENTS CANNOT BE SAID TO BE THE INDUSTRIAL UN DERTAKING OF THE ASSESSEE. THE SOURCE OF THE IMPORT ENTITLEMENTS CAN , IN THE CIRCUMSTANCES, ONLY BE SAID TO BE THE EXPORT PROMOTION SCHEME OF T HE CENTRAL GOVERNMENT WHERE UNDER THE EXPORT ENTITLEMENTS BECOME AVAILABL E. THERE MUST BE, FOR THE APPLICATION OF THE WORDS DERIVED FROM, A DIRE CT NEXUS BETWEEN THE PROFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING. I N THE INSTANT CASE, THE NEXUS IS NOT DIRECT BUT ONLY INCIDENTAL. THE INDUST RIAL UNDERTAKING EXPORTS PROCESSED SEA FOOD. BY REASON OF SUCH EXPORT, THE E XPORT PROMOTION SCHEME APPLIES. THERE UNDER, THE ASSESSEE IS ENTITL ED TO IMPORT ENTITLEMENTS, WHICH IT CAN SELL. THE SALE CONSIDERA TION THEREFROM CANNOT BE HELD TO CONSTITUTE A PROFIT AND GAIN DERIVED FROM T HE ASSESSEE'S INDUSTRIAL UNDERTAKING, SO AS TO BE ELIGIBLE FOR DEDUCTION - C ITV. STERLING FOODS [1999] 104 TAXRPAN 204 (SC). THE RATIO OF THE ABOVE CASE LAWS CLEARLY SHOWS THAT THE INCOMES DERIVED BY THE ASSESSEE FROM DPEB LICENCES & V.K.O.Y LICENCES FALL UNDER THE DOMAIN OF GOVT. SCHEMES AND THE PRINCIPAL LAID DOWN IS CLE ARLY APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. THE ASSESSEE IS THUS NOT ENTITLED TO DEDUCTION U/S 80 IB OF THE I.T ACT 196 LAND SAME ARE REDUCED FROM THE CLAIM OF ASSESSEE AND THE SAME IS TREATED AS INCOME OF THE A SSESSEE. PENALTY PROCEEDINGS U/S 271(1)(C) OF THE I.T ACT, 1961 ARE ALSO INITIATED IN THIS CASE AS I AM SATISFIED THAT ASSESSEE HAS FURNISHED INACC URATE PARTICULARS OF HIS INCOME. THE ASSESSING OFFICER FURTHER OBSERVED THAT ASSESSE E HAD NOT DEDUCTED TDS ON PAYMENTS MADE TO COLD STORAGE FACTORY AND TH EREFORE, ASSESSING OFFICER MADE AN ADDITION OF RS.9,06,998/- AS DISALL OWANCE U/S 40A(IA)(A) OF THE ACT. 4. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE LEARN ED CIT(A) BUT THE LEARNED CIT(A) ALSO DECIDED AGAINST THE ASSESSEE AN D DISMISSED THE APPEAL. THE LEARNED CIT(A)S FINDINGS IN THIS RESPE CT ARE REPRODUCED BELOW. 4. DETERMINATION:- I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPELLA NT AND THE ARGUMENTS OF THE ASSESSING OFFICER IN HIS O RDER. I AM IN THE AGREEMENT WITH THE ASSESSING OFFICER THAT PROFIT AN D GAINS DERIVED FROM ITA NO.191 (ASR)/2014 ASST. YEAR: 2009-10 5 SALE OF DEPB AND VKGUY LICENSES DO NOT QUALIFY FOR DEDUCTION U/S 801B. FOR THE FOLLOWING REASONS THE ARGUMENTS OF THE A.R OF THE APPELLANT IS NOT CONVINCING. THIS ISSUE HAS BEEN SQUARELY COVERED BY THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT(2009) 18 3 TAXMAN 349/317. 4.1 SEC. 80IB PROVIDES FOR ALLOWING OF DEDUCTION IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINESS - WORDS D ERIVED FROM ARE NARROWER IN CONNOTATION AS COMPARED TO THE WORDS ATTRIBUTABLE TO - BY USING THE EXPRESSION DERIVED FROM, PARLIAMENT INT ENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE - DEPB (DUTY ENTITLEMEN T PASS BOOK) AND VKGUY (VISHESH KRISHI GRAM UDYOG YOJNA) ARE INCENTI VES WHICH FLOW FROM THE SCHEMES FRAMED BY CENTRAL / STATE GOVEMMENTS OR FROM S. 75 OF THE CUSTOMS ACT, 1962, HENCE, INCENTIVE PROFITS ARE NOT PROFITS DERIVED FROM THE ELIGIBLE BUSINESS UNDER S.801B. THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKINGS. IN THE CIRCUMSTANCES, PROFITS DERIVED BY WAY OF SUCH INCENTIVES DO NOT FALL WITHIN THE EXPRESSIO N PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING IN S. 80IB.FOR ARGUMENT SAK E THE DUTY DRAWBACK, REBATE ETC. SHOULD NOT BE TREATED AS ADJUSTMENT (CR EDITED)TO COST OF PURCHASE OR MANUFACTURE OF GOODS- THEY SHOULD BE TR EATED AS SEPARATE ITEMS OF REVENUE OR INCOME AND ACCOUNTED FOR ACCORD INGLY- THEREFORE, DUTY DRAWBACK, DEPB AND VKGUY BENEFITS, REBATES ETC. CAN NOT BE CREDITED AGAINST THE COST OF MANUFACTURE OF GOODS DEBITED IN THE P&L A/C FOR PURPOSES OF S.80-IA / 80-IB; AS SUCH REMISSIONS (CR EDITS) WOULD CONSTITUTE INDEPENDENT SOURCE OF INCOME BEYOND THE FIRST DEGRE E NEXUS BETWEEN PROFITS AND THE INDUSTRIAL UNDERTAKING. 4.2 THE IT ACT BROADLY PROVIDES FOR TWO TYPES OF TA X INCENTIVES, NAMELY, INVESTMENT LINKED INCENTIVES AND PROFIT LINKED INCE NTIVES. CHAPTER VI-A WHICH PROVIDES FOR INCENTIVES IN THE FORM OF TAX DE DUCTIONS ESSENTIALLY BELONG TO THE CATEGORY OF PROFIT LINKED INCENTIVES . THEREFORE, WHEN S. 80- IA/80-IB REFERS TO PROFITS DERIVED FROM ELIGIBLE BU SINESS, IT IS NOT THE OWNERSHIP OF THAT BUSINESS WHICH ATTRACTS THE INCEN TIVES. WHAT ATTRACTS THE INCENTIVES UNDER S.80-IA/80-IB IS THE GENERATION OF PROFITS (OPERATIONAL PROFITS.) IT IS FOR THIS REASON THAT PARLIAMENT HAS CONFINED DEDUCTION TO PROFITS DERIVED FROM ELIGIBLE BUSINESS MENTIONED IN SUB-SS. (3) TO (1AA) CONSTITUTES A STAND-ALONE ITEM IN THE MATTER OF COM PUTATION OF PROFITS. THAT IS THE REASON WHY THE CONCEPT OF SEGMENT REPORTING STANDS INTRODUCED IN THE INDIAN ACCOUNTING STANDARDS (IAS) BY THE ICAI. ANALYZING CHAPTER VI- A, IT IS FOUND THAT SS.80IB AND 80IA ARE THE CODE B Y THEMSELVES AS THEY CONTAIN BOTH SUBSTANTIVE AS WELL AS PROCEDURAL PROV ISIONS. THEREFORE, THE COURT NEEDS TO EXAMINE WHAT THESE PROVISIONS PRESCR IBE FOR COMPUTATION OF PROFITS OF THE ELIGIBLE BUSINESS. IT IS EVIDENT THAT S.80 IB PROVIDES FOR ALLOWING OF DEDUCTION IN RESPECT OF PROFITS AND GAI NS DERIVED FROM THE ELIGIBLE BUSINESS. THE WORDS DERIVED FROM ARE NAR ROWER IN CONNOTATION AS COMPARED TO THE WORDS ATTRIBUTABLE TO. IN OTHER W ORDS, BY USING THE EXPRESSION DERIVED FROM. PARLIAMENT INTENDED TO C OVER SOURCES NOT BEYOND THE FIRST DEGREE. ON ANALYSIS OF SS. 80-IA A ND 80 IB IT BECOMES CLEAR THAT ANY INDUSTRIAL UNDERTAKING, WHICH BECOME S ELIGIBLE ON SATISFYING SUB-S. (2), WOULD BE ENTITLED TO DEDUCTION UNDER SU B-S(1) ONLY TO THE EXTENT ITA NO.191 (ASR)/2014 ASST. YEAR: 2009-10 6 OF PROFITS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING AFTER SPECIFIED DATE(S). HENCE, APART FROM ELIGIBILITY, SUB-S. (1) PURPORTS TO RESTRICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF PROFITS. THI S IS THE IMPORTANCE OF THE WORDS DERIVED FROM INDUSTRIAL UNDERTAKING AS AGAI NST PROFITS ATTRIBUTABLE TO INDUSTRIAL UNDERTAKING. 4.3. DEPB IS AN INCENTIVE. IT IS GIVEN UNDER DUTY E XEMPTION REMISSION SCHEME. ESSENTIALLY, IT IS AN EXPORT INCENTIVE. NO DOUBT, THE OBJECT BEHIND DEPB IS TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY PAYMENT ON THE IMPORT CONTENT OF EXPORT PRODUCT. THIS NEUTRALIZATION IS P ROVIDED FOR BY CREDIT TO CUSTOMS DUTY AGAINST EXPORT PRODUCT. UNDER DEPB, AN EXPORTER MAY APPLY FOR CREDIT AS PERCENTAGE OF FOB VALUE OF EXPORTS MA DE IN FREELY CONVERTIBLE CURRENCY. CREDIT IS AVAILABLE ONLY AGAINST THE EXPO RT PRODUCT AND AT RATES SPECIFIED BY DGFT FOR IMPORT OF RAW MATERIALS, COMP ONENTS ETC. DEPB CREDIT UNDER THE SCHEME HAS TO BE CALCULATED BY TAK ING INTO ACCOUNT THE DEEMED IMPORT CONTENT OF THE EXPORT PRODUCT AS PER BASIC CUSTOMERS DUTY AND SPECIAL ADDITIONAL DUTY PAYABLE ON SUCH DEEMED IMPORTS. THEREFORE, DEPB/DUTY DRAWBACK ARE INCENTIVES 4.4 THE APPELLANT HAS QUOTED CASE OF M/S BALAJI AL LOY..VS. CIT 339 ITR 335 (J&K) AND CLAIMED ANALOG THAT SALE OF DEPB AND VKOY LICENSES SHOULD ALSO BE ALLOWED AS DEDUCTION IN LINE WITH EX CISE DUTY REFUND, . FIRST OF ALL THE FACTS OF THE CASE CITED DOES NOT RESEMBL E WITH THE INSTANT CASE AND SECONDLY PROFIT FROM SALE OF LICENSES CANNOT BE TREATED AS CAPITAL RECEIPT BECAUSE THESE INCENTIVES WERE GIVEN TO NEUT RALIZE THE INCIDENCE OF CUSTOM DUTY, EXCISE OR OTHER TAXES ON CERTAIN IMPOR T CONTENT OF EXPORT PRODUCT. THESE DUTIES CANNOT BE HELD ON CAPITAL PAY MENT BY ANY IMAGINATION, HENCE ANY COMPENSATION ON ACCOUNT OF T HESE DUTIES / TAXES CANNOT BE CAPITAL IN NATURE. THE COST OF PURCHASE INCLUDES DUTIES AND TAXES (OTH ER THAN THOSE SUBSEQUENTLY RECOVERABLE BY THE ENTERPRISE FROM TAX ING AUTHORITIES), FREIGHT INWARDS IN WARDS AND OTHER EXPENDITURE DIRECTLY ATT RIBUTABLE TO THE ACQUISITION. HENCE TRADE DISCOUNTS, REBATE, DUTY DR AWBACK ,AND SUCH SIMILAR ITEMS ARE DEDUCTED IN DETERMINING THE COSTS OF PURCHASE . THEREFORE, DUTY DRAWBACK, REBATE ETC. SHOULD NOT BE TREATED ADJUSTMENT (CREDIT) TO COST OF PURCHASE OR MANUFACTURE OF GOOD S. THEY SHOULD BE TREATED AS SEPARATE ITEMS OF REVENUE OR INCOME AND ACCOUNTED FOR ACCORDINGLY. THEREFORE, FOR THE PURPOSES OF AS-2, C ENVAT CREDITS SHOULD NOT BE INCLUDED IN THE COST OF PURCHASE OF INVENTORIES. EVEN ICAI HAS ISSUED GUIDANCE NOTE ON ACCOUNTING TREATMENT FOR CENVAT/MO DVAT UNDER WHICH THE INPUTS CONSUMED AND THE INVENTORY OF INPUTS SHO ULD BE VALUED ON THE BASIS OF PURCHASE COST NET OF SPECIFIED DUTY ON INP UTS RECOVERABLE FROM THE DEPARTMENT AT LATER STAGE) ARISING ON ACCOUNT OF RE BATES, DUTY DRAWBACK, DEPB, VKGUY BENEFIT ETC. PROFIT GENERATION COULD BE OR ACCOUNT OF COST CUTTING , COST RATIONALIZATION BUSINESS RESTRUCTURI NG, TAX PLANNING ON SUNDRY BALANCES BEING WRITTEN BACK, LIQUIDATION OF CURRENT ASSETS ETC. THEREFORE , DUTY DRAWBACK, DEPB AND VKGUY BENEFITS, REBATES ETC. CANNOT BE CREDITED AGAINST THE COST OF MANUFACTURE OF GOOD S DEBITED IN THE P&L A/C FOR THE PURPOSES OF S.80LA/8Q-IB AS SUCH REMISS IONS (CREDITS) WOULD ITA NO.191 (ASR)/2014 ASST. YEAR: 2009-10 7 CONSTITUTE INDEPENDENT SOURCE OF INCOME BEYOND THE FIRST DEGREE NEXUS BETWEEN PROFITS AND THE INDUSTRIAL UNDERTAKING. IN THE CIRCUMSTANCES, DEPB & VKGUY BENEFITS DO NOT FORM PART OF THE NET P ROFITS OF ELIGIBLE INDUSTRIAL UNDERTAKING FOR THE PURPOSES OF S.80-JB. 4.5 SO FAR SECOND ITEM OF ADDITION OF RS.9,06,998 U /S 40A(IA) IS CONCERNED THE APPELLANT DID NOT GIVE ANY REASONABLE ARGUMENT EXCEPT THAT THE SAID DISALLOWANCE / ADDITION SHALL INCREASE THE EXEMPT INCOME ONLY. THIS ADDITION WAS MADE FOR NON DEDUCTION OF TDS ON PAYMENT MADE TO/TYS KASHMIR ICE FACTORY AND COLD STORAGE AND NO EXPLANA TION WAS FURNISHED BEFORE THE AO. BEFORE ME ALSO, NO VALID ARGUMENT WA S SUBMITTED. IT IS AN ABSURD ARGUMENT THAT SUCH DISALLOWANCE SHALL INCREA SE THE EXEMPT INCOME. FIRST OF ALL THE DEDUCTION IS NOT ADMISSIBL E AS DISCUSSED ABOVE AND SECONDLY THE DEDUCTIONS ARE MEANT FOR ELIGIBLE PROF IT OF BUSINESS AND NOT THE INCREASE IN INCOME DUE TO ADDITION AN ACCOUNT O F INFRINGEMENT OF LAW. THUS THIS ARGUMENT OF THE APPELLANT IS REJECTED. 5. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 6. AT THE OUTSET, THE LEARNED AR SUBMITTED THAT ASS ESSEE WAS ELIGIBLE FOR DEDUCTION U/S 80IB AS THE RECEIPT OF INCOME FRO M THE SALE OF THESE LICENSE FORMED PART OF BUSINESS ACTIVITY OF THE CON CERN AND HAD THE ASSESSEE WAS NOT INTO THIS BUSINESS THE RECEIPTS WO ULD NOT HAVE POSSIBLE AND THEREFORE, HE SUBMITTED THAT LEARNED CIT(A) HAS WRONGLY CONFIRMED THE ADDITION. 7. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AR S UBMITTED THAT EVEN IF THE ADDITION IS MADE TO THE INCOME OF ASSES SEE STILL THE TOTAL PROFITS OF THE ASSESSEE WERE ELIGIBLE FOR DEDUCTION U/S 80IB AND RELIANCE IN THIS RESPECT WAS PLACED ON THE FOLLOWING CASE LA WS DECIDED BY AMRITSAR BENCH OF ITAT. (I) ASIAN INDUSTRIES VS. ITO, JAMMU IN ITA NO.588(A SR)/2013 (II) SMT. HARBHAJAN KAUR, PROP. VS. ITO, KTHUA, IN ITA NO.331(ASR)/2013 ITA NO.191 (ASR)/2014 ASST. YEAR: 2009-10 8 THEREFORE, THE LEARNED AR, ARGUED THAT APPEAL SHOUL D BE ALLOWED IN FAVOUR OF ASSESSEE. 8. THE LEARNED DR, ON THE OTHER HAND, HEAVILY PLACE D HIS RELIANCE ON THE ORDER OF LEARNED CIT(A) AND SUBMITTED THAT LEAR NED CIT(A) HAS RELIED UPON THE CASE LAW OF LIBERTY INDIA VS. CIT 317 ITR 218 DECIDED BY HONBLE SUPREME COURT WHEREIN THE HONBLE SUPREME COURT HAS CLEARLY HELD THAT DEPB AND OTHER INCENTIVE OF THIS NATURE ARE NOT PAR T OF INDUSTRIAL ACTIVITY OF THE ASSESSEE AND THEREFORE, THEY WERE NOT ELIGIB LE FOR DEDUCTION U/S 80-IB AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO RELEVANT PARAGRAPHS OF THE CIT(A)S ORDER. 9. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT IT IS AN UN DISPUTED FACT THAT THAT ASSESSEE HAD RECEIVED PAYMENTS ON ACCOUNT OF SALE O F DEPB LICENSE AND VKOY LICENSES. THE HONBLE SUPREME COURT OF INDIA I N THE CASE OF LIBERTY INDIA LTD. VS. CIT 317 ITR 218 HAS HELD THAT INCOME RECEIVED ON ACCOUNT OF DEPB & DUTY DRAW BACK ETC. ARE NOT PART OF INDUS TRIAL PROFITS AND THUS CANNOT BE SAID TO BE DERIVED FROM THE BUSINESS . THE RELEVANT FINDINGS OF HONBLE COURT ARE REPRODUCED BELOW. SECTIONS 80-I, 80-IA AND 80-IB PROVIDE FOR INCENTI VES IN THE FORM OF DEDUCTIONS WHICH ARE LINKED TO PROFITS AND INVESTME NT. ON ANALYSIS OF SECTIONS 80-IA AND 80-IB IT BECOMES CLEAR THAT ANY INDUSTRIAL UNDERTAKING WHICH BECOMES ELIGIBLE ON SATISFYING SUB-SECTION(2) WOULD BE ENTITLED TO DEDUCTION UNDER SUB-SECTION (1) ONLY TO THE EXTENT OF PROFITS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING AFTER THE SPECIFIED DAT E. APART FROM ELIGIBILITY, SUB-SECTION (1) PURPORTS TO RESTRICT THE QUANTUM OF DEDUCTION TO A SPECIFIED ITA NO.191 (ASR)/2014 ASST. YEAR: 2009-10 9 PERCENTAGE OF THE PROFITS. THIS IS THE IMPORTANCE O F THE WORDS DERIVED FROM AN INDUSTRIAL UNDERTAKING AS AGAINST PROFITS ATT RIBUTABLE TO AN INDUSTRIAL UNDERTAKING. DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM THE SCHEME FRAMED BY THE CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOMS ACT, 1962. INCENTIVE PROFITS ARE NOT PROFITS DERIVED FRO M ELIGIBLE BUSINESS UNDER SECTION 80-IB: THEY BELONG TO THE CATEGORY OF ANCIL LARY PROFITS OF SUCH UNDERTAKING. PROFITS DERIVED BY WAY OF INCENTIVES S UCH AS DEPB/DUTY DRAWBACK CANNOT BE CREDITED AGAINST THE COST OF MAN UFACTURE OF GOODS DEBITED IN THE PROFIT AND LOSS ACCOUNT AND THEY DO NOT FALL WITHIN THE EXPRESSION PROFITS DERIVED FROM INDUSTRIAL UNDERTA KING UNDER SECTION 80- IB. THE ASSESSEE HAS CLEARLY CREDITED THE INCOME FROM SALE OF DEPB LICEN CE AND YKOY LICENCE IN P&L ACCOUNT AND THESE INCENTIVE S BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKING A ND AS PER HONBLE SUPREME COURT JUDGMENT CANNOT BE SAID TO BE DERIVED FROM BUSINESS. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF H ONBLE SUPREME COURT, WE DISMISS THE GROUND NO.2 OF THE APPEAL. 10. REGARDING GROUND NO.3, WE FIND THAT THE ADDITIO N BY ASSESSING OFFICER WAS MADE U/S14(A)(IA) OF THE ACT AND THEREF ORE, INCOME OF THE ASSESSEE WAS INCREASED TO THAT EXTENT AND WHICH AGA IN CAN BE SAID TO BE INCOME ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE COMPANY AND THEREFORE, THE ADDITION MADE ON THIS ACCOUNT IS AGA IN ELIGIBLE FOR DEDUCTION U/S 80IB. THE HONBLE ITAT, AMRITSAR IN T HE CASE OF SMT. HARBHAJAN KAUR, PROP., ITA NO.331(ASR)/2013 VIDE OR DER DATED 6.12.2013 HAS HELD AS UNDER: 11.WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THERE IS NO DISPUTE TO THE FACT THAT THE RENT HAS B EEN PAID IN CASH IN VIOLATION OF PROVISIONS OF SECTION 40A(3) AND THE L D. CIT(A) HAS RIGHTLY ITA NO.191 (ASR)/2014 ASST. YEAR: 2009-10 10 CONFIRMED THE ACTION OF THE AO IN DISALLOWING THE S AME. IT IS ALSO FACT THAT THE DISALLOWANCE OF SUM CLAIMED ENHANCES THE INCOME OF THE ASSESSEE AND THE INCOME SO ENHANCED IS AVAILABLE U/S 80IBOF THE ACT. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS JOT JUSTIFIED IN NOT ALLOWING DEDUCTION U/S 80IB OF THE ACT. THEREFORE, WE DIRECT THE A.O TO ALLOW DEDUCTION U/S 80IB OF THE ACT, IN VIEW OF OUR DECISION MENTIONED HEREINABOVE. THUS, GROUND NO.4 OF THE ASSESSEE IS A LLOWED. THE ABOVE DECISION OF THE ITAT, AMRITSAR BENCH HAS BEEN FOLLOWED IN ITA NO.588(ASR)/2013 IN THE CASE OF ASIAN INDUSTRIES VS . ITO, DECIDED BY ITAT, AMRITSAR BENCH. RESPECTFULLY FOLLOWING THE RATIO OF THE CASES RELIE D UPON BY THE ASSESSEE WE HOLD THAT ADDITION ON ACCOUNT OF DISALLOWANCE U/S 40A(3) IS ELIGIBLE FOR DEDUCTION U/S 80IB, THEREFOR E, GROUND NO.3 IS ALLOWED. 11. GROUND NO. 1 & 4 DO NOT REQUIRE ANY ADJUDICATIO N. 12. IN NUTSHELL, THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH MAY, 2016 SD/- SD/- (A.D. JAIN) (T . S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEM BER DATED:13.05.2016. /PK/ PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER