M/s. Suraj Exports India, CHURU V. ITO, CHURU

ITA 336/JODH/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1619 (ITAT-JODHPUR)
• Duration Of Justice: 1 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-01-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 26-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Assessee Lawyers: U C JAIN
• Keywords: Business income; Question of law
• Section: 143(3); 80HHC; 80IB; 10B; 28; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K.SAINI, ACCOUNTANT MEMBER ITA NO. 336/JODH/2011 [ASSESSMENT YEAR 2008-09] M/S. SURAJ EXPORTS INDIA V INCOME-TAX OFFICER, NEAR RAILWAY STATION, WARD-2, SARDARSHAHAR CHURU(RAJ.) CHURU (RAJ.) PAN : ABFS8126M DATE OF HEARING 04/01/2013 ITA NO. 360/JODH/2012 [ASSESSMENT YEAR 2008-09] M/S. ANGIRA ART EXPORTS V INCOME-TAX OFFICER, E- 97, MANDORE INDUSTRIAL AREA, WARD- 3 (1), JODHPUR JODHPUR PAN : AALFA 8687 L DATE OF HEARING 09/01/2013 ITA NO. 386/JODH/2011 [ASSESSMENT YEAR 2008-09] INCOME-TAX OFFICER, V. M/S. SURAJ EXPORTS INDIA, WARD-2, SARDARSHAHAR CHURU. PAN : ABFS8126M DATE OF HEARING 04/01/2013 (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. U.C. JAIN AND SH. RAJENDRA JAIN. DEPARTMENT BY : SHRI SUBHASH CHANDRA CIT(DR) - 2 - ITA NO. 350/JODH/2011 [ASSESSMENT YEAR 2008-09] & ITA NO. 423/JODH/2012 [ASSESSMENT YEAR 2009-10] SHEKHAWATI ART EXPORTS VS. DCIT, 65-B, BANK COLONY, RAI KA BAGH CIRCLE-1 UMAID BHAWAN PALACE ROAD JODHPUR. JODHPUR. PAN : AALFS2987H DATE OF HEARING 04/01/2013 AND 19 /12/12. ITA NO. 368/JODH/2012 [ASSESSMENT YEAR 2009-10] RAJASTHAN ARTS& CRAFTS HOUSE VS. ACIT, NEAR CIRCUIT HOUSE CIRCLE-1 UMAID BHAWAN PALACE ROAD JODHPUR. JODHPUR. PAN : AAIFR 0039 C DATE OF HEARING 19/12/2013 ITA NO. 269/JODH/2011 [ASSESSMENT YEAR 2008-09] & ITA NO. 399/JODH/2012 [ASSESSMENT YEAR 2009-10] PAT RAM BHISHNOI VS. THE INCOME-TAX OFFICER P/O M/S INDUS TRADE WARD 1(3) TANAWADA PHANTA, JODHPUR. SALAWAS ROAD, JODHPUR. PAN : ABLPB 9240 M DATE OF HEARING 19/12/2013 (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. DINESH BOOB DEPARTMENT BY : SHRI SUBHASH CHANDRA CIT(DR) - 3 - ITA NO. 254/JODH/2010 [ASSESSMENT YEAR 2007-08] AZTEC SHIVA HANDICRAFTS V ADDL. CIT, & ARTS PVT. LTD. RANGE-3, JODHPUR. E-589-595, EPIP IND AREA, BORANADA, JODHPUR. ITA NO. 353/JODH/2012 [ASSESSMENT YEAR 2009-10] AZTEC SHIVA HANDICRAFTS V ACIT, & ARTS PVT. LTD. CIRCLE-3, JODHPUR. E-589-595, EPIP IND AREA, BORANADA, JODHPUR. ITA NO. 352/JODH/2012 [ASSESSMENT YEAR 2006-07] AZTEC SHIVA HANDICRAFTS V ACIT, & ARTS PVT. LTD. CIRCLE-3, JODHPUR. E-589-595, EPIP IND AREA, BORANADA, JODHPUR. ITA NO. 401/JODH/2011 [ASSESSMENT YEAR 2008-09] AZTEC SHIVA HANDICRAFTS V ACIT, & ARTS PVT. LTD. CIRCLE-3, JODHPUR. E-589-595, EPIP IND AREA, BORANADA, JODHPUR. PAN : AACCA3071E DATE OF HEARING 04/01/2013 (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. T.L. JAIN DEPARTMENT BY : SHRI SUBHASH CHANDRA CIT(DR) - 4 - ITA NO. 420/JODH/2012 [ASSESSMENT YEAR 2009-10] M/S LATIYAL HANDICRAFTS VS. ACIT, PVT. LTD. CIRCLE-3, LATIYAL VATIKA, PAL ROAD, JODHPUR JODHPUR. PAN : AABCL 0833 A DATE OF HEARING 09/01/2013 ITA NOS. 239, 240, 310 /JODH/2012 [ASSESSMENT YEARS 2007-08, 2008-09, 2009-10] M/S BHARAT ART AND CRAFTS VS. DY. CIT, MAIN BHAWAN, GORO KA CHOWK CIRCLE-3, JODHPUR JODHPUR. PAN : AAGFB 7902 C ITA NO. 349 /JODH/2012 [ASSESSMENT YEAR 2009-10] DY. CIT, VS. M/S BHARAT ART AND CRA FTS CIRCLE-3, MAIN BHAWAN, GORO KA CHOWK JODHPUR JODHPUR. PAN : AAG FB 7902 C DATE OF HEARING 00/01/2013 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJENDRA JAIN SHRI RAJ BOTHRA DEPARTMENT BY : SHRI G.R. KOKANI(DR) DATE OF PRONOUNCEMENT : 31.01.2013 - 5 - ORDER PER BENCH : ALL THE ABOVE CAPTIONED APPEALS, FILED BY DIFFEREN T ASSESSEES HAVE RAISED ALMOST IDENTICAL ISSUES WITH REGARD TO INCOM E DERIVED FROM THE MANUFACTURING AND EXPORTING OF HANDICRAFT-WOODEN-IT EMS. THEREFORE, WE PROCEED TO DECIDE THEM BY A COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. BUT TO BE SPECIFIC, WE WOU LD NARRATE THE FACTS OBTAINING IN THE APPEAL OF M/S. SURAJ EXPORT INDIA IN ITA NO. 336 (2008- 09), WHICH IS DIRECTED AGAINST THE ORDER OF LD. CIT (A) DATED 08/08/2011. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH IS ASSESSEE-FIRM FILED ITS RETURN OF INCOME (R)OI), ELECTRONICALLY ON 28.0 9.2008. AFTER CLAIMING EXEMPTION U/S 10BA OF THE ACT NIL INCOME WAS DECLAR ED. DURING THE RELEVANT YEAR THIS ASSESSEE-FIRM WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF WOODEN ARTICLES. THE ASSESSEE-FIRM HAS SHOWN TOTAL SALES, INCLUDING DUTY DRAWBACK, AT RS. 9,56,42,648/ - AND GROSS PROFIT AT RS. 48,79,954/- GIVING G.P. RATE OF 5.10% AS AGAINS T TOTAL SALES OF RS. 9,59,75,116 GIVING G.P. RATE OF 25.29% IN THE IMMED IATELY PRECEDING ASSESSMENT YEAR I.E., 2007-08, AND 24.98% ON TOTAL SALES OF RS. 6,02,30,477/- IN A.Y. 2006-07. THE A.O. HAS OBSERVE D THAT THE DUTY DRAW BACK AMOUNTING TO RS. 38,37,416/-, WHICH IS A PART OF P & L ACCOUNT, IF EXCLUDED THEN SALES OF THE YEAR WILL BE REDUCED TO RS. 9,18,05,232/- WHICH WILL REDUCE THE G.P. RATE OF 0.01%. THEREFORE , THE A.O. SOUGHT - 6 - EXPLANATION TO MEET THIS SITUATION, TO WHICH THE AS SESSEE-FIRM REPLIED AS UNDER:- THE ASSESSEE FIRM IS MANUFACTURING TIMBER HANDICRA FTS ITEMS ON WHOLESALE BASIS IN HEAD OFFICE AND BRANCH OFFICE, J AIPUR. TOTAL SALES ARE EXPORT SALES. MARGIN OF PROFIT ON EXPORT SALES ARE DEPENDING ON FOREIGN DEALERS. FOREIGN DEALERS PURCH ASE THE HANDICRAFT ITEMS ON THE MINIMUM PRICE OF THE MARKET AFTER MAKING ENQUIRIES FROM OTHER DEALERS. TUFF COMPETITIONS ARE GOING ON IN HANDICRAFTS ITEMS OF EXPORT. RULE OF G.P. IS DEPEND ING ON PURCHASE OF FOREIGN DEALERS. IT DIFFERS YEAR TO YEAR. ALL TH E PURCHASES AND SALES ARE FULLY SUPPORTED BY VOUCHERS. THE ASSESSME NT FOR THE A.Y. 2006-07 AND 2007-08 HAVE BEEN COMPLETED U/S 143(3) AND INCOME OF THE ASSESSEES FIRM HAS BEEN TREATED AS EXEMPTED U/ S 10BA OF THE I.T. ACT, 1961. IN SUCH TYPE OF BUSINESS IT IS NOT POSSIBLE FOR BUSINESSMAN TO MAINTAIN STOCK REGISTER AND DETAILS OF DAY TO DAY CONSUMPTION OF STOCK. IT HAS BEEN ALSO SUBMITTED TH AT WHEN THE ORDER FOR EXPORT SALES HAD BEEN TAKEN ON THE RATE O F DOLLAR FROM THE FOREIGN DEALERS, THE RATE OF DOLLAR WAS ON HIGH ER SIDE AND WHEN THE HANDICRAFTS ITEMS HAD BEEN SUPPLIED ON THEM, TH E RATE OF DOLLAR WAS DECREASED. THE COST OF HANDICRAFTS ITEMS WERE ALSO INCREASED ON ACCOUNT OF INCREASE IN VALUE OF TIMBER AND OTHER RAW MATERIAL. THE RATES OF WAGES HAVE ALSO BEEN INCREAS ED. ON ACCOUNT OF THESE REASONS, THE COST OF HANDICRAFTS ITEMS DEC REASED THE RATE OF GROSS PROFIT IS VERY MUCH LESS AS COMPARED TO TH E ASSESSMENT YEAR 2007-08. HE HAS ALSO FILED THE CHART REGARDING FALL IN RATE OF DOLLAR AND INCREASE INCOME COST OF TIMBER AS COMPAR ED TO LAST YEAR. 3. AFTER CONSIDERING THE ABOVE REPLY, THE A.O. FOUN D IT A FIT CASE FOR APPLICATION OF SECTION 145(3) OF THE ACT. REGARDING DUTY-DRAW-BACK RECEIVED BY THE ASSESSEE-FIRM AMOUNTING TO RS. 38,3 7,416/- AND SHOWN IN THE TRADING ACCOUNT, WHICH IS AN INCENTIVE GIVEN UN DER CUSTOMS ACT, IT WAS HELD BY A.O. THAT SUCH INCENTIVE DO NOT FORM PA RT OF PROFIT FOR THE BENEFIT OF SECTION 10BA, NOT BEING PROFIT DERIVED F ROM MANUFACTURING ACTIVITIES OF THE ELIGIBLE GOODS. THEREFORE, HE INV ITED OBJECTIONS AGAINST - 7 - THIS PROPOSED DENIAL OF BENEFIT U/S 10BA. THE A.R. OF THE ASSESSEE SUBMITTED HIS OBJECTIONS THROUGH A WRITTEN SUBMISSI ON, THE RELEVANT PORTION OF WHICH IS BEING REPRODUCED BELOW :- THE A/R OF THE ASSESSEE FIRM HAS SUBMITTED HIS WRI TTEN SUBMISSION STATING THEREIN THAT : THE AMOUNT OF DUTY DRAW BACK HAS BEEN RECEIVED AFTER MANUFACTURING THE HANDICRAFTS ARTICL ES WITHOUT USE OF IMPORTED RAW MATERIALS AND ON EXPORT SALES OF TH E ELIGIBLE ARTICLES. THE AMOUNT OF DUTY DRAW BACK IS RELATED T O MANUFACTURING OF HANDICRAFTS ARTICLES AND ON EXPORT SALES. HENCE THE AMOUNT OF DUTY DRAW BACK HAS BEEN RECEIVED BY THE ASSESSEE AF TER COMPLETING THE FULL CONDITIONS OF PROVISIONS OF SECTION 10BA. THUS THE AMOUNT OF DUTY DRAW BACK IS EXEMPT U/S 10BA OF THE I.T. AC T 1961. HE HAS ALSO RELIED SOME DECISIONS I.E. (I) HONBEL SUPREME COURT IN THE CASE OF B. DESRAJ VS. C.I.T. (2008) 301 I.T.R. 439 (HON'BLE SUPREME COURT), (II) HONBLE RAJASTHAN HIGH COURT IN THE CA SE OF SARAF SEASONING UDYOG VS. I.T.O. (2009) 317 I.T.R. 202 (R AJ.) AND (III) HONBLE SUPREME COURT IN THE CASE OF C.I.T. VS. BAB Y MARINE EXPORTS 160 TAXMAN 160 (HON'BLE SUPREME COURT) ETC. 4. NOT AGREEING WITH THE ABOVE SUBMISSIONS OF THE A SSESSEE THE A.O., AFTER RELYING ON THE DECISION OF LIBERTY INDIA 317 ITR 218 (SC), HAS DENIED THE BENEFIT U/S 10 BA QUA THE AMOUNT OF RS. 38,37,4 16/- IN RESPECT OF D.D.B. CIT(A) HAS ALSO APPROVED THE ABOVE ACTION OF THE A.O. NOW THE ASSESSEE IS FURTHER AGGRIEVED AND HAS RAISED FOLLOW ING GROUNDS IN ITS APPEAL :- 1. THE LEARNED AUTHORITIES BELOW ERRED IN DISALLOWING AN AMOUNT OF RS. 21,144/- OUT OF OFFICE EXPENSES. THE DISALLOWANCE WAS WRONG, UNJUSTIFIED AND AT ANY RATE HIGHLY EXCESSIVE. 2- THE LEARNED AUTHORITIES BELOW ERRED IN NOT ALLOWING THE EXEMPTION U/S 10BA OF THE BALANCE AMOUNT OF DUTY DRAW BACK OF RS. 227619/- (3837416 - 3609797) AS CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME AS PER NET PROFIT DECLARED BY THE ASESSEE AS PER PROFIT AND LOSS ACCOUNT AND BOOKS OF ACCOUNTS. AS PER PROVISIO NS OF LAW THE AMOUNT OF DUTY DRAW BACK WAS RELATED TO MANUFACTURING OF HANDICRAFTS ARTICLES AND RECEIVED ON EXPORT SALES. THUS IT WAS EXEMPT U/S 10BA OF THE INCOME TAX ACT 1961. THE EXEMPTION U/S 10BA ON THE AMOUNT OF DUTY DRAW BACK OUGHT TO HAVE BEEN ALLOWED . - 8 - 3- WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL NO . 1 & 2 IT IS HUMBLY SUBMITTED THAT TOTAL NET INCOME OF THE ASSES SEE WAS EXEMPT U/S 10BA OF THE INCOME TAX ACT, AS PER PROVISIONS O F LAW. THE NET INCOME OF THE ASSESSEE OUGHT TO HAVE BEEN ALLOWED A S EXEMPT U/S 10BA OF THE INCOME TAX ACT. 4- THE LEARNED AUTHORITIES BELOW WAS WRONG IN CHARGING INTEREST U/S 234B. THE CHARGING OF INTEREST WAS WRONG AND UNJUST IFIED. 5. IN FACT, AT THE TIME OF THE HEARING GROUND NO. ( 1) WAS NOT PRESSED BY SHRI U.C. JAIN, LD. ADVOCATE APPEARING FOR THE APPELLANT. THE OTHER TWO GROUNDS I.E. GROUND NO. 2 AND 3 ARE OF UTMOST I MPORTANCE. THE ISSUES RAISED VIDE GROUND NO. 2 AND 3 ARE COMMON IN OTHER APPEALS ALSO. 6. WE HAVE HEARD SHRI U.C. JAIN, LD. ADVOCATE APPOI NTING FOR THIS ASSESSEE. WE HAVE ALSO HEARD SHRI DINESH BOOB AND S HRI T.L. JAIN, LD. ARS ETC. APPEARING FOR OTHER APPELLANTS. WE HAVE ALSO HEARD LD. CIT-DR SHRI SUBHASH CHANDRA AT LENGTH. HE HAS FILED A DETAILED WRITTEN SUBMISSION WITH A REQUEST THAT ITS AVERMENTS MAY BE INCORPORAT ED IN THE ORDER, IN EXTENT. 7. WE HAVE CIRCUMSPECTED THE ENTIRE RECORD AVAI LABLE BEFORE US. WE HAVE GONE THROUGH THE RELEVANT PROVISIONS OF THE ACT AN D HAVE ALSO TREADED THROUGH THE RELEVANT PRECEDENTS RELIED BEFORE US. THE SUM AND SUBSTANCE OF THE SUBMISSIONS MADE FROM THE SIDE OF THE ASSESSEE CAN BE SUMMARIZED AS UNDER :- '1. THAT DURING THE YEAR UNDER CONSIDERATION THE AS SESSEE HAS CLAIMED DEDUCTION U/S 10BA ON DEPB/DDB. THE AUTHORITIES BEL OW HAS DISALLOWED THE CLAIM OF THE ASSESSEE IN LIGHT OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA V/S CIT REPORTED IN 225 CTR23 3. - 9 2. THAT THE DECISION OF HON'BLE SUPREME COURT IN THE C ASE OF LIBERTY INDIA V/S CIT REPORTED IN 225 CTR 233 IS ON DEDUCTION U/S 80IA OF THE ACT, WHEREAS THE CLAIM OF THE ASSESSEE IS IN RESPECT OF DEDUCTIO N U/S 10BA OF THE ACT AND AS SUCH THE RATIO OF DECISION OF HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA IS NOT APPLICABLE IN THE ASSESSEE'S CASE FOR THE FOLLOWING REASONS:- A. THAT IN CASE OF LIBERTY INDIA, THE HON'BLE SUPRE ME COURT HAS DEALT WITH THE PROVISIONS OF SECTION 80IA OF THE AC T WHEREIN NO FORMULA WAS LAID DOWN FOR COMPUTING THE PROFITS DER IVED BY THE UNDERTAKING WHEREAS U/S 10BA A FORMULA IS PROVI DED UNDER SUB- SECTION (4) OF SECTION 10BA AS TO COMPUTATION OF PR OFITS DERIVED BY THE UNDERTAKING FROM THE EXPORT. B. THAT THE MODE OF DETERMINATION OF ELIGIBLE DEDUC TION U/S10BA IS SIMILAR TO THE PROVISIONS OF SECTION 80HHC IN AS MU CH AS BOTH THE SECTIONS MANDATES DETERMINATION OF ELIGIBLE PROFIT S AS PER THE FORMULA CONTAINED THEREIN. THE ONLY DIFFERENCE IS THAT SECTION 80HHC CONTAINS A FURTHER MANDATE IN TERMS OF EXPLANATION BAA] FOR EXCLUSION OF CERTAIN INCOME FR OM THE 'PROFITS OF THE BUSINESS' WHICH IS, HOWEVER, CONSPI CUOUS BY ITS ABSENCE IN SECTION 10BA. C. THE HON'BLE SUPREME COURT RECENTLY IN THE CASE OF TOPMAN EXPORTS VS CIT REPORTED IN 67 DTR 185 AND ACG ASSOC IATED CAPSULES PVT. LTD. VS CIT REPORTED IN 67 DTR 205 HA S HELD 'DEPB IS CHARGEABLE AS INCOME UNDER CL. (IIIB) OF S. 28 IN T HE YEAR IN WHICH SUCH PERSON APPLIES FOR DEPB CREDIT AGAINST THE EXP ORTS WHEREAS THE PROFIT ON TRANSFER OF DEPB BY THAT PERSON IS CH ARGEABLE AS INCOME UNDER CL. (IIID) OF S. 28 IN HIS HANDS IN THE YEAR IN WHICH HE MAKES THE TRANSFER. D. RECENTLY THE HON'BLE ITAT MUMBAI BENCH IN THE CA SE OF ARTS & CRAFTS EXPORTS VS ITO REPORTED IN 66 DTR 69 (ITAT, MUMBAI BENCH) AFTER CONSIDERING THE DECISION OF HON'BLE SUPREME COURT I N THE CASE OF LIBERTY INDIA VS CIT REPORTED IN 225 CTR 233 HAS HELD AS UN DER: - '11.14 AS REGARDS DEDUCTION UNDER S. 10BA IN RESPEC T OF DEPB, WE FIND THAT SUB-S. (4) OF S.-LOBA DEFINES PROFITS DERIVED FROM ELIGIBLE ARTICLES. SEES. 28[IIIC) [IIID) AND [IIIE) PROVIDES THAT THESE INCO ME ARE PROFITS AND GAINS OF BUSINESS. THE SAID SUB-S. [4) OF S. 10BA IS REPRODU CED BELOW. - 10 - 'FOR THE PURPOSES OF SUB-S. (1), THE PROFITS DERIVE D FROM EXPORT OUT OF INDIA OF THE ELIGIBLE ARTICLES OR THINGS SHALL BE T HE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTA KING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUC H ARTICLES OR THINGS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING.' THE RELEVANT PART OF S. 28 READS AS U NDER: 'SEC. 28 THE FOLLOWING INCOME SHALL BE CHARGEABLE T O INCOME-TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON'- [IIIC) ANY DUTY OF CUSTOMS OR EXCISE REPAID OR REP AYABLE AS DRAWBACK TO ANY PERSON AGAINST EXPORTS UNDER THE CUSTOMS AND CENTRAL EXCISE DUTIES DRAWBACK RULES, 1971; [IIID) ANY PROFIT ON THE TRANSFER OF THE DUTY ENTIT LEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME UNDER THE E XPORT AND IMPORT POLICY FORMULATED AND ANNOUNCED UNDER S. 5 O F THE FOREIGN TRADE [DEVELOPMENT AND REGULATION) ACT, 1992 [22 OF 1992); [IIIE) ANY PROFIT ON THE TRANSFER OF THE DUTY FREE REPLENISHMENT CERTIFICATE, BEING THE DUTY REMISSION SCHEME UNDER THE EXPORT AND IMPORT POLICY FORMULATED AND ANNOUNCED U NDER S. 5 OF THE FOREIGN TRADE [DEVELOPMENT AND REGULATION) ACT, 199 2 [22 OF 1992);' E. THAT THE DECISION OF HON'BLE ITAT MUMBAI BENCH HAS BEEN APPROVED BY THE HON'BLE BOMBAY HIGH COURT REPORTED IN 66 DTR 85 [BOMBAY). F. THE HON'BLE ITAT INDORE BENCH [SPECIAL) IN THE CASE OF M/S MORAL OVERSEAS LIMITED VS ADDITIONAL COMMISSIONER OF INC OME TAX IN REPORTED IN 136 ITD 177 HELD AS UNDER: - 'IT IS CLEAR FROM THE PLAIN READING OF SECTION 10B( 1) OF THE ACT THAT THE SAID SECTION ALLOWS DEDUCTION IN RESPECT OF PROFITS AND GAINS AS ARE DERIVED BY A 100% EOU. FURTHER, SECTION 10B(4) OF THE ACT STIPUL ATES SPECIFIC FORMULA FOR COMPUTING THE PROFIT DERIVED BY THE UNDERTAKING FROM EXPORT. THUS, THE PROVISIONS OF SUB-SECTION (4) OF SECTION 10B OF THE ACT MANDATE THAT DEDUCTION UNDER THAT SECTION SHALL BE COMPUTED BY APPORTIONING THE PROFITS OF THE BUSINESS OF THE UND ERTAKING IN THE RATIO OF EXPORT TURNOVER BY THE TOTAL TURNOVER. THUS, EVEN T HOUGH SUB SECTION (1) OF SECTION 10B REFERS TO PROFITS AND GAINS AS ARE D ERIVED BY A 100% EOU, THE MANNER OF DETERMINING SUCH ELIGIBLE PROFITS HAS BEEN STATUTORILY DEFINED IN SUB-SECTION (4) OF THAT SECTION. BOTH SU B-SECTIONS (1) AND (4) ARE TO BE READ TOGETHER WHILE COMPUTING THE ELIGIBL E DEDUCTION U/S 10B OF THE ACT. WE CANNOT IGNORE SUB-SECTION (4] OF SEC TION 10B WHICH PROVIDES SPECIFIC FORMULA FOR COMPUTING THE PROFITS DERIVED BY THE UNDERTAKING FROM EXPORT. AS PER THE FORMULA SO LAID DOWN, THE ENTIRE PROFITS OF THE BUSINESS ARE TO BE DETERMINED WHICH ARE FURTHER MULTIPLIED - 11 - BY THE RATIO OF EXPORT TURNOVER TO THE TOTAL TURNOV ER OF THE BUSINESS. IN CASE OF LIBERTY INDIA (SUPRA), THE HON'BLE SUPREME COURT HAS DEALT WITH THE PROVISIONS OF SECTION 80-IA OF THE ACT WHEREIN NO F ORMULA WAS LAID DOWN FOR COMPUTING THE PROFITS DERIVED BY THE UNDERTAKIN G WHICH HAS SPECIFICALLY BEEN PROVIDED UNDER SUB-SECTION (4) OF SECTION 10B WHILE COMPUTING THE PROFITS DERIVED BY THE UNDERTAKING FR OM THE EXPORT. THUS, THE DECISION OF THE HON'BLE SUPREME COURT IS OF NO HELP TO THE REVENUE IN DETERMINING THE CLAIM OF DEDUCTION U/S 1 OB IN RESP ECT OF EXPORT INCENTIVES.' G. HON'BLE IT AT AHMEDABAD BENCH IN THE CASE OF KA DAM EXPORTS PVT. LTD. VS. ITO/I.T.A. NO.2890/AHD/2011 DATED 31/7/12 'AS FAR AS THE OTHER DECISIONS NAMELY, TOPMAN EXPO RTS VS. ITO(2009) 125 TTJ 289 (MUMBAI)[SBJ AND LIBERTY OF INDIA VS. OT (2009) 317ITR 218 (SC) ARE CONCERNED, THE SAME ARE NOT PRONOUNCE D IN THE CONTEXT OF THE PROVISIONS OF SEC. 10B, THEREFORE, FINALLY FRO M THE SIDE OF THE APPELLANT ONLY THIS PRECEDENT WAS CITED IN RESPECT OF GROUND NOS.3 TO 6 FOR THE LEGAL PROPOSITION THAT EXPORT INCENTIVE IS TO BE ALLOWED IN TERMS OF THE VERDICT OF MORAL OVERSEAS LTD.(SUPRA). UNDI SPUTEDLY, THIS DECISION OF THE RESPECTED SPECIAL BENCH DATED 28/0 3/2012 WAS NOT AVAILABLE WHEN THE ASSESSMENT WAS FINALIZED. THE AS SESSING OFFICER DID NOT HAVE THE BENEFIT OF THIS VERDICT. THE RESPECTED SPECIAL BENCH HAS GIVEN THE DIRECTION THAT AN ASSESSEE IS ELIGIBLE FO R CLAIM OF DEDUCTION AS EXPORT INCENTIVE RECEIVED BY IT IN TE RMS OF PROVISIONS OF SEC.10B(1) R.W.S. 10B(4) OF THE ACT. ON THE SAM E LINES, WE HEREBY DIRECT THE ASSESSING OFFICER TO VERIFY THE CORRECT NESS OF THE CLAIM AND IF SATISFIED, THEN APPLY THE FORMULA AS DISCUSSED I N THIS CASE-LAW AND THEREAFTER ALLOW AS PER LAW. RESULTANTLY, THESE GRO UNDS MAY BE TREATED AS ALLOWED BUT FOR STATISTICAL PURPOSES ONLY.' IN LIGHT OF ABOVE THE ASSESSEE IS ELIGIBLE FOR DEDU CTION U/S 10BA ON DEPB AND THE AUTHORITY BELOW HAS WRONGLY APPLIED TH E RATIO OF DECISION OF HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA WHICH HAS NO APPLICATION IN THE CASE OF APPELLANT.' 7. THE ID. CIT-DR HAS REPEATED, ALL THE REASONS GIVEN BY A.O. AS WELL AS LD. CIT(A) AS TO WHY AND HOW THE ASSESSEES ARE NOT ENTITLED TO THE EXEMPTION OF SECTION 10BA. AS PER THE REQUEST OF LD . CIT(DR), WE ARE EXTRACTING HIS ENTIRE WRITTEN SUBMISSION, VERBATIM, AS UNDER : - 12 - 'THE PROVISION OF SECTION 10B OF THE IT ACT, 1961, STARTS WITH THE WORDS:- 'SUBJECT TO THE PROVISION OF THIS SECTION, ANY PROF IT AND GAIN DERIVED BY THE ASSESSEE FROM A 100% EXPORT ORIENTED UNDER TAKING....' THE WORD USED HERE IS 'DERIVED'. SAME WORD HAS BEEN USED IN SECTION 80HHC AND ALSO IN SECTION 80IB OF THE I. T. ACT. THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE REV ENUE BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA 317ITR 218 (SC) WHEREIN HON'BLE SUPREME COURT DEFINED THE TERM 'DERIVED' IN PARA 14 AND SAID THAT WORD 'DERIVED FR OM' IS NARROWER IN CONNOTATION AS COMPARED TO THE WORDS 'ATTRIBUTABLE TO'. IN OTHER WORDS BY USING TH E EXPRESSION 'DERIVED FROM' PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. IN PARA 18, THE LORDSHIP OBSERVED THAT DEPB/DUTY DRAWBACK ARE INCENTIVE WHICH FLOW FROM THE SCHEME F RAMED BY CENTRAL GOVERNMENT OR FROM SECTION 75 OF CUSTOM ACT, 1962. HENCE INCENTIVES ARE NOT PROFITS DERIVED FROM THE ELIGIBLE BUSINESS U/S 80IB. IN THIS REGARD THE LD. AR, IN SUPPORT OF APPELLANT' S CLAIM INTER-ALIA HAS RELIED UPON THE DECISION OF THE HON'BLE MUMBAI ITAT BENCH IN THE CA SE OF ART AND CRAFTS EXPORTS VS. /TO (2011) 45 SOT 415 (MUM), WHEREIN THE HON'BIE IT AT BENCH, INTER- ALIA HELD AS UNDER :- 'PARA-V 1.14-AS REGARDS DEDUCTION U/S 10 BA IN RESP ECT OF DEPB, WE FIND THAT SUB-SECTION (4) OF SECTION 10BA DEFINES P ROFITS DERIVED FROM ELIGIBLE ARTICLES. SECTION 28(IIIC), (IIID) AND (IIIE) PROVIDES THAT THESE INC OME ARE PROFITS AND GAINS OF BUSINESS. THE SAID SUB - SECTION (4) OF SECTION 10BA IS REPRODUCED BELOW: FOR THE PURPOSES OF SUB-SECTION (1), THE PROFITS DE RIVED FROM EXPORT OUT OF INDIA OF THE ELIGIBLE ARTICLES OR THINGS SHALL BE THE AMOUNT WHI CH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURN OVER IN RESPECT OF SUCH ARTICLES OR THINGS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. THE RELEVANT PART OF SECTION 28 READS AS UNDER :- - 13 - 28. THE FOLLOWING INCOME SHALL BE CHARGEABLE TO INC OME-TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. (IIIC) ANY DUTY OF CUSTOMS OR EXCISE RE-PAID OR RE- PAYABLE AS DRAWBACK TO ANY PERSON AGAINST EXPORTS UNDER THE CUSTOMS AND CENTRAL EXCISE DUTIES DRAWBACK RULES, 1971; (IIID) ANY PROFIT ON THE TRANSFER OF THE DUTY ENTIT LEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME UNDER THE EXPORT AND IMPORT POLICY FORMULATED AND ANNOUNCED UNDER SECTION 5 OF THE FOREIGN TRADE (DEVELOPMENT AND REG ULATION) ACT, 1992 (22 OF 1992); (IIIE) ANY PROFIT ON THE TRANSFER OF THE DUTY FREE REPLENISHMENT CERTIFICATE, BEING THE DUTY REMISSION SCHEME UNDER THE EXPORT AND IMPORT POLICY FORMULATED AND ANNOUNCED UNDER SECTION 5 OF THE FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT, 1992 (22 OF 1992); IN THE LIGHT OF ABOVE DISCUSSION, WE FIND THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 10BA ON DEPB AS IN ACCORDANCE WITH SECTION 28 OF THE ACT THESE ARE BUSINESS INCOME. THE AR FURTHER SUBMITTED THAT AGAINST THE ABOVE DEC ISION THE DEPARTMENT FILED AN- APPEAL BEFORE THE HON'BLE BOMBAY HIGH COURT WHICH INTER-AL IA HELD AS UNDER :- THE COUNSEL FOR THE REVENUE FAIRLY STATES THAT THOU GH THE QUESTION HAS BEEN RAISED BY RELYING UPON THE DECISION OF THE APEX COURT IN THE CASE OF LIBERTY INDIA VS. CIT MANU/SC/1585/2009: (2009) 225 CTR (SC) 233: (2009) 28 DTR (SC) 73: (2009J 317ITR218 (SC). THE SAID DECISION HAS NO RELEVANCE TO THE FACTS OF THE PRESENT CASE. IN THIS VIEW OF THE MATTER, THE THIRD QUESTION RAISED BY THE REVENUE CANNOT BE ENTERTAINE D. IN THE RESULT, WE SEE NO REASON TO ENTERTAIN THE APPEAL. ACCORDINGLY, THE APPEAL IS DISMISSED, A S QUESTION OF LAW IS NOT INVOLVED.' IT IS PERTINENT TO MENTION HERE THAT ON ONE HAND TH E HON'BLE BOMBAY HC SAYS THAT IN THIS ISSUE NO QUESTION OF LAW IS INVOLVED & ON OTHE R HAND THE ISSUE OF DDB/DEPB HAS TRAVELLED UPTO HON'BLE SC IN THE CASE OF LIBERTY INDIA & OTHE RS ARE NOTHING BUT SPEAK ABOUT ITS AUTHENTICITY. - 14 - SEKHAWATI ART EXPORTS; THE LD. AR INTER-ALIA HAS RE LIED UPON THE DECISION OF THE HON'BLE ITAT SPECIAL BENCH, INDORE IN THE CASE OF M ORAL OVERSEAS LTD VS ADDL. CIT. 136 ITD 177 (2012), WHEREIN IT IS CLAIMED THAT THE EXEMPTION U/ S 10BA HAS BEEN ALLOWED AGAINST THE EXPORTS INCENTIVES. THE PERUSAL OF SAME REVEALS THAT THE IT AT BENCH, INDORE IN THE PRECEDING YEARS, IN ASSESSEES OWN CASE HELD THAT AFTER CONSIDERING THE DECISION OF THE CASE OF LIBERTY INDIA IT IS FOUND THAT THE PROVISIONS OF SECTION 10B ARE DIFFER ENT FROM THE PROVISIONS OF SECTION 80IB, WHEREIN NO FORMULA HAS BEEN LAID DOWN FOR COMPUTING THE ELIGIBLE BUSINESS PROFIT. ACCORDINGLY THE SPECIAL BENCH HAS OBSERVED AS UNDER - IN VIEW OF ABOVE DISCUSSION THE QUESTION IS ANSWERE D IN AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE ASSESSEE I S ELIGIBLE FOR CLAIM OF DEDUCTION ON EXPORT INCENTIVE RECEIVED BY IT IN TERMS OF PROVISI ONS OF SECTION 10B (1) READ WITH SECTION 10B (4) OF THE IT ACT. IT IS PERTINENT TO MENTION H ERE THAT THE REVENUE HAS MOVED AN M.A. IN THIS CASE & THE SAME IS PENDING FOR DISPOSA LS. FROM THE ABOVE FACTS YOUR HONOUR WILL NOTICE THAT N EITHER HON'BLE ITAT BENCH, MUMBAI/HONB'LE ITAT SPECIAL BENCH INDORE NOR THE HO N'BLE HIGH COURT BOMBAY HAVE DISCUSSED ANY ASPECTS OF THE ISSUE AS WHY THE DECISION OF THE LIB ERTY INDIA IS NOT RELEVANCE AND HAVE ALSO NOT DISTINGUISHED THE DECISION OF THE HON'BLE SC 317ITR 218 WITH THE FACTS OF THE APPELLANT. THE DECISION GIVEN BY THE HON'BLE IT AT BENCH MUMBAI, I MUMBAI HC IN ART & CRAFTS EXPORTS AND BY SPECIAL BENCH IT AT, INDORE IN THE CASE OF M ORAL OVERSEAS LTD. ARE NEITHER EXPRESSED NOR FOUNDED ON I REASONS AND ALSO NOT PROCEEDS ON C ONSIDERATION OF ISSUES, CANNOT BE DEEMED TO BE LAW DECLARED TO HAVE ABINDING EFFECT AS CONTE MPLATED BY ARTICLE 141 OF THE CONSTITUTION (HELD BY SC IN THE CASE OF S. SHAMUGHYEL NADAR 263 ITR 658). ON THE OTHER HAND THE HON'BLE SC IN THE CASE OF LIBERTY INDIA AND MANY OTHER CASE S (BY WAY OF CONSOLIDATED ORDER) HAD DECIDED THE NATURE OF INCENTIVES I.E. DDB/DEPB IN LENGTH, A CCORDINGLY HELD THAT THE INCENTIVE PROFITS ARE NOT PROFITS DERIVED FROM THE ELIGIBLE BUSINESS UNDERTAKING. IT IS FURTHER HELD THAT THEY BELONGS TO THE CATEGORY OF ANCILLARY PROFITS OF SUC H UNDERTAKINGS AND CONSTITUTE INDEPENDENT SOURCE OF INCOME BEYOND THE FIRST DEGREE NEXUS BETW EEN PROFITS AND THE INDUSTRIAL UNDERTAKING. IN VIEW OF THESE FACTS BRIEF OBSERVATIONS OF THE HO N'BLE ITAT BENCHES AS WELL AS HON'BLE - 15 - BOMBAY HIGH COURT CANNOT OVERTAKE THE CLEAR-CUT FIN DING GIVEN BY THE HON'BLE SC IN THE CASE OF LIBERTY OF INDIA, WHICH HAS BEEN HELD I N LENGTH' AFTER CONSIDERING THE FACTS OF THE ANOTHER 25 CASES ON SIMILAR ISSUES. THE FACTS OFJTH E OTHER CASES RELIED BY THE AR'S NOT DISCUSSED AS THE SAME HAVE ALREADY BEEN CONSIDERED BY THE A.O. / CIT (A). WHEN THE FACTS ARE SAME AND THE ISSUE IS SAME I.E. WHETHER DUTY DRAWBACK AND EXPORT QUOTA COULD BE CONSIDERED AS 'DERIVED FROM' UNDERTA KING OR THEY ARE DERIVED FROM SCHEME FRAMED BY CENTRAL GOVERNMENT. THE HON'BLE ITAT CANN OT DIFFERENTIATE AND OVERRIDE THE DECISION OF HON'BLE SC AS HELD IN FOLLOWING CASES:- 1. RALNSON INDUSTRY LTD. (SC) 288ITR 322 2 NOKIA CORPORATION (DEL.) 292 ITR 22. 3. AMERICAN EXPRESS BANK LTD. (ITAT, MUM) 65ITD 67. THE DECISION OF HON'BLE MUMBAI ITAT BENCH AND ITAT SPECIAL BENCH INDORE IN ABOVE CASES, AGAINST THE SUPREME COURT DECISION DOES NOT CONTAIN THE FOLLOWING: - 1. WHAT IS MEANT BY WORD 'DERIVED' USED IN SECTION 10B AND HOW IT IS DIFFERENT FROM THE WORD 'DERIVED' USED IN SECTION 80HHC AND SECTION 80IB. D EFINITION OF WORD 'DERIVED' CANNOT BE DIFFERENT FOR DIFFERENT SECTIONS OF THE SAME ACT. 2. WHAT IS THE DIFFERENCE BETWEEN SECTION 80AB AND SECTION 10BA AND ALSO BETWEEN SECTION 80IB (2) AND SECTION 10B (2) OF THE I.T. ACT. THERE IS NO DI FFERENCE. 3. EVEN THE PROVISIONS OF EXPLANATION 1 AND EXPLANA TION 2 TO SUBSECTION (2) OF SECTION 801 ARE APPLICABLE TO SECTION 10B (2) OF THE IT. ACT. EVEN THE PROVISIONS OF SUB SECTION (8) AND SUB SECTION (10) OF SECTION 801 A APPLY TO THE UNDERTAK ING U/S 10B (7) OF IT. ACT. - 16 - 4. THE HON'BLE ITAT HAS NOT GIVEN ANY REASON AS TO WHETHER PREMIUM ON IMPORT LICENSE/DUTY DRAWBACK/ SALE OF EXPORT QUOTA ARE INCENTIVES WHICH FLOW FROM THE SCHEME FRAMED BY CENTRAL GOVERNMENT OR THEY FLOW FROM THE MANUFAC TURING ACTIVITY OF INDUSTRIAL UNDERTAKING. SINCE THE DECISION OF HON'BLE APEX COURT IN LIBERT Y INDIA IS DIRECTLY APPLICABLE IN THE PRESENT CASE, THE SAME HAS TO BE FOLLOWED ACCORDING TO PRINCIPLE OF JUDICIAL DISCIPLINE. THIS PRINCIPLE IS VERY STRONGLY PUT BY THE HON'BLE ITAT, JODHPUR BENCH WHILE DEALING WITH SAME ISSUE U/S 10B IN THE CASE OF V.J. HOME (P) LTD. & ORS 125 TTJ(JD) 215, WHICH IS A DECISION ON SECTION 10BA OF THE IT. ACT WHERE THEY OBSERVED AS UNDER:- 'THE EXPRESSION 'PROFIT AND GAINS DERIVED BY AN UND ERTAKING' USED IN SECTION 80IB IS AKIN TO THE 'PROFIT AND GAINS DERIVED BY AN UNDERTAKING' US ED IN S. 10BA. ESSENTIALLY THEREFORE, AFTER THE JUDGMENT RENDERED BY APEX COURT IN THE CASE OF LIBERTY INDIA VS. CIT (2009) 28 DTR (SC) 73, THE ISSUE UNDER CONSIDERATION BECOMES NO LONGER RES INTEGRA. ACCORDINGLY THE AMOUNT OF DEPB CREDIT AND DUTY DRAWBACK RECEIPTS BE ING AN INCENTIVE BESTOWED UNDER THE SCHEME FRAMED BY CENTRAL GOVERNMENT OR FROM S. 75 O F CUSTOMS ACT, 1962, ARE NOT TO BE TAKEN AS PROFITS AND GAINS DERIVED BY AN INDUSTRIAL UNDERTAK ING FROM THE EXPORT OUT OF INDIA OF ELIGIBLE ARTICLES OR THINGS. THE AMOUNT OF DEPB CRE DIT/DUTY DRAWBACK RECEIPTS AS SUCH WOULD NOT, THEREFORE, ENTER INTO PROFITS AND GAINS DERIVED BY AN INDUSTRIAL UNDERTAKING FROM THE EXPORT OUT OF INDIA OF ELIGIBL E ARTICLES OR THINGS FOR THE PURPOSE OFSUB-S. (1)R/W SUB-S.(4)OF S. 10BA, EVEN T HOUGH THE SAME ARE ANCILLARY PROFITS TO SUCH UNDERTAKING ASSESSABLE UNDER THE HEAD 'INCOME FROM BUSINESS'. THERE IS REMAINING NO DISPUTE ON THE ISSUE UNDER CONSIDERATION; A REFEREN CE IS NOT REQUIRED TO BE MADE TO PRESIDENT, TRIBUNAL FOR CONSTITUTION OF A LARGER BE NCH FOR CONSIDERING THIS ISSUE. UNDER THE FACTS-CIRCUMSTANCES AND KEEPING IN VIEW AFORESA ID POSITION OF LAW, AMOUNT OF DEPB BENEFITS/DUTY DRAWBACK RECEIPTS DO NOT FROM PROFITS AND GAINS DERIVED BY AN INDUSTRIAL UNDERTAKING FROM THE EXPORT OUT OF INDIA ELIGIBLE A RTICLES OR THINGS AND AS SUCH THE SAME SHALL NOT BE ALLOWED TO BE DEDUCTED FROM THE TOTAL INCOME OF THE ASSESSES.' - 17 - THE ISSUE OF IMPORT LICENSE SALE WAS CONSIDERED BY HON'BLE APEX COURT IN STERLING FOODS 237 ITR 579 (SC) AND IT WAS DECIDED THAT SAME CANNOT FORM PART OF EXPORT TURNOVER FOR CALCULATION OF DEDUCTION U/S 80HHC. BE CAUSE SOURCE OF IMPORT ENTITLEMENT IS THE IMPORT PROMOTION SCHEME OF CENTRAL GOVERNMENT A ND NOT THE INDUSTRIAL UNDERTAKING. IT IS WELL SETTLED FACT THAT THE DEDUCTION U/S 80HH C IS ADMISSIBLE TO PROFITS DERIVED FROM BUSINESS ACTIVITIES RELATED TO EXPORT AS HELD IN CA SE OF V.T. JOSEPH (KER) 225 ITR 731 AND ALSO IN CAS E OF A.M. MOOSE 224 ITR 735 (KER). THIS SECTION IS AKIN TO SECTION 10B OF THE ACT AS BOTH HAVE COMMON OBJECTIVE TO BOOST EXPORT OF INDIA PARA 11 IN CASE OF A.M. MOOSA STATE THAT;-, ' WE FIND THAT STATUTORY PROVISION THAT THE AMOUNT IN REGARD TO WHICH EXEMPTION IS SOUGHT MUST BE RELATABLE TO AN INDUSTRIAL UNDERTAKI NG AS THE AMOUNT WHICH COULD BE UNDERSTOOD TO BE 'DERIVED FROM' IS MORE THAN SETTLE D NOT ONLY BY THE TWO DECISIONS OF THIS COURT, THE DECISION OF THE SUPREME COURT IN CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. VS CIT-4-13 ITR 84 (SC) AS WELL AS OF THE PRIVY COUNCIL, IN CIT VS. RAJA BAHADUR KAMAKHYA NARAIY SINSH & CO. 14 ITR 738 (B FT 0) WHAT IS ON RECORD IS ONLY AN ORDER OF ENQUIRY RELATING TO THE ASPECTS WHICH ARE REQUIRED TO BE CONSIDERED OBVIOUSLY AS STATUTORY RE QUIREMENTS. THERE IS NO UNSETTLED POSITION AND A REFERENCE BECAUSE OF DIVERSION OF JUDICIAL DECISION S OF OTHER COURTS COULD NOT BE APPRECIATED TO BE A GROUND FOR REFERENCE IN A SITUATION WHERE THE QUEST ION IS DECIDED BY THIS COURT AS WELL AS BY THE SUPREME COURT AND BY THE PRIVY COUNCIL, AS STATED A BOVE' WHEN HON'BLE APEX COURT HAS REPEATEDLY DEFINED THE TERM 'DERIVED FROM' IN THE SAME FASHION AS IN LIBERTY INDIA, IT IS NOT POSSIBLE TO DEFINE I T IN ANY OTHER WAY. - 18 - IN CASE OF GWALIOR RAYON SILK MFG. (WVG.) CO. LTD. 143 ITR 590 (MP) THE JURISDICTIONAL HIGH COURT HELD THAT THERE IS NO ROOM FOR INCLUDING THE VALUE OF IMPORT ENTITLEMENTS IN THE TURNOVER OF EXPORTS. THIS CONCLUSION IS FULLY SUPPORTED BY DECI SION OF BOMBAY HIGH COURT IN HINDUSTAN LEVER LTD. 121 ITR 951 (BOM.) WHICH WAS SUBSEQUENTLY CONFIRMED BY HON'BLE APEX COURT REPORTED IN 239 ITR 297 (SC). IN CASE OF CALIFORNIA SOFTWARE CO. LTD. 118 TTJ (CH ENNAI) 842, HON'BLE ITAT CHENNAI 'A' BENCH HELD THAT DEFINITION OF 'EXPORT TURNOVER' IN SECTION 10B IS MORE OR LESS SIMILAR TO THE ONE THAT APPEARS IN SECTION 80HHC. FROM THE LEGISLATIVE HISTORY ONE CAN SEE THAT QUANTUM OF TAX RELIEF WAS TO BE ALLOWED TO AN 'EXPORTER' WAS TO BE BASED ON ' NET INFLOW OF FOREIGN EXCHANGE. IN PRESENT CASE EXP ORT INCENTIVES DO NOT COME IN TERMS OF INFLOW OF FOREIG N EXCHANGE. HENCE CONDITION U/S 10B (A) ARE NOT FULFILLED EL THEREFORE EXPORT INCENTIVES ARE NOT ELIGIBLE FOR DE DUCTION U/S 10B. CASH ASSISTANCE RECEIVED IS NOT PART OF EXPORT TURN OVER FOR 80HHC DEDUCTION AS HELD IN CASE OF KHAN INTERNATIONAL EXPORT P. LTD. (ALL) 280ITR 1 65. AFTER EXCLUDING PREMIUM OF EXPORT LICENSE, EXPORT S UBSIDY AND DUTY DRAWBACK THERE IS NO PROFIT FROM EXPORT BUSINESS. NO DEDUCTION U/S 80HHC IS ALLOWABLE AS HELD IN CASE OF KRISLAR DIESAL ENGINES P. LTD. (ITAT MAD) 74 ITR 414. ALTHOUGH HON'BLE APEX COURT IN CASE OF B. DESHRAJ 3 01 ITR 439 (SC) HELD THAT WORD 'BUSINESS PROFITS' IN FORMULA GIVEN IN SECTION 80 HHC (3) INC LUDE CASH COMPENSATORY ALLOWANCE AND DUTY DRAWBACK ON THE REASONING THAT SECTION 80HHC WAS REQUIRED TO BE READ WITH SECTION 28(IIIB) OF THE IT. ACT BECAUSE BOTH WERE AMENDED BY SAME FINANCE ACT OF 19 90. BUT IT WAS A DECISION OF TWO MEMBER BENCH IN WHICH NEITHER MEANING OF WORD 'DERIVED' WAS CONSIDE RED NOR THE ISSUE OF SOURCE OF 'EXPORT INCENTIVES' WAS EXAMINED AS TO WHETHER IT IS COMING OUT FROM CE NTRAL GOVERNMENT SCHEME OR FROM MANUFACTURING ACTIVITY OF INDUSTRIAL UNDERTAKING. A SUBSEQUENT DECISION BY TWO MEMBER BENCH OF SUPREME COURT IN CASE OF LIBERTY INDIA WHERE BOTH THESE CRUCIAL ISSUE WERE CONSIDERE D AT LENGTH IS BINDING AS HELD IN CASE OF WEST PATENT PRESS CO. LT D. AIR 1980 KAR 92 (FB) AND ALSO IN BHIKA RAM & ORS . VS. UNION OF INDIA (DEL.) 238 ITR 113 IN WHICH INTE R-ALIA FOLLOWING WAS HELD:- - 19 - 'LATER PRONOUNCEMENT OF THE SUPREME COURT BY A BENCH OF CO-EQUAL STRENGTH IS BINDING'. EVEN IN CASE OF S. SHAMUGHVEL NADAR 263 ITR 658 (SC ) IT IS HELD BY HON'BLE SUPREME COURT IN PARA 11 THAT A DECISION WHICH IS NOT EXPRESS AND IS NOT FOUNDED ON REASONS, NOR WHICH PROCEEDS ON CONSIDERATION OF THE ISSUES, CANNOT BE DEEMED TO BE A LAW DECLARED TO HAVE A BINDING EFFECT AS CONTEMPLATED BY ARTICLE 141 OF THE CONSTITUTION. BY THIS DEFINITION ONE WOULD SAY THAT HON'BLE SUPRE ME COURT HAS GIVEN WELL REASONED DECISION DISCUSSING EACH OF THE RELEVANT ISSUES IN CASE OF LIBERTY INDIA, WHERE ALL THE ISSUES NAMELY WORD 'DERIVED', AND NATURE OF EXPORT INCENTIVES IS DISCUSSED IN DETAILS & THEREFORE, IT IS BINDING PRECEDENT UNDER ARTICLE 141 OF THE CONSTITUTION. MENTION IS ALSO REQUIRED OF THE CASE OF TOPMAN EXPO RTS ITAT SPECIAL BENCH, MUMBAI 318 ITR 87 (AT) WHICH IS A DECISION ON WHETHER DEPB ENTITLE MENT IS A BENEFIT UNDER SECTION 28 (IIID) WHEREIN IT IS HELD THAT 'THOUGH DEPB IS POST-EXPORT INCENTIVE, BUT ITS OBJECTIVE IS TO COUNTERBALANCE EFFECT OF CUSTOMS DUTY INCLUDED IN THE COST OF PURC HASES. IT CANNOT BE SEEN AS AN INCENTIVE DETACHED FROM COST OF GOODS PURCHASED. IT IS ONLY ON MAKING AN APPLICATION FOR DEPB THAT ASSESSEE ACQUIRES THE RIGHT TO RECEIVE THE DEPB AND INCOME ACCRUES AT THA T STAGE. FURTHER IN THIS ORDER FOLLOWING WAS OBSERVED IN PARA 62:- 'THUS THE INCENTIVES THOUGH A RELEVANT CONSIDERATI ON AND INITIATIVE IN THE DECISION AS TO THE MAKING OF EXPORTS, CANNOT BE CATEGORIZED AS DER IVED FROM EXPORT OF GOODS OR MERCHANDIZE. AT THE SAME TIME, IT IS EQUALLY TRUE T HAT SUCH INCENTIVES AND EXPORT OF GOODS OF MERCHANDIZE CANNOT BE SAID TO BE FOREIGN TO EACH OTHER. THE RELATION BETWEEN THE TWO ALBEIT NOT IMMEDIATE IS INDIRECT. IN THAT SENSE THE EXPORT INCENTIVES CAN BE HELD TO BE ATTRIBUTABLE TO EXPORT' - 20 - HENCE THE AFORESAID DECISION IS IN FACT AGAINST THE ASSESSEE BECAUSE IT HOLDS THAT EXPORT INCENTIVES ARE NOT 'DERIVED FROM' EXPORT ACTIVITY. THE WORD USED IN SECTION 10B AS ALSO IN SECTION 80HHC & SECTION 10B IS 'DERIVED FROM' AND NOT 'ATTR IBUTABLE TO'. BESIDES AS HELD IN PARA 14 IN ORDER OF LIBERTY INDIA BY HON'BLE APEX COURT WORDS 'DERIV ED FROM' ARE NARROWER IN CONNOTATION AS COMPARED TO THE WORDS 'ATTRIBUTABLE TO'. IN PARA 18 THEY FURTHER SAID 'WE HOLD THAT PROFIT DERIVED BY WAY OF SUCH EXPORT INCENTIVES DO NOT FALL WITHIN THE EXPRESSION 'PROFIT DERIVED FROM INDUSTRIAL UNDERTAKING UNDER SECTION 801B.' IN TOPMAN EXPORTS, THE DECISION OF HON'BLE SUPREME COURT, IN LIBERTY INDIA, WAS NEITHER CONSIDERED NOR DIFFERENTIATED. INFACT DECISION IN CASE OF M/S TOPMAN EXPORT WAS OVERTURNED & SET ASIDE BY MUMBAI HIGH COURT IN THE CASE OF KALPATARU COLOURS & CHEMICALS 328 ITR 451 (MUM.) AS MENTIONED ABOVE TRIBUNAL FT COURTS HAVE APPLIED DECISION OF LIBERTY INDIA NOT ONLY IN CASES OF CLAIM U/S 80 IA/80IB OF THE IT. ACT BUT ALSO IN CASES OF 80HHC WHICH IS AKIN TO SECTION 10B. THE TRIBUNAL DECISIONS WHERE THE DECISION OF LIBERTY IN DIA WAS APPLIED TO DECIDE THE CASES UNDER SECTION 10B OF THE IT. ACT, ARE DISCUSSED, HERE AS UNDER. TRICOM INDIA LTD. ITAT MUMBAI 'E' BENCH (2010) 36 S OT 302 (MUMBAI) IN WHICH INTER-ALIA THE FOLLOWING WAS OBSERVED':- 'PARA 13:- WE FURTHER FIND THAT SIMILAR VIEW HAS BE EN TAKEN BY THE HON'BLE SUPREME COURT AGAIN IN THE CASE OF LIBERTY INDIA. IN THIS C ASE THE QUESTION WAS WHETHER PROFIT FROM DUTY ENTITLEMENT PASS BOOK SCHEME (DEPB ) AND DUTY DRAW BACK SCHEME COULD BE SAID TO BE PROFIT DERIVED FROM BUSINESS OF INDUSTRIAL UNDERTAKING ELIGIBLE FOR DEDUCTION UNDER S. 80-1B OF THE IT ACT , 1961. IT CAN BE SEEN THAT DEPB AND DUTY DRAWBACK ETC., ARE COVERED BY CL. (IIIB) T O S. 28 WHICH MEANS NECESSARILY THEY HAVE TO BE TREATED AS BUSINESS INCOME UNDER THE PROVISIO NS OF THE ACT, STILL THE DEDUCTION WAS DENIED UNDER S. 80-1/80-IA/80-IB BECAUSE THESE ITEMS WERE HELD TO BE NOT DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING/EXPORT ACTIVITY.' - 21 - 'PARA 14:-THEREFORE, IT IS CLEAR THAT MERELY BECAUS E THE INCOME HAS BEEN ASSESSED AS BUSINESS INCOME WILL NOT AUTOMATICALLY CONFER THE B ENEFITS OF A PARTICULAR DEDUCTION ONCE THERE IS A RIDER PROVISION THAT SUCH INCOME SH OULD BE DERIVED FROM A PARTICULAR SOURCE. IN THE CASE BEFORE US ADMITTEDLY THE INTERE ST INCOME WAS GENERATED FROM INTEREST ON FDRS ETC., FROM THE SURPLUS FUNDS AND, THEREFORE, THE SAME CANNOT BE HELD TO HAVE BEEN DERIVED FROM THE EXPORT OF INCOME TAX SERVICES. ' TOCHENUGLEE STATIONERY MFS. CO. (P) LTD. ITAT, CHEN NAI 'C BENCH (2006) 5 SOT 428 (CHENNAI):- IN THIS CASE EXACTLY THE SAME ISSUE OF SPECIAL IMPORT LICENSE WAS DEALT UNDER SECTION 10B OF THE IT. ACT AND FOLLOWING WAS DECIDE D:- 'PARA 17:- NOW COMING TO THE SPECIAL IMPORT LICENSE , THE ASSESSEE RECEIVED THIS SPECIAL IMPORT LICENSE BECAUSE OF THE SCHEME FRAMED BY THE GOVERNM ENT OF INDIA TO ENCOURAGE THE EXPORT BUSINESS. IT MAY MAY BE A BUSINESS INCOME BECAUSE O F S. 28 (IIID) OF THE IT ACT. FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER S. 108, THE INCOME SHOULD BE DERIVED FROM EXPORT BUSINESS AND FORM PART OF EXPORT TURNOVER. THE IMMEDIATE SOURCE FOR S PECIAL IMPORT LICENSE MAY BE THE SCHEME FRAMED BY THE GOVERNMENT OF INDIA AND NOT TH E EXPORT. AS HELD BY THE MADRAS HIGH COURT IN THE CASE OF MENON IMPEX (P) LTD. 259 ITR 4 03 (MAD), THE INCOME SHOULD BE DERIVED FROM THE EXPORT BUSINESS. IN VIEW OF THE AB OVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE FIRST APPELLATE AUTHORITY. ACCORDI NGLY, WE CONFIRM THE SAME.' IN RECENT DECISIONS ON THE ISSUE OF NATURE OF INCEN TIVES LIKE DEPB/EXPORT QUOTA/IMPORT LICENSES, WHICH ARISE FROM CENTRAL GOVT. POLICIES T O PROVIDE INCENTIVES TO EXPORTERS, THE VARIOUS HIGH COURTS AS MENTIONED BELOW, HAVE FOLLOWED THE D ECISION OF HON'BLE SUPREME COURT IN CASE OF LIBERTY INDIA:- - 22 - 1 COMMISSIONER OF INCOME TAX VS. ARISUDANA SPINNING M ILLS LTD (2010) 326 ITR 429 (P & H). 2 JAWARD SONS VS. CIT (2010) 326 ITR 39 (P & H). 3 PLASTIBENDS INDIA LTD. VS. ADDL. CIT 8(2) MUMBAI (2 009) 318 ITR 352 (BOM.)- IN THIS CASE THE JUDGES SAID THAT IN THEIR OPINION, THE ABOVE QU ESTION IS NO LONGER RES INTEGRA IN VIEW OF DECISION OF APEX COURT IN CASE OF LIBERTY INDIA. 4. CIT VS. KIRAN ENTERPRISES (2010)327 ITR 520(HP). 5. EASTMAN EXPORTS GLOBAL CLOTHING (P) LTD. VS. ACIT , 331 ITR 232 (MAD). IN THE CASE OF MAHALAXTNI ART EMPORIUM, THE HON'BLE IT AT JODHPUR BENCH, IN ITA NO. 231/JU/2010, FOR A.Y. 2007-08, ORDER DATED 08110/20 10, INTER-ALIA HELD AS UNDER- 'IF IS SEEN THAT THE HON'BLE APEX COURT DELIBERATED UPON THE MEANING OF THE WORD 'DERIVED FROM' AND HELD THAT DDB AND DEPB DO NOT FO RM PART OF NET PROFIT OF ELIGIBLE INDUSTRIAL UNDERTAKING, THOUGH, U/S 80 (1) , 80 (1A), 80 (1B) OF THE ACT. WHILE COMING TO THIS CONCLUSION HON'BLE APEX COURT AFFIRMED THE DECISION FROM HON'BLE PUNJAB AND HARYANA HIGH COURT IN 293 ITR 52 0, CIT VS LAKMINDAR SINGH, 317 ITR 209 (DELHI), CIT V/S RITESH INDUSTRIES LTD. , 274 ITR 324, MADRAS AND SAKTHI FOOT WEAR VS CIT (317 ITR 199). IF THE LANGU AGE EMPLOYED IN SECTION 80 (1A), 80(1 B) OF THE ACT IS SEEN THESE SPEAKS ABOUT 'ANY PROFIT' AND GAIN 'DERIVED BY' AN UNDERTAKING OR AN ENTERPRISE FROM 'ANY BUSIN ESS' REFERRED TO SUB- SECTION (4). IDENTICAL IS THE WORDING IN SECTION 10 BA (1) 'FROM THE EXPORT' OUT OF INDIA OF ELIGIBLE ARTICLES'. FROM THE ABOVE DISCUSSION, IT IS CRYSTAL CLEAR THAT FOR CLAIM U/S 10B, INCOME IS TO BE 'DERIVED FROM' INDUSTRIAL UNDERTAKING, WHERE AS INC OME FROM EXPORT INCENTIVES ARE NOT DERIVED FROM INDUSTRIAL UNDERTAKING BUT THEY ARISE FROM SCHEMES OF CENTRAL GOVERNMENT AS HELD IN CASE OF LIBERTY INDIA (2009) 317 ITR 218 (SC), STERLING FOODS (1999) 237 ITR 579 - 23 - (SC) AND HINDUSTAN LEVER LTD. (1999) 239 ITR 297(SC ). IN VIEW OF THE ABOVE DISCUSSION THE ABOVE QUESTION IS NO LONGER RES INTERGRA, AS IT IS SETTLED AGAINST ASSESSEE AND IN FAVOUR OF DEPARTMENT. THE LD. A.R. STATING THAT DECISION IN CASE OF LIBER TY INDIA WILL NOT APPLY TO THEIR CASE AS WORD 'DERIVED' AS USED IN SECTION 10B(1) HAS TO BE TAKEN AS PER RATIO OF CALCULATION OF DEDUCTION PROVIDED U/S 10B(4) OF I.T. ACT. HE FURTHER STATED THAT PROVISIONS OF SECTION 10B (4 ) ARE SIMILAR TO THE PROVISIONS OF SECTION 80HHC (3) OF I.T. ACT. CIRCULAR NO. 621 DATED 19.12.1991 EXPLAINED THAT FO RMULA IN SECTION 80HHC EXISTING PRIOR TO 1991, OFTEN USED TO PROVIDE A DISTORTED FIGURE O F EXPORT PROFITS WHEN RECEIPTS LIKE INTEREST, COMMISSION ETC WHICH DID NOT HAVE AN ELEMENT OF TUR NOVER WERE INCLUDED IN THE 'PROFITS OF THE BUSINESS' FOR SECTION 80HHC WOULD NOT INCLUDE RECEI PTS BY WAY OF BROKERAGE, COMMISSION, INTEREST OR ANY OTHER RECEIPTS OF A SIMILAR NATURE. IN FACT THE ISSUE WHICH IS SUBJECT MATTER OF DEBATE IS NOT THE MATHEMATICAL FORMULA FOR CALCULATION OF DEDUCTION BUT WHETHER THE DIFFERENT TYPES OF INCOME ARE ARISING TO ASSESSEE FROM EXPORT OR FROM OTHER INDEPENDENT SOURCES. WHIL E MATHEMATICAL FORMULA REMAINED THE SAME, THE DEFINITION OF 'PROFIT OF BUSINESS OF UNDERTAKING' KEPT ON CHANGING AND REMAINED MOST IMPORTANT VARIABLE. THE FORMULA FOR COMPUTATION OF DEDUCTION IS AS FOLL OWS'.-PROFIT DERIVED FROM EXPORT EXPORT TURNOVER = PROFIT OF THE BUSINESS OF UNDERTAKING X---------- -------------------------- TOTAL TURNOVER - 24 - THE ONLY ITEM WHICH NEEDS INTERPRETATION IS 'PROFIT S OF THE BUSINESS OF UNDERTAKING' WHICH IS ALREADY DECIDED BY HON'BLE APEX COURT IN C ASE OF K. RAVINDERANATHAN NAIR (2007) 295 ITR 228 (SC) WHEREIN THE HON'BLE SC HELD AS UNDER:- 'PARA-17:- THEREFORE, IT IS ONLY 'PROFITS DERIVED F ROM EXPORTS' WHICH BECOME THE BASIS FOR WORKING OUT THE SAID FORMULA IN S. 80HHC(3) OF THE ACT. SIMILARLY, BY FINANCE ACT, 1991 W.E.F. 1 ST APRIL, 1992, FOR THE FIRST TIME, THE EXPRESSION 'PR OFIT OF THE BUSINESS' STOOD DEFINED TO MEAN THE 'PROFITS OF THE BUSINESS' AS CO MPUTED UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS'. PARA 18:- THE ABOVE DISCUSSION INDICATES THAT THE F ORMULA IN S. 80 HHC (3) OF THE IT ACT PROVIDED FOR A FRACTION OF EXPORT TURNOVER DIVIDED BY TOTAL TURNOVER TO BE APPLIED TO BUSINESS PROFITS CALCULATED AFTER DEDUCTING 90 PERC ENT OF THE SUMS MENTIONED IN CL. (BAA) TO THE SAID EXPLANATION. THAT, PROFIT INCENTIVES AND I TEMS LIKE RENT, COMMISSION, BROKERAGE, CHARGES ETC. THOUGH FORMED PART OF GROSS TOTAL INCO ME HAD TO BE EXCLUDED AS THEY WERE 'INDEPENDENT INCOME' HAD NO ELEMENT OF EXPORT TURNOVER. THAT, THE SAID ITEMS DISTORTED THE FIGURE OF EXPORT PROFITS.' EVEN THE FORMULA FOR COMPUTATION OF DEDUCTION U/S 8 0HHC (3) WAS ELABORATELY DISCUSSED IN THIS ORDER WHERE IN PARA 21 LORDSHIP H ELD:- 'THEREFORE, IN THE ABOVE FORMULA, WE HAVE TO READ A LL THE FOUR VARIABLES. ON READING ALL THE VARIABLES IT BECOMES CLEAR THAT EVERY RECEI PT MAY NOT CONSTITUTE SALE PROCEEDS FROM EXPORTS.' - 25 - IN PARA 22 IT WAS HELD THAT 90% OF PROCESSING CHARG ES ARE TO BE EXCLUDED FROM 'PROFIT OF THE BUSINESS' BUT THEY WERE INDUDIBLE IN 'TOTAL TURNOVER'. THEREFORE THIS IS A DIRECT DECISION OF HON'BLE APEX COURT WHICH SAYS THAT PROFIT INCENTIVES MENTIONED IN SUB SECTION (IIIA), (IIIB), (IIIC) OF SECTION 28 OR ANY OTHER RECEIPTS OF SIMILAR NATURE THOUGH FORMED PART OF GROSS TOTAL INCOME HAD TO BE EXCLUDED FROM 'PROFITS OF THE BUSINESS' AS THEY WERE 'INDEPENDENT INCOME' WHICH HAD NO ELEMENT OF ' EXPORT TURNOVER'. IT IS WELL ESTABLISHED FACT THAT SECTION 80HHC IS S IMILAR TO SECTION 10B THEREFORE THIS JUDGMENT IS DIRECTLY APPLICABLE IN PRESENT CASE. / THE PROVISION OF SECTION 10BA, INTER-ALIA READS AS UNDER. 'SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUC TION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PERCENT EXPORT ORIENTED UNDERT AKING FROM THE EXPORT OF THE THRUST OF ENTIRE SECTION IS ON EXPORT AND DEDUCTION IS ALSO AVAILABL E ON EXPORT INCOME DERIVED BY THE UNDERTAKING. IT IS DEARLY GIVEN IN THE FORMULA OF SECTION 10B(4) OF IT. ACT, WHICH IS SIMILAR TO SECTION 80HHC(3) THAT THE 'PROFITS OF THE BUSINESS OF UNDERTAKING' WILL NOT INCLUDE INCOME FROM EXPORT INCENTIVES COMING UNDER (IIIA), (IIIB), (IIIC) OF SECTION 28 BECAUSE THEY WERE INDEPENDENT INCOMES WHICH HAVE NO ELEMENT OF EXPORT TURNOVER. HERE DECISION OF HON'BLE APEX COURT IN CASE OF K. R AVINDRANATHAN NAIR (2007) 295 ITR 228 (SC) AND LIBERTY INDIA 317ITR 218 (SC) ARE DIRECTLY APPL ICABLE. EXISTING AS WELL AS SUBSEQUENT DECISIONS OF SUPREME COURT SHOULD BE GIVEN EFFECT AS HELD IN CASE OF SAURASHTRA KUTCH STOCK EXCHANGE LTD. (SC) 305 ITR 2 27 AND CM MITTAL STAINLESS STEEL LTD. (2004) 271 IT R 219 (M.P.) - 26 - AS POWER OF TRIBUNAL IS RESTRICTED TO SUBJECT MATTE R OF APPEAL AS PER CASE OF HUKUMCHAND MILLS LTD. (SC) 63 ITR 232, THEREFORE IT IS REQUESTED THAT THE ISSUE RAISED BEFORE HONBLE BENCH ARISING FROM APPEAL OF ASSESSEE ALONE MAY KINDLY BE DECIDED. 8. WE HAVE COGITATED RIVAL ARGUMENTS VIS-A-VIS EVIDENCE ON RECORD. WE HAVE EXAMINED THE DECISIONS ON WHICH PARTIES HAVE P LACED THEIR RESPECTIVE RELIANCE. WE HAVE FOUND THAT THE RATIO O F THE DECISION OF HON'BLE APEX COURT RENDERED IN THE CASE OF LIBERTY INDIA VS. CIT REPORTED 225 CTR 233 (HON'BLE SUPREME COURT) IS NOT APPLICABLE TO THE FACTS OF THIS CASE. THE SECTION UNDER INTERPRETATION BEFO RE HON'BLE SUMMIT COURT WAS 801 A. IN SEC 80IA, NO FORMULA FOR COMPUT ATION OF PROFITS DERIVED BY THE UNDERTAKING IS LAID DOWN, WHEREAS IN SECTION 10BA AND SECTION 80HHC FORMULA IS PRESCRIBED FOR THE PURPOSE. THEREFORE, ; IN OUR CONSIDERED OPINION, SECTION 10BA AND 80HHC ARE MORE NEARER TO EACH OTHER, AND WHATEVER INTERPRETATION OF 'DERIVED FROM ' IS GIVEN IN ANY DECISION IN WHICH SECTION 80HHC IS INVOLVED, WOULD ALSO MUTATIS- MUTANDIS TO THE INTERPRETATION OF SECTION 10BA. THE HON'BLE APEX COURT IN THE CASES OF TOPMAN EXPORTS VS. CIT REPORTED IN 67 DTR 185 (S.C.) AND ACG ASSOCIATED CAPSULES PVT. LTD. VS. CIT REP ORTED IN 67 DTR 205 HAS RECENTLY HELD THAT DEPB IS CHARGEABLE AS INCOME AND CL. (IIIB) OF SECTION 28 IN THE YEAR IN WHICH THE ASSESSEE APPLIE S FOR DEPB CREDIT AGAINST THE EXPORTS WHEREAS THE PROFIT ON TRANSFER OF DEPB BY THE ASSESSEE IS CHARGEABLE AS INCOME UNDER CL. (IIID) OF SECTION 28 IN HIS HANDS IN THE YEAR IN WHICH HE MAKES THE TRANSFER. THE MUMBAI BEN CH OF HON'BLE INCOME TAX APPELLATE TRIBUNAL IN THE CASE ARTS AND CRAFTS EXPORTS VS INCOME-TAX OFFICER REPORTED IN 66 DTR 69 (MUMBAI), AFTER CONSIDERING THE DECISION OF LIBERTY INDIA (SUPRA) HAS TAKEN A CLEAR CUT DECISION IN FAVOUR OF THE ASSESSEE. THE HELD PORTION OF THE MUMBAI BEN CH IS AS UNDER: - 27 - 'PARA-11.14-AS REGARDS DEDUCTION U/S 10 BA IN RESPE CT OF DEPB, WE FIND THAT SUB-SECTION (4) OF SECTION 1OB A DEFINES PROFITS DERIVED FROM ELIGIBLE ARTICLES. SECTION 28 (IIIC), (IIID) AND (IIIE) PROVIDES THAT THESE INCOME ARE PROFITS AND GAINS OF BUSINESS . THE SAID SUB-SECTION (4) OF SECTION 1OB A IS REPRODUCED BELOW: FOR THE PURPOSES OF SUB-SECTION (1), THE PROFITS DE RIVED FROM EXPORT OUT OF INDIA OF THE ELIGIBLE ARTICLES OR THINGS SHA LL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTA KING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAK ING. THE RELEVANT PART OF SECTION 28 READS AS UNDER: 28. THE FOLLOWING INCOME SHALL BE CHARGEABLE TO INC OME-TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. (IIIC) ANY DUTY OF CUSTOMS OR EXCISE RE-PAID OR RE- PAYABLE AS DRAWBACK TO ANY PERSON AGAINST EXPORTS UNDER THE CUSTOMS AND CENTRAL EXCISE DUTIES DRAWBACK RULES, 1971; (IIID) ANY PROFIT ON THE TRANSFER OF THE DUTY ENTIT LEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME UNDER THE EXPORT AN D IMPORT POLICY FORMULATED AND ANNOUNCED UNDER SECTION 5 OF THE FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT, 1992 (22 OF 1992); (IIIE) ANY PROFIT ON THE TRANSFER OF THE DUTY FREE REPLENISHMENT CERTIFICATE, BEING THE DUTY REMISSION SCHEME UNDER THE EXPORT AN D IMPORT POLICY FORMULATED AND ANNOUNCED UNDER SECTION 5 OF THE FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT, 1992 (22 OF 1992); - 28 - IN THE LIGHT OF ABOVE DISCUSSION, WE FIND THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 10BA ON DEPB AS IN ACCORDANCE WITH SE CTION 28 OF THE ACT THESE ARE BUSINESS INCOME.' 10. THIS DECISION HAS BEEN APPROVED BY HON'BLE BOMB AY HIGH COURT AND THE DECISION IS REPORTED IN 66 DTR 85 (BOMBAY) I.T.A.T. INDORE SPECIAL BENCH IN THE CASE OF M/S. MARAL OVERSEAS LIMITED VS ACIT REP ORTED IN 136 ITD 177 HAS HELD THIS ISSUE IN FAVOUR OF THE ASSESSEE. SIMILARL Y, THE AHMEDABAD BENCH IN THE CASE OF KADEN EXPORTS (SUPRA), HAS TAKEN A SIMI LAR VIEW OF THE MATTER. THE HELD PORTION OF BOTH THESE DECISIONS HAVE BEEN EXTR ACTED IN THE EARLIER PORTION OF THIS ORDER. THE WRITTEN SUBMISSION OF ID. CIT (D R), HAVE BEEN CAREFULLY CONSIDERED. ALL THE RELEVANT DECISIONS AND THE LINE OF ARGUMENTS TAKEN BY HIM, HAVE BEEN CONSIDERED AND DECIDED IN THE CASES REFER RED TO AS ABOVE. THEREFORE, WE DON'T FIND ANY MERIT WORTH DISSUADING BY US, FRO M THE CONSIDERED AND SETTLED VIEW TAKEN BY THE HON'BLE APEX COURT AND VA RIOUS HIGH COURTS AND THE TRIBUNAL. ALL THE ARGUMENTS RAISED BY LD. CIT(D R) STAND EXPLAINED IN OUR ABOVE FINDING. 11. WE HAVE NOTICED THAT SECTION 10BA(4) TAKES ITS SHAPE AND FORM FROM ERSTWHILE SECTION 10B(4) WHICH WAS AMENDE D VIDE THE FINANCE ACT, 2001 W.E.F. 01.04.2001. PRIOR TO 01.04 .2001, THIS SECTION 10B(4) READ AS UNDER :- - 29 - 10B(4) FOR THE PURPOSE OF S.S. (1), PROFITS DER IVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE S HALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROPORTION AS THE EXPORT TURNOVER OF THE BUSINESS C ARRIED ON BY THE ASSESSEE. CLARIFICATIONS ON NOTES OF CLAUSES OF TH E FINANCE ACT, 2001 CLARIFIES THE PURPOSE OF THIS AMENDMENT THAT UNDER THE EXISTING PROVISION CONTAINED IN S.S. (4), THE PROFI TS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE S HALL BE THE AMOUNT WHICH BEARS TO THE PROFIT OF THE BUSINESS, T HE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUC H ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURN OVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. SUB CLAUSE (B) SEEKS TO CLARIFY THAT SUCH PROPORTIONS SHALL BE CALCULATED WITH REFE RENCE TO THE PROFITS AND GAINS OF THE BUSINESS OF THE UNDERTAKIN G AND NOT FROM ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE. THUS PRIOR TO AMENDMENT THE PROFITS DERIVED FROM EXPORT OF ARTICL ES WAS MEANT THE AMOUNT WHICH BORE TO THE PROFITS OF THE BUSINES S, THE SAME PROPORTION AS EXPORT TURNOVER IN RESPECT OF SUCH AR TICLES BEAR TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE AS SESSEE, WHEREAS, AFTER THE AMENDMENT, THE PROFITS DERIVED FROM EXPOR T OF ARTICLES OR THING MEANS THE AMOUNT WHICH BEARS TO THE PROFITS A ND GAINS OF THE BUSINESS OF THE UNDERTAKING AND NOT FROM ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE. SO, BY THIS AMENDMENT ONLY THE PROFITS OF THE BUSINESS OF THE UNDERTAKING ONLY IS TO BE CONSIDERE D FOR WORKING OUT THE PROFITS AND GAINS AS ARE DERIVED BY AN UNDE RTAKING FROM EXPORT OUT OF INDIA OF ELIGIBLE ARTICLES OR THINGS. THE PROFITS AND THE GAINS OF THE BUSINESS OF THE UNDERTAKING IS TO BE W ORKED OUT AS PER - 30 - THE PROVISIONS OF SECTION 28(I). THIS DOES NOT INCL UDE THE PROFITS OF ITEMS DOES NOT INCLUDE THE PROFITS OF ITEMS UNDER S .S. (IIIA), (IIIB), (IIIC), (IIID) AND (IIIE) ETC. DUTY DRAW BACK AND A NY PROFIT ON TRANSFER OF DEPB. SECTION 28 ITSELF MAKES IT ABUNDA NTLY CLEAR THAT THE PROFIT ON ACCOUNT OF DUTY DRAW BACK OR ON TRANS FER OF DEPB WILL NOT FORM PART OF PROFIT AND GAINS OF THE BUSIN ESS OR PROFESSION WHICH WAS CARRIED ON BY THE ASSESSEE AS DISCUSSED A BOVE. THE PLAIN READING OF SECTION 10BA WHICH DEALS WITH EXPORT OF CERTAIN ARTICLES OR THINGS WILL MAKE IT CLEAR THAT SUCH PROFITS AS ARE DERIVED FROM THE EXPORT OUT OF INDIA SHALL BE ALLOWED FROM THE T OTAL INCOME OF THE ASSESSEE. SUB SECTION (1) OF SECTION 10BA IS SU BJECT TO THE PROVISIONS OF S.SS. 2, 3, 5, 6 AND 7 BUT S.S. 4 LAY S DOWN A METHOD OF COMPUTATION FOR THE PURPOSE OF SUB SECTION (1). LIK EWISE, THE SALE PROCEEDS OF DEPB CANNOT BE CONSIDERED AS PART OF TU RNOVER AS IT IS NOT THE SALE PROCEEDS OF THE ARTICLES OR THINGS MAN UFACTURED AND SOLD BY THE ASSESSEE, THEN THE PROFITS FROM SALE OF DEPB CANNOT APPORTIONED ON TREATED ON PROFIT DERIVED BY THE UND ERTAKING FROM EXPORT OUT OF INDIA. THE EXEMPTION PROVISIONS IN 10 BA HAVE TO BE LIBERALLY INTERPRETED UNLESS THE CREDIT OF DEPB AND DDB IS EXPRESSLY TAKEN AWAY. 12. ACCORDINGLY, WE ARE LEFT WITH NO OPTION BUT TO DECIDE THE IMPUGNED COMMON ISSUE, IN FAVOUR OF THE APPELLANT/A SSESSEE. AS A RESULT, WE HOLD THAT THE MANUFACTURING ACTIVITIES O F THE ASSESSEE ARE ELIGIBLE FOR DEDUCTION PROVIDED U/S 10BA OF THE ACT. - 31 - THE FACTS AND ISSUE INVOLVED IN OTHER APPEALS ARE E XACTLY SIMILAR TO THE MAIN APPEAL, EXCEPT FOR THE QUANTUM OF CLAIM MADE U/S 10 BA OF THE ACT. THEREFORE, WITH SIMILAR REASONING, WE ALLOW THESE APPEALS BY H OLDING THAT ALL THE ASSESSEES BEFORE US ARE ELIGIBLE FOR DEDUCTION U/S 10BA OF TH E ACT. NO OTHER GROUND(S), IF RAISED, WERE PRESSED BY THEIR RESPECTIVE ID. A.R S. 13. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEES ARE ALLOWED ON THE COMMON ISSUES OF ALLOWABILITY OF DEDUCTION U/S 10BA OF THE ACT WHEREAS THE APPEALS OF THE REVE NUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 31 ST JANUARY, 2013 SD/- SD/- (N.K.SAINI) [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 31 ST JANUARY, 2013 VL/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) BY ORDER 5. THE DR ASSISTANT REGISTRAR ITAT, JODHPUR