DCIT, Moradabad V. M/s. Kumar Internationa;, Moradabad

ITA 3693/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8166 (ITAT-DELHI)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 01-02-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 31-08-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: GARUNIA BH AGAT
• Section: 143(3); 80IB; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D: NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER & SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO. 3693/DEL/2009 ASSESSMENT YEAR : 2006-07 DCIT RANGE-I, MORADABAD. VS. M/S. KUMAR INTERNATIONAL, LAKRI FAZAL PUR, MORADABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : MS. GARUNIA BH AGAT, SR. D.R. RESPONDENT BY : NONE. O R D E R PER: C.L. SETHI, J.M. THE REVENUE IS IN APPEAL AGAINST THE ORDER DATED 12.06.2009 OF THE LD. CIT(A) PASSED IN THE MATTER OF AN ASSESSMENT MADE B Y THE A.O. U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) DATED 24.12.2008 F OR THE ASSESSMENT YEAR 2006-07. 2. THE ISSUE RAISED IN THIS APPEAL IS WITH REGARD T O THE QUESTION AS TO WHETHER ASSESSEE IS ENTITLED TO DEDUCTION U/S 80IB OF THE A CT IN RESPECT OF AMOUNTS OF EXPORT INCENTIVES RECEIVED BY THE ASSESSEE. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE A.O. THAT ASSESSEE HAS CLAIMED DEDUCTION U/S 80IB ON DUT Y DRAW BACK AMOUNTING TO RS. 1,30,83,718/- AND DEPB RECEIPTS AMOUNTING TO RS. 10 5,35/-. THE A.O. WAS OF THE ITA NO. 3693/DEL/2009 2 OF 6 VIEW THAT DUTY DRAW BACK / DEPB ARE NOT AN INCOME, WHICH COULD BE SAID TO BE DERIVED FROM INDUSTRIAL UNDERTAKING. THE A.O., THE REFORE, AFTER HEARING THE ASSESSEE DISALLOWED THE ASSESSEES CLAIM OF DEDUCTI ON U/S 80IB IN RESPECT OF THE AMOUNT RECEIVED ON ACCOUNT OF DUTY DRAW BACK AND DE PB. 4. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LD. CIT(A). 5. THE LD. CIT(A) AFTER FOLLOWING CERTAIN DECISIONS OF TRIBUNAL OF DELHI BENCH HOLD THAT THE ASSESSEE WAS ENTITLED TO DEDUCT ION U/S 80IB ON DUTY DRAW BACK AS WELL AS DEPB RECEIPTS. 6. HENCE, THE DEPARTMENT IS IN APPEAL BEFORE US. 7. WE HAVE HEARD THE LD. D.R. NONE FOR THE ASSESSE E WAS PRESENT DESPITE NOTICE OF THE HEARING HAS BEEN DULY ISSUED TO THE A SSESSEE BY REGISTERED COURIER WHICH HAS NOT BEEN RETURNED UNSERVED RAISING A PRES UMPTION THAT THE NOTICE HAS BEEN DULY SERVED UPON THE ASSESSEE. 8. WE, THEREFORE, PROCEED TO HEAR THIS APPEAL AFTER CONSIDERING THE CONTENTIONS OF THE LD. D.R. 9. THE ISSUE INVOLVED IN THIS APPEAL IS NO MORE RES - INTEGRA AS IT HAS NOW BEEN SETTLED BY THE DECISION OF HONBLE APEX COURT IN TH E CASE OF LIBERTY INDIA LTD. 317 ITR 218 (SC) WHERE THE SUPREME COURT HAS HELD A ND OBSERVED THAT BY USING THE EXPRESSION DERIVED FROM, PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. THE HONBLE SUPREME COURT FURTHER OBSERVED THAT ITA NO. 3693/DEL/2009 3 OF 6 THERE IS NO DISTINCTION OR MATERIAL DIFFERENCE IN S ECTION 80 I AND 80 IB AS IN BOTH THE CASES, THE PROFITS HAVE TO BE DERIVED FROM AN INDUSTRIAL UNDERTAKING. FOR THE APPLICATION OF THE WORDS DERIVED FROM THE RE MUST BE A DIRECT NEXUS BETWEEN THE PROFIT AND INDUSTRIAL UNDERTAKING. THE HONBLE SUPREME COURT OBSERVED THAT THE INCOME-TAX ACT, 1961, BROADLY PRO VIDES FOR TWO TYPES OF TAX INCENTIVES, VIZ., INVESTMENT-LINKED INCENTIVES AND PROFITS-LINKED INCENTIVES. CHAPTER VI-A OF THE ACT, WHICH PROVIDES FOR INCENTI VES IN THE FORM OF DEDUCTIONS ESSENTIALLY BELONGS TO THE CATEGORY OF PROFIT-LINKED INCENTIVES. THEREFORE, WHEN SECTION 80-IA/80-IB REFERS TO PROFI T DERIVED FROM ELIGIBLE BUSINESS, IT IS NOT THE OWNERSHIP OF THAT BUSINESS WHICH ATTRACTS THE INCENTIVES: WHAT ATTRACTS THE INCENTIVES UNDER SECTION 80-IA/80 -IB IS THE GENERATION OF PROFITS (OPERATIONAL PROFITS). IT IS FOR THIS REASO N THAT PARLIAMENT HAS CONFINED DEDUCTION OF PROFITS DERIVED FROM ELIGIBLE BUSINESS MENTIONED IN SUB-SECTIONS (3) TO (11A). EACH OF THE BUSINESS MENTIONED IN SU B-SECTIONS (3) TO (11A) CONSTITUTES A STAND-ALONE ITEM IN THE MATTER OF COM PUTATION OF PROFIT. HONBLE SUPREME COURT IN THE ABOVE REFERRED CASE FURTHER OB SERVED THAT SECTIONS 80-IB AND 80-IA ARE A CODE BY THEMSELVES AS THEY CONTAIN BOTH SUBSTANTIVE AS WELL AS PROCEDURAL PROVISIONS. THE HONBLE SUPREME COURT F URTHER OBSERVED THAT SECTION 80-IB PROVIDES FOR THE ALLOWING OF DEDUCTIO N IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINESS. THE CONN OTATION OF THE WORDS DERIVED FROM IS NARROWER AS COMPARED TO THAT OF T HE WORDS ATTRIBUTABLE TO. ITA NO. 3693/DEL/2009 4 OF 6 BY USING THE EXPRESSION DERIVED FROM PARLIAMENT I NTENDED TO COVER SOURCES NOT BEYOND THAT FIRST DEGREE. IT HAS ALSO BEEN OBS ERVED BY SUPREME COURT THAT SECTION 80-I, 80-IA AND 80-IB ARE TO BE READ AS HAV ING A COMMON SCHEME. SUB-SECTION (5) OF SECTION 80-IA (WHICH IS REQUIRED TO BE READ INTO SECTION 80- IB) PROVIDES FOR THE MANNER OF COMPUTATION OF THE P ROFITS OF AN ELIGIBLE BUSINESS. SUCH PROFITS ARE COMPUTED AS IF SUCH ELI GIBLE BUSINESS IN THE ONLY SOURCE OF INCOME OF THE ASSESSEE. THEREFORE, DEVIC ES ADOPTED TO REDUCE OR INFLATE THE PROFITS OF THE ELIGIBLE BUSINESS HAVE T O BE REJECTED IN VIEW OF THE OVERRIDING PROVISIONS OF SECTION 80IA (5). SECTI ONS 80-I, 80-IA AND 80-IB PROVIDE FOR INVENTIVE IN THE FORM OF DEDUCTIONS WHI CH ARE LINKED TO PROFITS AND NOT INVESTMENT. 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-SECTIO N (1) ONLY TO THE EXTENT OF PROFITS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING AF TER THE SPECIFIED DATE. APART FROM ELIGIBILITY, SUB-SECTION (1) PURPORTS TO RESTR ICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF THE PROFITS. THIS IS THE IMPORTANCE OF THE WORDS DERIVED FROM AN INDUSTRIAL UNDERTAKING AS AGAINST PROFITS ATTRIBUTABLE TO AN INDUSTRIAL UNDERTAKING. 10. THE HONBLE SUPREME COURT THEN HELD AS UNDER:- 16 DEPB IS AN INCENTIVE. IT IS GIVEN UNDER THE D UTY EXEMPTION REMISSION SCHEME. ESSENTIALLY, IT IS AN EXPORT INC ENTIVE. NO DOUBT, ITA NO. 3693/DEL/2009 5 OF 6 THE OBJECT BEHIND DEPB IS TO NEUTRALIZE THE INCIDEN CE OF CUSTOMS DUTY PAYMENT ON THE IMPORT CONTENT OF EXPORT PRODUCT. T HIS NEUTRALIZATION IS PROVIDED FOR BY CREDIT TO CUSTOMS DUTY AGAINST E XPORT PRODUCT. UNDER DEPB, AN EXPORTER MAY APPLY FOR CREDIT AS A P ERCENTAGE OF THE FOB VALUE OF EXPORTS MADE IN FREELY CONVERTIBLE CUR RENCY. CREDIT IS AVAILABLE ONLY AGAINST THE EXPORT PRODUCT AND AT RA TES SPECIFIED BY THE DGFT FOR IMPORT OF RAW MATERIALS, COMPONENTS, ETC., DEPB CREDIT UNDER THE SCHEME HAS TO BE CALCULATED BY TAKING INT O ACCOUNT THE DEEMED IMPORT CONTENT OF THE EXPORT PRODUCT AS PER BASIS CUSTOMS DUTY AND SPECIAL ADDITIONAL DUTY PAYABLE ON SUCH DEEMED IMPORTS. THEREFORE, IN OUR VIEW, DEPB/DUTY DRAWBACK ARE INCE NTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOMS ACT, 1962, HENCE, INCENTIVES PROF ITS ARE NOT PROFITS DERIVED FROM THE ELIGIBLE BUSINESS UNDER SECTION 80 -IB. THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKI NGS. 17. THE NEXT QUESTION IS WHAT IS DUTY DRAWBACK? SECTION 75 OF THE CUSTOMS ACT, 1962, AND SECTION 37 OF THE CENTRAL EX CISE ACT, 1944, EMPOWER THE GOVERNMENT OF INDIA TO PROVIDE FOR REPA YMENT OF CUSTOMS DUTY AND EXCISE DUTY PAID BY AN ASSESSEE. THE REFU ND IS OF THE AVERAGE AMOUNT OF DUTY PAID ON MATERIALS OF ANY PARTICULAR CLASS OR DESCRIPTION OF GOODS USED IN THE MANUFACTURE OF EXPORT GOODS OF SPECIFIED CLASS. THE RULES DO NOT ENVISAGE A REFUND OF AN AMOUNT ARI THMETICALLY EQUAL TO CUSTOMS DUTY OR CENTRAL EXCISE DUTY ACTUALLY PAI D BY AN INDIVIDUAL IMPORTER-CUM-MANUFACTURER. SUB-SECTION (2) OF SECT ION 75 OF THE CUSTOMS ACT REQUIRES THE AMOUNT OF DRAWBACK TO THE DETERMINED ON A CONSIDERATION OF ALL THE CIRCUMSTANCES PREVALENT IN A PARTICULAR TRADE AND ALSO BASED ON THE FACTS SITUATION RELEVANT IN R ESPECT OF EACH OF VARIOUS CLASSES OF GOODS IMPORTED. BASICALLY, THE SOURCE OF THE DUTY DRAWBACK RECEIPT LIES IN SECTION 75 OF THE CUSTOMS ACT AND SECTION 37 OF THE CENTRAL EXCISE ACT. 18. ANALYSING THE CONCEPT OF REMISSION OF DUTY DRAW BACK AND DEPB, WE ARE SATISFIED THAT THE REMISSION OF DUTY IS ON A CCOUNT OF THE STATUTORY/ POLICY PROVISIONS IN THE CUSTOMS ACT/ SC HEME(S) FRAMED BY THE GOVERNMENT OF INDIA. IN THE CIRCUMSTANCES, WE HOLD THAT PROFITS DERIVED BY WAY OF SUCH INCENTIVES DO NOT FALL WITHI N THE EXPRESSION PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING IN SE CTION 80-IB. 11. RESPECTFULLY FOLLOWING THE AFORESAID DECISION O F HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD. (SUPRA) WHERE THE HO NBLE SUPREME COURT HAS HELD ITA NO. 3693/DEL/2009 6 OF 6 THAT THE RECEIPTS BY WAY OF DEPB AND DUTY DRAW BACK ARE NOT ELIGIBLE FOR DEDUCTION U/S 80IB INASMUCH AS THEY CANNOT BE SAID TO BE PROFIT DERIVED FROM BUSINESS OF INDUSTRIAL UNDERTAKING, WE SET ASIDE TH E ORDER OF THE LD. CIT(A) AND RESTORE THAT OF THE A.O. IN OTHER WORDS, WE HOLD T HAT THE A.O. WAS JUSTIFIED IN REJECTING THE ASSESSEES CLAIM OF DEDUCTION U/S 80I B IN RESPECT OF RECEIPTS IN THE NATURE OF DUTY DRAW BACK/ DEPB. THE A.O. SHALL MOD IFY THE ASSESSMENT ORDER ACCORDINGLY. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED. 13. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT IMMEDIATELY AFTER THE HEARING WAS OVER ON 1 ST FEBRUARY, 2010. SD/- SD/- (SHAMIM YAHYA) ACCOUNTANT MEMBER (C.L. SETHI) JUDICIAL MEMBER DATED: 1 ST FEBRUARY, 2010. MAMTA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. BY ORDER DEPUTY REGISTRAR