Magnum Sea Foods Limited, Bhubaneswar V. DCIT, Corporate Circle-2(1), Bhubaneswar

ITA 452/CTK/2015

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4400 (ITAT-CUTTACK)
• Duration Of Justice: 4 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 02-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M K GAUTAM
• Assessee Lawyers: P R MOHANTY
• Keywords: Depreciation; Search and seizure; Additional depreciation; Retrospective amendment; Question of law
• Section: 143(3); 80IB; 201; 80IC; 80HH; 80IC; 43; 13; 153; 22; 56; 132; 28

Judgement Text

P A G E 1 | 44 IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE SHRI CHANDRA MOHAN GARG , JUDICIAL MEMBER AND LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA NO . 45 2 /CTK/201 5 : ASSESSMENT YEAR : 2011 - 20 12 ITA NO.116/CTK/2017 : ASSESSMENT YEAR : 2010 - 2011 ITA NO.152/CTK/2017 : ASSESSMENT YEAR : 2013 - 2014 ITA NO.153/CTK/2017 : ASSESSMENT YEAR : 2014 - 2015 MAGNUM SEA FOODS LTD.,, 132 - A, SECTOR - A, ZONE - A, MANCHESWAR, INDUSTRIAL ESTATE, BHUBANESWAR. VS. DCIT, CORPORATE CIRCLE, BHUBANESWAR. PAN/GIR NO. AAACO 4833 G (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI P.R.MOHANTY , AR REVENUE BY : SHRI M.K.GAUTAM, CIT DR DATE OF FINAL HEARING : 1 6 / 07 / 20 20 DATE OF PRONOUNCEMENT : 14 / 10 /20 20 O R D E R PER C.M.GARG,JM TH ESE ARE APPEAL S FILED BY THE ASSESSEE AGAINST THE SEPARATE ORDER S OF THE CIT(A),1, BHUBANESWAR FOR THE ASSESSMENT YEAR S 2011 - 12 , 2010 - 2011, 2013 - 14 AND 2014 - 15, RESPECTIVELY. 2. SINCE THE ISSUE INVOLVED IN ALL THESE APPEALS IS COMMON EXCEPT VARIANCE OF ADDITION, THEY WERE CLUBBED TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. LD REPRESENTATIVES OF BOTH THE SIDES AGREED TO TAKE UP APPEAL FOR A.Y. 2011 - 12 AS LEAD CASE. MAGNUM SEA FOODS LTD P A G E 2 | 44 3. AS THE FA CTS ARE IDENTICAL AS AGREED BY LD REPRESENTATIVES OF PARTIES, WE TAKE UP THE APPEAL FOR THE ASSESSMENT YEAR 2011 - 12 FOR OUR ADJUDICATION AND THE DECISION WILL APPLY MUTATIS - MUTANDIS TO OTHER ASSESSMENT YEARS. 4. GROUNDS RAISED IN ASSESSMENT YEAR 2011 - 12 AR E AS UNDER: 1) THAT THE ORDER DTD. 04 - 09 - 2015 AS PASSED IN THE APPEAL NO.0252/15 - 16 BY THE LEARNED COMMISSIONER OF INCOME TAX - APPEAL(CITA) IS UNJUSTIFIED, ARBITRARY, CONTRARY TO THE FACTS AND BAD IN LAW. 2) THAT THE LEARNED CITA IS SIMPLY INFLUENCED BY THE DECISION OF THE LEARNED AO WITHOUT GOING THROUGH THE MERITS, FACTS AND CIRCUMSTANCES OF THE CASE. 3) THAT THE ADDITION OF RS.5,38,860/ - MADE BY THE LEARNED AO AND CONFIRMATION OF THE SAME BY THE LEARNED CITA, BY DISALLOWING THE ADDITI ONAL DEPRECIATION CLAIMED IN THE RETURN, IS ILLEGAL AS THE SAME IS BASED ON A IRRELEVANT CASE LAWS, THE FACTS OF WHICH ARE TOTALLY DIFFERENT AND THE DECISIONS WERE GIVEN IN DIFFERENT CONTEXT. 4) THAT THE LEARNED CITA IS TOTALLY BIASED BY THE DECISION O F THE LEARNED AO AND COMPLETELY IGNORED THE SUBMISSIONS OF THE ASSESSEE THAT IT IS ENGAGED IN THE PRODUCTION ACTIVITIES BY INSTALLING THE REQUIRED PLANT AND MACHINERY IN ITS INDUSTRIAL UNDERTAKING AND HAVING RECEIVED REGISTRATION FROM VARIOUS GOVT, AGENCIE S FOR PRODUCTION/PROCESSING ACTIVITIES OF EXPORTABLE PRAWNS AND ACCORDINGLY ENTITLED FOR ADDITIONAL DEPRECIATION. 5) THAT THE DECISIONS OF LEARNED CITA AND AUTHORITIES BELOW IN DISALLOWING THE SUM OF RS. 5,44,36,164/ - BEING PREMIUM RECEIVED FOR DEPB LI CENSE FOR CALCULATING PROFIT U/S 80IB(11A), ARE WRONG AND ILLEGAL. 6) THAT THE ADDITION TO TOTAL INCOME OF RS.5,44,36,164/ - BY DISALLOWING THE DEDUCTION U/S 80IB(11A) OF THE INCOME TAX ACT 1961, BY THE LEARNED CITA AND AUTHORITIES BELOW IS WRONG AND IS ILLEGAL AS THE SAME IS BASED ON EARLIER SUPREME COURT DECISION(LIBERTY CASE) AND IGNORING THE SUBSEQUENT SUPREME COURT DECISION(TOPMAN EXPORT CASE). 7) THAT THE CIRCUMSTANCES AND THE BUSINESS ENVIRONMENT FOR WHICH THE DECISION OF THE HONORABLE SUPREME COURT MADE IN LIBERTY CASE, IS MAGNUM SEA FOODS LTD P A G E 3 | 44 CHANGED AND SINCE THERE IS A SUBSEQUENT DECISION OF THE HONORABLE SUPREME COURT IN TOPMAN EXPORT CASE WHICH BENEFICIAL TO THE ASSESSEE SHOULD BE ACCEPTED. 5. AT THE TIME OF HEARING, LD A.R. OF THE ASSESSEE DID NOT PRESS GRO UND NOS.1 TO 4 AND GROUND NO. 8 . THEREFORE, THESE GROUNDS ARE DISMISSED AS NOT PRESSED. 6. APROPOS REMAINING EFFECTIVE GROUND NOS.5 , 6 & 7 OF APPEAL, THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN PROCESSING PRAWNS AND OTHER SEA FOOD AN D EXPORT THE SAME. IT PROCURES THE RAW PRAWNS FROM CHILIKA, PRAWNS CULTURE BASES AT BALASORE AND ANDHRA PRADESH, BRINGS THEM TO THE FACTORY. THE PRODUCTION PROCESS INVOLVES CUTTING HEADS AND TAILS, PEELING, DEVEINING, CLEANING, COOKING AND FREEZING. THEN , THEY ARE PACKED AS PER THE BUYERS REQUIREMENTS AND EXPORTED TO DIFFERENT LOCATIONS. DURING THE FINANCIAL YEAR 2009 - 10 , RELEVANT TO ASSESSMENT YEAR 2010 - 2011, THE ASSESSEE COMPANY SETUP A NEW PROCESSING PLANT AT BOTNDA NEAR JANKIA IN THE DIST. OF KHURDA AVAILING TERM LOANS FROM BANKS AND AFTER DUE APPROVAL AND AUTHENTICATION FROM GOVT. AGENCIES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED TH AT THE ASSESSEE HAS RECEIVED TOTAL DEPB PREMIUM OF RS.7,24,15,518 AND HAS CLAIMED DEDUCTION A SUM OF RS.,5,44,36,164/ - UNDER SECTION 11IB (11A) OF THE ACT . THE AO OBSERVED THAT DEPB WHICH IS AVAILABLE BY WAY OF EXPORT INCENTIVE CANNOT BE CONSIDERED TO BE PROFIT & GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING ON WHICH DEDUCTION U/S. 80IB(11A) OF THE ACT IS AVAILABLE. THE AO RELIED ON MAGNUM SEA FOODS LTD P A G E 4 | 44 THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS CIT, 317 ITR 218 AND CIT VS STERLING FOODS(1999) 104 T AXMAN 204 (SC) ACCORDING TO HIM TO BE DIRECT DECISION ON THE ISSUE AND MADE AN ADDITION OF RS.7,24,15,518/ - ON ACCOUNT OF PREMIUM RECEIVED FOR DEPB LICENSE. THE ABOVE ACTION OF THE ASSESSING OFFICER HAS BEEN UPHELD BY THE LD CIT(A) IN FIRST APPEAL. 7. HEN CE, THE ASSESSEE IS IN APPEAL BEFORE US. 8. LD A.R. OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE SET UP A NEW PLANT ENCOURAGED BY GOVT OF INDIA MINISTRY FOR FOOD PROCESSING INDUSTRIES WHICH PROMISED & PROVIDED THAT: ........100% TAX EXEMPTION FOR THE FIRST FIVE ASSESSMENT YEARS, BEGINNING WITH THE INITIAL ASSESSMENT YEAR, A MEASURE WHICH WOULD BE AVAILABLE UNDER SECTION 80 - IB(11A) OF THE INCOME TAX ACT, 1961, TO UNDERTAKINGS DERIVING PROFIT FROM THE BUSINESS OF PROCE SSING, PRESERVING AND PACKAGING OF FRUITS OR VEGETABLES AND NEW UNITS IN THE BUSINESS OF PROCESSING, PRESERVATION AND PACKAGING OF MEAT OR MEAT PRODUCTS OR POULTRY OR MARINE OR DAIRY PRODUCTS........... 9. HE SUBMITTED THAT W ITH A VIEW TO PRESERVING PERISH ABLE FOOD ITEMS LIKE MILK, POULTRY AND MEAT, THE FINANCE (NO.2) ACT 2009 HAS AMENDED SUB - SECTION (11A) OF SECTION 80 - IB WITH EFFECT FROM 01.04.2010 TO PROVIDE TAX HOLIDAY IN RESPECT OF THE BUSINESS OF PROCESSING, PRESERVING AND PACKAGING OF MEAT AND MEAT PRODUCTS AND POULTRY, MARINE AND DAIRY PRODUCTS FOR UNITS WHICH BEGIN TO OPERATE SUCH BUSINESS ON OR AFTER 1ST APRIL, 2009. THE AMOUNT OF DEDUCTION IN A CASE OF AN UNDERTAKING DERIVING PROFIT FROM THE MAGNUM SEA FOODS LTD P A G E 5 | 44 BUSINESS OF PROCESSING, PRESERVATION AND PACKAGING OF F RUITS OR VEGETABLES OR MEAT AND MEAT PRODUCTS OR POULTRY OR MARINE OR DAIRY PRODUCTS OR FROM THE INTEGRATED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS, IS HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH UNDERTAKING FOR FIVE ASSESSMENT YEARS BEGINNING WITH THE INITIAL ASSESSMENT YEAR AND THEREAFTER, TWENTY - FIVE PER CENT (OR THIRTY PER CENT WHERE THE ASSESSEE IS A COMPANY) OF THE PROFITS AND GAINS DERIVED FROM THE OPERATION OF SUCH BUSINESS IN A MANNER THAT THE TOTAL PERIOD OF DEDUCTION DOES NOT EXCEED TEN CONSECUTIVE ASSESSMENT YEARS AND SUBJECT TO FULFILMENT OF THE CONDITION THAT IT BEGINS TO OPERATE SUCH BUSINESS ON OR AFTER THE 1ST DAY OF APRIL, 2001.. 10. LD A.R. FURTHER SUBMITTED THAT THE ASSESSEE DURING THE YEAR UNDER C ONSIDERATION EARNED INCENTIVES FROM THE DUTY ENTITLEMENT PASS BOOK SCHEME (DEPB) WHICH IS AN EXPORT INCENTIVE SCHEME. DEPB BENEFITS GRANTED ARE IN THE NATURE OF REMISSION OF CUSTOMS DUTY. THESE INCENTIVES ARE GIVEN FOR MAKING EXPORT VIABLE OR MORE ATTRACT IVE TO COMPETE IN THE INTERNATIONAL MARKETS. SIMILARLY, THE ASSESSEE ALSO EARNED INCENTIVES FROM VISHESH KRISHI AND GRAM UDUOG YOJANA, VKGUY DUTY CREDIT IS GRANTED WITH AN AIM TO COMPENSATE HIGH TRANSPORT COSTS AND TO PROMOTE EXPORTS OF AGRICULTURAL PRODUC E AND THEIR VALUE - ADDED PRODUCT S I.E. MINOR FOREST PRODUCE AND THEIR VALUE - ADDED VARIANTS. GRAM UDYOG PRODUCTS AND THE EXPORTER IS PROVIDED INCENTIVE IN CASE OF DEPB AS WELL AS VKGUY AT A PRE - MAGNUM SEA FOODS LTD P A G E 6 | 44 DECIDED CREDIT ON THE FREIGHT ON BOARD VALUE (FOB) AUTHENTICAT ED AND ADMINISTERED BY THE COMMISSIONER OF CUSTOMS ALONG WITH THE DIRECTORATE GENERAL OF FOREIGN TRADE (DGFT). 11. HE SUBMITTED THAT T HE ASSESSEE WHILE CLAIMING DEDUCTION U/S 80IB(11A) INCLUDED THE AMOUNT OF INCENTIVE EARNED FROM DEPB & VKGUY TO THE BUSIN ESS INCOME WHICH WAS DISALLOWED BY THE LD. AO ON THE GROUND THAT THE INCENTIVE INCOME FROM DEPB & VKGUY BELONG TO THE CATEGORY OF ANCILLARY INCOME OF SUCH UNDERTAKING, IN OTHER WORDS INCOME FROM OTHER SOURCES AND NOT PROFIT AND GAIN DERIVED FROM ITS INDUST RIAL UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 80IB(11A). 12. HE REFERRED TO SECTION 28 (IIIB) OF THE INCOME TAX ACT , WHICH PROVIDES THAT CASH ASSISTANCE BY WHATEVER NAME CALLED, RECEIVED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA SHOULD BE TREATED AS PART OF THE BUSINESS PROFITS WITH RETROSPECTIVE EFFECT FROM 1.4.1967. PROFITS ON SALE OF LICENCES GRANTED UNDER THE IMPORTS & EXPORTS (CONTROL) ACT, 1947 AND/OR THE FOREIGN TRADE REGULATION ACT, 1993 ALSO HAVE TO BE REGARDED AS PROFITS OF THE BUSINESS UNDER SECTION 28(IIIA) INSERTED BY FINANCE ACT, 1990 W.R.E.F 1.4.1963. FURTHER MORE, THE TAXATION LAWS(AMENDMENT)ACT,2005 HAS INSERTED IN SECTION 28 A NEW CLAUSE (IIID) WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL,1998 TO SECURE THAT ANY PROFIT FROM DEPB SCHEME (DUTY ENTITLEMENT MAGNUM SEA FOODS LTD P A G E 7 | 44 PASSBOOK SCHEME) OR DUTY REMISSION SCHEME WOULD ALSO BE TAXABLE AS BUSINESS PROFITS. LIKEWISE, THE TAXATION LAWS (AMENDMENT)ACT,2005 HAS AMENDED SECTION 28 TO INSERT A NEW CLAUSE (IIIE) WITH RETR OSPECTIVE EFFECT FROM 1 ST APRIL,2001 TO SECURE THAT ANY PROFIT ON TRANSFER OF DUTY FREE REPLENISHMENT CERTIFICATE(DFRC) SHALL BE TREATED AS PART OF BUSINESS PROFITS OF THE EXPORTER. 13. LD A.R. SUBMITTED THAT IN VIEW OF THE ABOVE AMENDMENT IN THE ACT, THE ISSUE IS NO LONGER RES INTEGRA . HE FURTHER REFERRED J UDGMENT OF HONBLE SUPREME COURT IN STERLING FOODS CASE (SUPRA) RELIED BY THE AO IN THE ASSESSMENT ORDER AND SUBMITTED THAT THIS JUDGMENT IS OF THE YEAR 1999, AT WHICH TIME, THE NEWLY ADDED PROVISION OF CL. (IIID) OF S. 28 DID NOT EXIST, WHICH HAS BEEN INSERTED, AS NOTICED ABOVE, IN THE YEAR 2005, W.E.F. 1ST APRIL, 1998. AGAIN THE ISSUE OF AMENDMENT TO SECTION 28 OF THE INCOME TAX LAWS(AMENDMENT)ACT,2005 WAS NEVER THE SUBJECT MATTER OF DISCUSSION OR DECISION IN THE CASE OF LIBERTY INDIA VS CIT (2009) 183 TAXMAN 349 (SC). THUS, THE INTRODUCTION OF CL. (IIID) OF AMENDMENT IN 2005, W.E.F. 1ST APRIL, 1998, HAS CHANGED THE WHOLE SCENARI O, AS CONSIDERED BY HONBLE SUPREME COURT, IN THE ABOVE JUDGMENTS. THE ISSUE OF AMENDMENT TO SECTION 28 OF THE INCOME TAX LAWS(AMENDMENT)ACT,2005 WITH RESPECT TO DEPB DEDUCTION U/S 80IB HAS BEEN DEALT WITH BY THE HIGH COURT OF RAJASTAN IN THE CASE OF SAR AF SEASONING UDYOG VS. INCOME TAX OFFICER (2008) 219 CTR (RAJ) 461 : (2008) 174 TAXMAN 594 (RAJ) WHERE IN AFTER MAGNUM SEA FOODS LTD P A G E 8 | 44 CONSIDERING THE AMENDMENT TO SECTION 28 ALONG WITH THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF CIT VS. STERLING FOODS (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC) PANDIAN CHEMICALS LTD. VS. CIT (2003) 183 CTR (SC) 99 : (2003) 262 ITR 278 (SC) THE COURT AT PARA - 10 OF THE JUDGEMENT HELD THAT: A COMBINED READING OF S. 80 - IB(4) AND S. 28(IIID), AS INTRODUCED, DOES MAKE CLEAR, THAT THE PRO FIT DERIVED ON TRANSFER OF DEPB LICENSES, DOES VERY MUCH FALL WITHIN FOUR CORNERS OF PROFITS AND GAINS, DERIVED FROM SUCH INDUSTRIAL UNDERTAKING, BEING ASSESSEE, AND IS CAPABLE OF BEING TAXED ONLY UNDER S. 28, SUBJECT TO EXEMPTION, AS PROVIDED IN S. 80 - IB, AND/OR OTHER ELIGIBLE PROVISIONS . 14. LD A.R. SUBMITTED THAT THE MATTER ATT AINED FINALITY AND THE CONTROVERSY WAS PUT TO REST BY NONE OTHER THAN THE SUPREME COURT OF INDIA IN THE CASE OF CIT VS. MEGHALAYA STEELS LTD (2016) 284 CTR (SC) 321: (2016) 38 3 ITR 217 (SC) WHILE CONSIDERING DEDUCTION UNDER S. 80 - IB AND 80 - IC OF THE ACT , THE APEX COURT WHERE IN AFTER DUE CONSIDERATION OF THE EARLIER DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS. STERLING FOODS (1999) 153 CTR (SC) 439 : (1999) 4 SCC 98, PA NDIAN CHEMICALS LTD. VS. CIT (2003) 183 CTR (SC) 99 : (2003) 262 ITR 278 (SC), LIBERTY INDIA VS. CIT (2009) 225 CTR (SC) 233 : (2009) 9 SCC 328 AND MANY OTHER DECISIONS ALONG WITH THE AMENDMENT TO SECTION 28 OF THE INCOME TAX LAWS(AMENDMENT)ACT,2005 THE C OURT FINALLY CONCLUDED AT PARA - 28 OF THE JUDGEMENT AS UNDER: IT ONLY REMAINS TO CONSIDER ONE FURTHER ARGUMENT BY SHRI RADHAKRISHNAN. HE HAS ARGUED THAT AS THE SUBSIDIES THAT ARE RECEIVED BY THE RESPONDENT, WOULD BE INCOME FROM OTHER SOURCES REFERABLE TO S. 56 OF THE IT ACT, ANY DEDUCTION THAT IS MAGNUM SEA FOODS LTD P A G E 9 | 44 TO BE MADE, CAN ONLY BE MADE FROM INCOME FROM OTHER SOURCES AND NOT FROM PROFITS AND GAINS OF BUSINESS, WHICH IS A SEPARATE AND DISTINCT HEAD AS RECOGNISED BY S. 14 OF THE IT ACT. SHRI RADHAKRISHNAN IS NOT CORRECT IN HIS SUBMISSION THAT ASSISTANCE BY WAY OF SUBSIDIES WHICH ARE REIMBURSED ON THE INCURRING OF COSTS RELATABLE TO A BUSINESS, ARE UNDER THE HEAD 'INCOME FROM OTHER SOURCES', WHICH IS A RESIDUARY HEAD OF INCOME THAT CAN BE AVAILED ONLY IF INCOME DOES NOT F ALL UNDER ANY OF THE OTHER FOUR HEADS OF INCOME. SEC. 28(IIIB) SPECIFICALLY STATES THAT INCOME FROM CASH ASSISTANCE, BY WHATEVER NAME CALLED, RECEIVED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA, WILL BE INCOME C HARGEABLE TO INCOME TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. IF CASH ASSISTANCE RECEIVED OR RECEIVABLE AGAINST EXPORTS SCHEMES ARE INCLUDED AS BEING INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', IT IS OBVIOUS THAT SUBSIDIES WHICH GO TO REIMBURSEMENT OF COST IN THE PRODUCTION OF GOODS OF A PARTICULAR BUSINESS WOULD ALSO HAVE TO BE INCLUDED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', AND NOT UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. 15. HE FURTHER SUBMITTED THAT THE HONBLE HIGH COURT OF RAJAS H TAN IN THE CASE OF CIT VS SURESH KUMAR BAJORIA IN INCOME TAX APPEAL NO - 294/2008 DECIDED ON 18/05/2017 AFTER DUE CONSIDERATION OF ALL THE DECISION OF HIGH COURTS AND SUPREME COURT RENDERED IN CONNECTIO N TO DEDUCTION CLAIMED U/S 80IB & 80IC WITH RESPECT TO DEPB AND/OR OTHER INCENTIVE RELATING TO EXPORT AFTER DUE CONSIDERATION OF DECISION OF CIT VS. STERLING FOODS AS WELL AS LIBERTY INDIA VS. CIT CON CURRED WITH THE DECISION OF THE SUPREME COURT IN THE CA SE OF CIT VS. MEGHALAYA STEELS LTD (2016) 284 CTR (SC) 321: (2016) 383 ITR 217 (SC) AND HELD THAT DEPB OR ANY OTHER INCENTIVE MAGNUM SEA FOODS LTD P A G E 10 | 44 RECEIVED OR RECEIVABLE IS INCOME FROM BUSINESS OF THE INDUSTRIAL UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 80IB OR 80IC. 16. HE FURTH ER SUBMITTED THAT S IMILAR VIEWS ARE ALSO EXPRESSED BY THE HIGH COURT OF JAMMU & KASHMIR IN THE CASE OF KASHMIR TUBES VS. ITO DECIDED ON 31/08/2017 REPORTED IN (2018) 300 CTR 0541(J & K) WHILE CONSIDERING DEDUCTION UNDER S. 80 - IB PROFITS AND GAINS DERIVED F ROM INDUSTRIAL UNDERTAKING INTEREST SUBSIDY ALLOWED THE APPEAL IN ADHERENCE TO THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS. MEGHALAYA STEELS LTD (2016) 284 CTR (SC) 321 HELD AT PARA - 11 OF THE JUDGEMENT AS UNDER: NOW, WE MAY ADVERT TO THE SECON D SUBSTANTIAL QUESTION OF LAW. THE AFORESAID ISSUE IS NO LONGER RES INTEGRA AND HAS BEEN DEALT WITH BY THE SUPREME COURT IN THE CASE OF CIT VS. MEGHALAYA STEEL LTD. (SUPRA), THE RELEVANT EXTRACT OF WHICH READS AS UNDER: '18. THE JUDGMENT IN STERLING FOODS LAYS DOWN A VERY IMPORTANT TEST IN ORDER TO DETERMINE WHETHER PROFITS AND GAINS ARE DERIVED FROM BUSINESS OR AN INDUSTRIAL UNDERTAKING. THIS COURT HAS STATED THAT THERE SHOULD BE A DIRECT NEXUS BETWEEN SUCH PROFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING OR BUSINESS. SUCH NEXUS CANNOT BE ONLY INCIDENTAL. IT THEREFORE FOUND, ON THE FACTS BEFORE IT, THAT BY REASON OF AN EXPORT PROMOTION SCHEME, AN ASSESSEE WAS ENTITLED TO IMPORT ENTITLEMENTS WHICH IT COULD THEREAFTER SELL. OBVIOUSLY, THE SALE CONSIDERATION T HEREFROM COULD NOT BE SAID TO BE DIRECTLY FROM PROFITS AND GAINS BY THE INDUSTRIAL UNDERTAKING BUT ONLY ATTRIBUTABLE TO SUCH INDUSTRIAL UNDERTAKING INASMUCH AS SUCH IMPORT ENTITLEMENTS DID NOT RELATE TO MANUFACTURE OR SALE OF THE PRODUCTS OF THE UNDERTAKING, BUT RELATED ONLY TO AN EVENT WHICH WAS POST - MANUFACTURE NAMELY, EXPORT ON AN APPLICATION OF THE AFORESAID TEST TO THE FACTS OF THE PRESENT CASE, IT CAN BE SAID THAT AS ALL THE FOUR SUBSIDIES IN THE PRESENT CASE ARE REVENUE RECEIPTS WHICH ARE REIMBURSED TO THE ASSESSEE FOR ELEMENTS OF COSTS RELATING TO MANUFACTURE OR SALE OF THEIR PRODUCTS, THERE CAN CERTAINLY BE SAID TO BE A DIRECT NEXUS BETWEEN PROFITS AND MAGNUM SEA FOODS LTD P A G E 11 | 44 GAINS OF THE INDUSTRIAL UN DERTAKING OR BUSINESS, AND REIMBURSEMENT OF SUCH SUBSIDIES. HOWEVER, SHRI RADHAKRISHNAN STRESSED THE FACT THAT THE IMMEDIATE SOURCE OF THE SUBSIDIES WAS THE FACT THAT THE GOVERNMENT GAVE THEM AND THAT, THEREFORE, THE IMMEDIATE SOURCE NOT BEING FROM THE BUS INESS OF THE ASSESSEE, THE ELEMENT OF DIRECTNESS IS MISSING. WE ARE AFRAID WE CANNOT AGREE. WHAT IS TO BE SEEN FOR THE APPLICABILITY OF SS. 80 - IB AND 80 - IC IS WHETHER THE PROFITS AND GAINS ARE DERIVED FROM THE BUSINESS. SO LONG AS PROFITS AND GAINS EMANATE DIRECTLY FROM THE BUSINESS ITSELF, THE FACT THAT THE IMMEDIATE SOURCE OF THE SUBSIDIES IS THE GOVERNMENT WOULD MAKE NO DIFFERENCE, AS IT CANNOT BE DISPUTED THAT THE SAID SUBSIDIES ARE ONLY IN ORDER TO REIMBURSE, WHOLLY OR PARTIALLY, COSTS ACTUALLY INCURRE D BY THE ASSESSEE IN THE MANUFACTURING AND SELLING OF ITS PRODUCTS. THE 'PROFITS AND GAINS' SPOKEN OF BY SS. 80 - IB AND 80 - IC HAVE REFERENCE TO NET PROFIT. AND NET PROFIT CAN ONLY BE CALCULATED BY DEDUCTING FROM THE SALE PRICE OF AN ARTICLE ALL ELEMENTS OF COST WHICH GO INTO MANUFACTURING OR SELLING IT. THUS UNDERSTOOD, IT IS CLEAR THAT PROFITS AND GAINS ARE DERIVED FROM THE BUSINESS OF THE ASSESSEE, NAMELY, PROFITS ARRIVED AT AFTER DEDUCTING MANUFACTURING COST AND SELLING COSTS REIMBURSED TO THE ASSESSEE BY THE GOVERNMENT CONCERNED.' 17. LD A.R. AFTER RELYING ON THE AFOREMENTIONED JUDGMENTS, SUBMITTED THAT THE CLAIM OF DEDUCTION U/S.80IB(11A) MAY KINDLY BE ALLOWED BY REVERSING THE ORDERS OF LOWER AUTHORITIES. 18. REPLYING TO ABOVE, LD CIT DR PLACING RELIAN CE ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF BANPAL OIL CHEM (P) LTD VS ACIT (2016) 71 TAXMANN.COM 342 (GUJ) SUBMITTED THAT WHEN THE ASSESSEE IS HAVING ELIGIBLE INDUSTRY AND AVAILING DEDUCTION U/S. 80IB OF THE ACT, WILL NOT BE ENTITLED F OR THE SAME IN RESPECT OF INCOME FROM DEPB AND DEPB PREMIUM. LD CIT DR SUBMITTED THAT IN THIS JUDGMENT, HONBLE HIGH COURT REFERRING TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY MAGNUM SEA FOODS LTD P A G E 12 | 44 INDIA (SUPRA), WHEREIN, HONBLE APEX COURT HAS DISASSOCIAT ED THE DEPB BENEFIT RECEIVED BY AN UNDERTAKING, WHICH WAS OTHERWISE ELIGIBLE FOR DEDUCTION U/S. 80IB OF THE ACT, SINCE THE DEDUCTION WAS FOR THE INDUSTRY, COVERED UNDER ANY OF THE SUB - SECTIONS OF SECTION 80 - IB AND NOT FOR EXPORTS. LD CIT DR SUBMITTED THAT DEPB WAS SEEN AS AN EXPORT INCENTIVE AND THE PROFIT DERIVED ON ACCOUNT OF SUCH EXPORT INCENTIVE MADE AVAILABLE BY THE GOVERNMENT OF INDIA WAS CONSIDERED AS NOT HAVING BEEN DERIVED FROM THE ACTIVITY CARRIED ON BY THE ELIGIBLE INDUSTRY. 19. FURTHER, DRAWING OUR ATTENTION TOWARDS THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS SURESH KUMAR VS BAJORIA IN INCOME TAX APPEAL NO.294/2008 ORDER DATED 18.5.2017 SUBMITTED THAT THE TWO VIEWS TAKEN BY THE HONBLE GUJARAT HIGH COURT WHILE CONSIDERING THE DUTY DRAW BACK BUT THIS WILL NOT FALL WITHIN THE DUTY AS HELD BY THE TRIBUNAL AND IN VIEW OF JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF MEGHALAYA STEEL LTD., (SUPRA). 20. FURTHER DRAWING OUR ATTENTION TOWARDS PARA 13 OF THE DECI SION OF HONBLE SUPREME COURT IN THE CASE OF MEGHALAYA STEEL LTD., (SUPRA), LD CIT DR SUBMITTED THAT THEIR LORDSHIPS HAS GIVEN ATTENTION TOWARDS JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL COMPANY LIMITED VS CIT (1978) 2 S C C 644 AND CONTENDED THAT THERE IS A DISTINCTION BETWEEN EXPRESSION ATTRIBUTABLE TO AND PROFIT DERIVED FROM A BUSINESS. THE EARLIER EXPRESSION HAS WIDER SCOPE BY MEANING AND LAT TER IS MAGNUM SEA FOODS LTD P A G E 13 | 44 HAVING NARROW MEANING. THEREFORE, THERE MUST BE , FOR THE APPLICATION OF THE WORD S DERIVED FROM A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS AND INDUSTRIAL UNDERTAKING , WHICH IS INCIDENTAL IN THE PRESENT CASE. FURTHER DRAWING OUR ATTENTION TO PARA 14 OF SAID JUDGMENT OF HONBLE SUPREME COURT, LD CIT DR SUBMITTED THAT THE HONBLE COURT HAS ALSO CONSIDERED ITS EARLIER JUDGMENT IN THE CASE OF CIT VS STERLING FOODS, (1999) 4 SCC 98, WHEREIN, IT WAS DECIDED THAT WHETHER INCOME DERIVED BY THE ASSESSEE BY SALE OF IMPORT ENTITLEMENTS ON EXPORT BEING MADE, WA S PROFIT AND GAIN DERIVED FROM THE RESPONDENTS INDUSTRIAL UNDERTAKING UNDER SECTION 80 HH OF THE ACT AND AGAIN REFERRING TO THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CAMBAY ELECTRIC SUPPLY (SUPRA) EMPHASISED THE DIFFERENCE BETWEEN WIDER EXPRES SION ATTRIBUTABLE TO AS CONTRASTED WITH DERIVED FROM. THEREFORE, DEPB CREDIT CANNOT BE CONSIDERED AS DERIVED FROM THE INDUSTRIAL ACTIVITIES OF THE ASSESSEE. 21. LD CIT DR LASTLY DRAWN OUT ATTENTION TOWARDS PARA B AT PAGE 18 OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2011 - 12 DATED 24.2.2014 UNDER SECTION 143(3) OF THE ACT AND SUBMITTED THAT THE ASSESSEE EARNS SOME IMPORT ENTITLEMENTS GRANTED BY THE CENTRAL GOVERNMENT UNDER AN EXPORT PROMOTION SCHEME (DEPB), WHICH CAN BE USED BY THE ASSESSEE IT SELF OR SELL THE SAME TO OTHER FOR THEIR USE. LD CIT DR FURTHER SUBMITTED THAT THE ASSESSEE COMPANY SOLD THE IMPORT ENTITLEMENTS TO OTHER FOR USE AND EARN THE IMPUGNED AMOUNT. LD CIT DR SUBMITTED THAT THE ASSESSEE HAD TWO MAGNUM SEA FOODS LTD P A G E 14 | 44 STR EAMS OF INCOME IN THE CURRENT ASSESSMENT YEAR, ONE FROM PROCESSING WORKS, WHICH IT USED TO DO PREVIOUSLY AND OTHER FROM PROCESSING OF RAW PRAWN DONE BY THE ASSESSEE IN ITS NEWLY ESTABLISHED FACTORY FOR WHICH DEDUCTION U/S. 80IB(11A) OF THE ACT HAS BEEN CLAIMED. 22. LD CIT DR SUBMITT ED THAT THE TOTAL INCOME FOR AFOREMENTIONED ASSESSMENT YEARS INCLUDED THE SALE PROCEEDS FOR SUCH IMPORT ENTITLEMENTS AND IT CLAIMED RELIEF UNDER SECTION 80IB(11A) OF THE ACT IN RESPECT OF THE SALE PROCEEDS OF THE IMPORT ENTITLEMENTS TO THE EXTENT OF TURNOV ER OF THE ASSESSEE FROM THE PLANT CLAIMING DEDUCTION U/S. 80IB(11A) OF THE ACT. LD CIT DR ALSO SUBMITTED THAT OUT OF SALE OF MARINE PRODUCT PROCESSING UNIT, IT RECEIVED THE IMPUGNED AMOUNT AS DEPB PREMIUM AND DEPB PREMIUM STOCK. THEREFORE, AGAINST SALE OF MARINE PRODUCT PROCESSING UNIT, IT RECEIVED DEPB PREMIUM WHICH HAS BEEN CLAIMED AS EXEMPT U/S.80IB(11A) OF THE ACT. LD CIT DR FURTHER SUBMITTED THAT DEDUCTION U/S. 80IB(11A) FOR PROCESSING, PRESERVATION AND PACKAGING OF MARINE PRODUCTS IS ALLOWABLE. H OWEVER, THERE IS NO MENTION OF EXPORT AS IN EARLIER 80 HHC. THUS, GOING BY THE LITERAL RULE OF INTERPRETATION, THE DEDUCTION IS AVAILABLE ONLY FOR PROCESSING, PRESERVATION AND PACKAGING AND NOT FOR EXPORT. THEREFORE, THE MOMENT THESE THREE ACTIVITIES AR E COMPLETED, I.E. THE GOODS LEAVE THE FACTORY PREMISES THE BENEFIT OF DEDUCTION ENDS. THE POINT OF SALE FOR CLAIM OF DEDUCTION IS THE FACTORY GATE AND NOT EXPORT AND THE STATUTE IN 80IB(11A) MAKES NO DIFFERENCE BETWEEN AN EXPORT SALES AND DOMESTIC SALES. THE ACTS MAGNUM SEA FOODS LTD P A G E 15 | 44 PROVIDES SALE LEVEL OF DEDUCTION FOR BOTH KIND OF SALES. THEREFORE, EXPORT IS AN ACTIVITY WHICH IS DIFFERENT FROM THE SCOPE OF WORKS ENVISAGED BY STATUTE IN SECTION 80 IB(11A) OF THE ACT. THEREFORE, THE AO WAS RIGHT IN DENYING DEDUCTION U/S. 80 I B (11A) OF THE ACT ON ACCOUNT OF EXPORT SALES AND CONSEQUENT SALE OF DEPB. THEREFORE, ORDER OF THE AO MAY KINDLY BE UPHELD. 2 3 . PLACING REJOINDER TO ABOVE, LD COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TOWARDS PARA 28 AT PAGES 31 - 32 OF THE JUDGMENT OF HO NBLE SUPREME COURT IN THE CASE OF MEGHALAYA STEEL LTD., (SUPRA) AND SUBMITTED THAT IF CASH ASSISTANCE RECEIVED OR RECEIVABLE AGAINST EXPORTS SCHEMES ARE INCLUDED AS BEING INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, IT IS OBVIOUS THAT SUBSIDIES WHICH GO TO REIMBURSEMENT OF COST IN THE PRODUCTION OF GOODS OF A P ARTICULAR BUSINESS WOULD ALSO HAVE TO BE INCLUDED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, AND NOT UNDER THE HEAD INCOME FROM OTHER SOURCES. LD A.R. SUBMITTED THAT DEPB CREDIT HAS DIRECT LINKS WITH THE QUANTUM OF EXPORT SALES. IF THERE IS NO EXPORT SALES, THEN NO DEPB CREDIT OR ENTITLEMENTS CAN BE GATHERED BY THE ASSESSEE FROM THE GOVERNMENT OF INDIA AND IT HAS DIRECT LINK AND NEXUS WITH THE ACTI VITIES OF THE ASSESSEE INDUSTRIAL UNDERTAKING ENABLING FOR DEDUCTION U/S. 80IB(11A) OF THE ACT. LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN ABSENCE OF DEPB CREDIT, THERE WOULD BE NO PROFIT FROM THE INDUSTRIAL UNDERTAKING AND DEPT CREDIT IS GIVEN TO THE ASSESSEE FOR ENCOURAGING EXPORT ACTIVITIES DERIVED FROM THE BUSINESS OF PROCESSING, PRESERVATION AND MAGNUM SEA FOODS LTD P A G E 16 | 44 PACKAGING OF FRUITS OR VEGETABLES OR MEAT AND MEAT PRODUCTS AND FOR DEPB ENTITLEMENTS, THE EXPORT OF SAID GOODS IS NOT VIABLE FOR ANY EXPORTER INCLUDING TH E ASSESSEE. THEREFORE, DEPB CREDIT HAS TO BE HELD AS DERIVED BY AN UNDERTAKING FROM THE BUSINESS OF PROCESSING, PRESERVATION AND PACKAGING OF VARIOUS PRODUCTS INCLUDING MARINE PRODUCTS AS HAS BEEN DONE BY THE ASSESSEE IN THE INSTANT CASE. 2 4 . REITERATING THE EMPHASIS LAID DOWN ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF DHARMAM PAL PREM CHAND LTD VS CIT, 317 ITR 353 (DEL), LD A.R. SUBMITTED THAT THE AMOUNT OF REFUND OF EXCISE DUTY IN ARRIVING AT PROFIT DERIVED FROM FOR THE PURPOSE OF CLAIMIN G DEDUCTION U/S. 80 IB (11A) OF THE ACT AND DEPB ENTITLEMENTS IS AN ALTERNATIVE MODE OF REFUND OF EXCISE DUTY, WHICH CANNOT BE EXCLUDED WHILE COMPUTING THE PROFIT DERIVED FROM THE UNDERTAKING ENTITLEMENTS FOR SUCH DEDUCTION. 2 5 . LD COUNSEL AGAIN DREW OUR ATTENTION TOWARDS DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF SARAF SEASONING UDYOG VS ITO, 174 TAXMAN 594 (RAJSTHAN) AND SUBMITTED THAT PROFITS AND GAINS DERIVED FROM INDUSTRIAL UNDERTAKING ON SALE OF DEPB LICENSES ARE PROFITS DERIVED FROM E LIGIBLE BUSINESS FOR THE PURPOSE OF BUSINESS U/S. 80IB OF THE ACT IN VIEW OF INSERTION OF CLAUSE (IIID) IN SECTION 28 OF THE ACT BY TAXATION LAWS (AMENDMENT) ACT,, 2005 RETROSPECTIVELY W.E.F. 1.4.1998. THEREFORE, THE ASSESSEE IS ENTITLED FOR CLAIMING DED UCTION U/S. 80IB(11A) OF THE ACT. LD COUNSEL ALSO CONTENDED THAT IN THE CASE OF PIONEER FOODS & AGRO INDUSTRIES MAGNUM SEA FOODS LTD P A G E 17 | 44 VS ITO, (2019) 3 NYPCTR 408 (BOM), HONBLE BOMBAY HIGH COURT HELD TH A T THE OBJECTIVE OF THE VISHESH KRISHI AND GRAM UDYOG YOJANA (VKGUY), THE O BJECTIVE BEHIND GRANTING SUCH BENEFIT WAS IN ORDER TO COMPENSATE HIGH TRANSPORT COST AND TO OFFSET OTHER DISADVANTAGES IN ORDER TO MAKE THE EXPORT OF SUCH PRODUCTS VIABLE, GOVERNMENT OF INDIA DECIDED TO GRANT UNDER THE SAID SCHEME,. THEREFORE, THE CLEAR O BJECTIVE BEHIND THE SCHEME WAS, THUS, TO REDUCE THE COST OF ITS PROCUREMENTS AND TO NEUTRALIZE CERTAIN INHERENT DISADVANTAGES ATTACHED TO SUCH PRODUCTS. THEREFORE, THE ASSESSEE WAS ENTITLED FOR DEDUCTION U/S. 80 IB ( 11A) OF THE ACT IN RESPECT OF BENEFITS R ECEIVED UNDER VKGUY. 2 6 . LD A.R. VEHEMENTLY PLACING THE CLAIM OF THE ASSESSEE U/S. 80IB(11A) OF THE ACT, AGAIN DREW OUR ATTENTION TOWARDS THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BAJAJ TEMPO LTD., 196 ITR 188 (SC), WHEREIN, IT WAS HELD THAT A P ROVISION IN A TAXING STATUTE GRANTING INCENTIVES FOR PROMOTING INDUSTRIAL AND ECONOMIC GROWTH AND DEVELOPMENT SHOULD BE CONSTRUED LIBERALLY ; AND SINCE A PROVISION FOR PROMOTING ECONOMIC GROWTH HAS TO BE INTERPRETED LIBERALLY, THE RESTRICTION ON IT, TOO HAS TO BE CONSTRUED SO AS TO ADVANCE THE OBJECTIVE OF THE PROVISION AND NOT TO FRUSTRATE IT. 2 7 . ON CAREFUL CONSIDERATION OF THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE RELEVANT ASSESSMENT ORDER, FIRST APPELLATE ORDER AND OTHER MATERIALS PLACED ON RECORD A ND ON VIGILANT CONSIDERATION OF THE CASE LAWS RELIED ON BY BOTH THE PARTIES, FIRST OF ALL, WE OBSERVE THAT THE ASSESSING OFFICER HAS NOT MAGNUM SEA FOODS LTD P A G E 18 | 44 DISPUTED THE QUANTUM OF CLAIM OF DEPB ENTITLEMENT AMOUNT. WE ALSO NOTE THAT THERE IS NO DISPUTE BY THE AO REGARDING IN DUSTRIAL ACTIVITIES OF THE ASSESSEE AND ITS ENTITLEMENT OF DEDUCTION U/S 80 IB(11A) OF THE ACT. 2 8 . SINCE THE MAIN BONE OF CONTENTION OF THE ASSESSEE IS THAT THE AO HAS RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA) AN D STERLING FOODS (SUPRA), WHEREAS THE HONBLE SUPREME COURT ITSELF IN ITS SUBSEQUENT JUDGMENT IN THE CASE OF MEGHALAYA STEEL LTD, (SUPRA DATED 9.3.2016 ) RENDERED A FINAL VERDICT, AFTER REFERRING TO ITS EARLIER DECISIONS IN THE CASE OF LIBERTY INDIA (SUPRA D ATED 31.8.2009 ) AND IN THE CASE OF STERLING FOODS (SUPRA DATED 15.4.2019 ) . LD COUNSEL HAS ALSO CONTENDED THAT THE AUTHORITIES BELOW HAVE MISERABLY FAILED TO UNDERSTAND THE LEGISLATIVE INTENT BEHIND THE INSERTION OF CLAUSE (IIIB) AND (IIID) TO SECTION 28 OF THE ACT W.R.E.F 1.4.1967 AND 1.4.1998 RESPECTIVELY , WHEREIN, IT HAS BEEN EXPLICITLY HELD THAT IF CASH ASSISTANCE RECEIVED OR RECEIVABLE AGAINST EXPORT S SCHEME ARE INCLUDED AS BEING INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION' , IT IS OBVIOUS THAT THE SUBSIDIES ARE G AINS OF A PARTICULAR BUSINESS ACTIVITY WOULD ALSO HAVE TO BE INCLUDED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AND NOT UNDER THE HEAD INCOME FROM OTHER SOURCES. 29. ON THE OTHER HAND, THE PRECISE CONTENTION OF LD CIT DR , BY VEHEMENTLY RELIED DECISION IN THE CASE OF LIBERTY INDIA (SUPRA) AND STERLING FOODS (SUPRA) , IS THAT THE DEPB ENTITLEMENTS AMOUNT IS NOT DIRECTLY MAGNUM SEA FOODS LTD P A G E 19 | 44 ATTRIBUTABLE TO INDUSTRIAL ACTIVITIES OF THE ASSESSEE , WHICH IS ENTITLED FOR DEDUCTION U/S. 80IB(11A) OF THE ACT, THEREFORE, IN ABSENCE OF ANY DIRECT NEXUS, THESE ENTITLEMENT AMOUNT CANNOT BE TREATED AS INCOME DERIVED FROM BUSINESS AND PROFESSION OF THE ASSESSEE FROM THE SAID BUSINESS ACTIVITIES. THEREFORE, DEPB ENTI TLEMENT AMOUNT IS NOT ENTITLED FOR DEDUCTION U/S. 80IB(11A) OF THE ACT. 30 . SINCE THE CONTROVERSY IS REVOLVED AROUND THE PROVISIONS OF SECTION 80IB(11A) OF THE ACT AND SECTION 28(IIIB) AND (IIID) OF THE ACT, THEREFORE, WE FIND IT APPROPRIATE AND NECESSARY TO REPRODUCE THESE PROVISIONS FOR THE SAKE OF COMPLETENESS IN OUR ORDER. SECTION 80IB(11A) 80 - IB. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED FROM ANY BUSINESS REFERRED TO IN SUB - SECTIONS (3) TO [(11), (11A) AND (11B ) (SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFITS AND GAINS OF AN AMOUNT EQUAL TO SUCH PERCENTAGE AND FOR SUCH NUMBER OF ASSESSMENT YEARS AS SPECIFIED IN THIS SECTION. 2 TO 11 (11A): THE AMOUNT OF DEDUCTION IN A CASE OF [AN UNDERTAKIN G DERIVING PROFIT FROM THE BUSINESS OF PROCESSING, PRESERVATION AND PACKAGING OF FRUITS OR VEGETABLES OR [ MEAT AND MEAT PRODUCTS OR POULTRY OR MARINE OR DAIRY PRODUCTS OR ] FROM] THE INTEGRATED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOODGRAINS , SHALL BE HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH UNDERTAKING FOR FIVE ASSESSMENT YEARS BEGINNING WITH THE INITIAL ASSESSMENT YEAR AND THEREAFTER, TWENTY - FIVE PER CENT (OR THIRTY PER CENT WHERE THE ASSESSEE IS A COMPANY) OF THE PROFITS AND GAINS DERIVED FROM THE OPERATION OF SUCH BUSINESS IN A MANNER THAT THE TOTAL PERIOD OF DEDUCTION DOES NOT EXCEED TEN CONSECUTIVE ASSESSMENT YEARS AND MAGNUM SEA FOODS LTD P A G E 20 | 44 SUBJECT TO FULFILMENT OF THE CONDITION THAT IT BEGINS TO OPERATE SUCH BUSINESS ON OR AFTER THE 1ST DA Y OF APRIL, 2001.] SECTION 28(IIB) (IIIB) CASH ASSISTANCE (BY WHATEVER NAME CALLED) RECEIVED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA;] SECTION 28(IIID) [(IIID) ANY PROFIT ON THE TRANSFER OF THE DUTY ENTITLEMENT 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 REGULATION) ACT, 1992 (22 OF 1992);] 31 . IN THE PRESENT CASE, IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S. 80IB(11A) OF THE ACT IN RESPECT OF PROFITS AND GAINS FROM THE BUSINESS OF PROCESSING, PRESERVING, PACKAGING OF MARINE OR SEA FOOD PRODUCTS. THE ONLY ACTION WHICH IS THE ROO T OF THE DISPUTE BETWEEN THE PARTIES IS THAT THE ASSESSING OFFICER IS OF THE VIEW THAT THE DEPB ENTITLEMENT AMOUNT IS NOT DERIVED FROM THE INDUSTRIAL ACTIVITIES OF THE ASSESSEE, FOR WHICH, THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S. 80IB(11A) OF THE ACT. THEREFORE, THE AO DENIED THE BENEFIT OF DEDUCTION U/S. 80 IB(11A) OF THE ACT TO THE ASSESSEE ON DEPB ENTITLEMENT AMOUNT. FROM THE RELEVANT PARA OF THE ASSESSMENT ORDER, WE OBSERVE THAT THE ASSESSING OFFICER IN THE ORDER DATED 24.2.2014 REFERRING TO THE DE CISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA) AND STERLING FOODS (SUPRA) DENIED THE BENEFIT OF DEDUCTION U/S.80IB(11A) OF THE ACT TO THE ASSESSEE . THE LD CIT(A) ALSO CONFIRMED THE FINDINGS OF THE AO BY PASSING THE ORDER DATED 4.9.201 5 FOR THE ASSESSMENT YEAR 2011 - 12. LD MAGNUM SEA FOODS LTD P A G E 21 | 44 CIT(A) ALSO RECORDED CONCURRENT OBSERVATION THAT IN VIEW OF RATIO LAID DOWN IN THE CASE OF LIBERTY INDIA (SUPRA) AND STERLING FOODS (SUPRA), THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S. 80IB(11A) OF THE ACT BE CAUSE DEPB RECEIPTS WILL BE EXCLUDED FOR COMPUTATION OF DEDUCTION U/S. 80IB(11A) OF THE ACT AS DEPB RECEIPTS CANNOT BE TREATED AS PROFITS DERIVED FROM THE INDUSTRIAL ACTIVITIES FOR THE PURPOSE OF CLAIMING DEDUCTION U/S. 80IB(11A) OF THE ACT AND THIS IS SUE HAS BEEN SETTLED BY THE HONBLE SUPREME COURT BY THE SAID JUDGMENTS . THEREFORE, THE STAND OF THE AO IN THIS REGARD IN THE ASSESSMENT ORDER IS CORRECT. 3 2 . AT TH I S JUNCTURE, IT IS NECESSARY AND RELEVANT TO CONSIDER THE RATIO OF THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF SARAF SEASONING UDYOG VS ITO, 219 CTR 0461 (RAJ), WHEREIN, IT WAS HELD THAT IN VIEW OF INSERTION OF CLAUSE (IIID) IN SECTION 28 OF THE ACT BY THE TAXATION LAWS (AMENDMENT) ACT, 2005, RETROSPECTIVELY W.E.F. 1.4.1998, PROF ITS FROM SALE OF DEPB LICENSES ARE PROFITS DERIVED FROM ELIGIBLE BUSINESS FOR PURPOSES OF DEDUCTION U/S. 80IB OF THE ACT. THE RELEVANT PARAS 10 TO 13 OF THIS ORDER READ AS FOLLOWS: 10. IN OUR VIEW, ON A COMBINED READING OF S. 80 - IB(4) AND S. 28(IIID), AS INTRODUCED, DOES MAKE CLEAR, THAT THE PROFIT DERIVED ON TRANSFER OF DEPB LICENSES, DOES VERY MUCH FALL WITHIN FOUR CORNERS OF PROFITS AND GAINS, DERIVED FROM SUCH INDUSTRIAL UNDERTAKING, BEING ASSESSEE, AND IS CAPABLE OF BEING TAXED ONLY UNDER S. 28, SUBJ ECT TO EXEMPTION, AS PROVIDED IN S. 80 - IB, AND/OR OTHER ELIGIBLE PROVISIONS. MAGNUM SEA FOODS LTD P A G E 22 | 44 11. SO FAR AS JUDGMENT OF HONBLE SUPREME COURT IN STERLING FOODS CASE (SUPRA) IS CONCERNED, THAT JUDGMENT REPORTED IN CIT VS. STERLING FOODS (SUPRA) IS OF THE YEAR 1999, AT WHICH TIME, THE NEWLY ADDED PROVISION OF CL. (IIID) DID NOT EXIST, WHICH HAS BEEN INSERTED, AS NOTICED ABOVE, IN THE YEAR 2005, W.E.F. 1ST APRIL, 1998. LIKEWISE, THE JUDGMENT IN PANDIAN CHEMICALS LTD.S CASE (SUPRA) IS ALSO OF THE YEAR 2003. THUS, THE INTR ODUCTION OF CL. (IIID) OF AMENDMENT IN 2005, W.E.F. 1ST APRIL, 1998, HAS CHANGED THE WHOLE SCENARIO, AS CONSIDERED BY HONBLE SUPREME COURT, IN THE ABOVE TWO JUDGMENTS. 12. LEARNED COUNSEL FOR THE APPELLANT, RELIED UPON A RECENT JUDGMENT OF HONBLE SUPREME COURT IN B. DESRAJ VS. CIT (2008) 301 ITR 439 (SC). THIS IS A JUDGMENT RENDERED ON 1ST MAY, 2005 [SIC - 2008], AND DEALS WITH IDENTICAL AMENDMENT, INTRODUCED BY INTRODUCTION OF CL. 28(IIIB), HAVING MATERIAL BEARING ON S. 80HHC. IT WAS HELD BY HONBLE THE SU PREME COURT, THAT DEPARTMENT WAS LIABLE TO ALLOW DEDUCTION TO THE ASSESSEE. THEN, A JUDGMENT OF THIS COURT, IN CIT VS. SHARDA GUM & CHEMICALS (2007) 209 CTR (RAJ) 143 : (2007) 288 ITR 116 (RAJ), HAS ALSO BEEN CITED, WHICH ALSO TAKES INTO CONSIDERATION, THE AMENDMENT IN S. 28, INTRODUCING CLS. (IIIA), (IIIB) & (IIIC), HAVING EFFECT ON THE PROVISIONS OF S. 80 HHC, AND HOLDING THE ASSESSEE TO BE ENTITLED TO EXEMPTION. 13. IN OUR VIEW, IN VIEW OF THE ABOVE, THE QUESTION, AS FRAMED, IS REQUIRED TO BE, AND IS, AN SWERED IN FAVOUR OF THE ASSESSEE, AND AGAINST THE REVENUE, IN THE MANNER, THAT THE TRIBUNAL WAS NOT JUSTIFIED IN HOLDING, THAT THE INCOME DERIVED BY THE ASSESSEE FROM THE SALE OF DEPB LICENSES, WAS NOT PROFIT AND GAIN FROM INDUSTRIAL UNDERTAKING, WHICH WAS HELD TO BE ELIGIBLE TO CLAIM DEDUCTION UNDER S. 80 - IB OF THE IT ACT, 1961 OTHERWISE . 3 3 . IN THIS JUDGMENT, HONBLE RAJASTHAN HIGH COURT RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF DESRAJ VS CIT (2008) 301 ITR 439(SC) AND CIT VS SHARDA GUM & CHEMICALS (2007) 288 ITR 116 (RAJ) AND HAVE DISTINGUISHED THE DECISION IN MAGNUM SEA FOODS LTD P A G E 23 | 44 THE CASE OF CIT VS STERLING FOODS (SUPRA) AND PANDIAN CHEMICALS LTD VS CIT, 262 ITR 278 (SC). 3 4 . LD COUNSEL FOR THE ASSESSEE HAS PLACED VEHEMENT RELIANCE ON THE DECISION OF HO NBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORT (SUPRA) AND SUBMITTED THAT IN VIEW OF AMENDMENT MADE TO SECTION 28 OF THE ACT BY WAY OF INSERTION OF CLAUSE (IIIB) AND (IIID) , THE SALE OF DEPB ENTITLEMENT, WHICH IS A KIND OF ASSISTANCE GIVEN BY GOVERNMENT OF INDIA TO AN EXPORTER IS A CASH ASSISTANCE RECEIVABLE BY A PERSON AGAINST EXPORTS UNDER THE SCHEME OF GOVERNMENT OF INDIA AND FALLS UNDER CLAUSE (IIIB) OF SECTION 28 AND IT HAS TO BE INCLUDED AND CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION . IN OUR CONSIDERED OPIN ION, THIS PROPOSITION RENDERED BY HONBLE SUPREME COURT HAS BEEN BASED ON THE NEWLY INSERTED CLAUSES (IIIB) & (IIID) TO SECTION 28 OF THE ACT, WHICH CANNOT BE DISPUTED. THE LEGISLATIVE INTENT BEHIND INSERTION OF SAID TWO CLAUSES IS EXPLICIT AND AMPLE CLEA R THAT BY WAY OF INSERTION OF CLAUSE (IIIB) AND (IIID), THE LEGISLATURE MADE IT CLEAR THAT CASH ASSISTANCE BY WHATEVER NAMED CALLED, RECEIVED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA, WILL BE INCOME CHARGE ABLE TO INCOME TAX AND AS PER CLAUSE (IIIB) & (I I ID) TO SECTION 28 OF THE ACT, ANY PROFIT ON THE TRANSFER OF THE DUTY ENTITLEMENT PASS BOOK SCHEME (DPEB) , BEING THE DUTY REMISSION SCHEME (DRS) UNDER THE EXPORT AND IMPORT POLICY FORMULATED AND ANNOUNCED UND ER SECTION 5 OF THE FOREIGN TRADE (DEVELOPMENT AND MAGNUM SEA FOODS LTD P A G E 24 | 44 REGULATION) ACT, 1922 ARE TO BE INCLUDED AN D TREATED AS PROFIT AND GAINS OF BUSINESS OR PROFESSION. 35. LD CIT DR HAS STRENUOUSLY CONTENDED , BY PLACING RELIANCE ON THE DECISION OF HONBLE GUJRAT HIGH COURT IN THE CASE OF BANPAL OIL CHEM (P) LTD VS ACIT (2016) 71 TAXMANN.COM 342 (GUJARAT) , TO SUBMIT THAT WHEN THE ASSESSEE IS HAVING ELIGIBLE INDUSTRY AND AVAILING DEDUCTION U/S. 80IB OF THE ACT, WILL NOT BE ENTITLED FOR THE SAME IN RESPECT OF INCOME FROM DEPB AND DEPB PREMIUM . IN THIS DECISION, THE HONBLE HIGH COURT HAS RELIED ON THE D ECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA), BY STATING THAT THE JUDGMENT OF HONB LE SUPREME COURT IN THE CASE OF TOPMAN EXPORT (SUPRA) WAS NOT OBLIVIO N OF ITS EARLIER DECISION IN THE CASE OF LIBERTY INDIA (SUPRA) AND JUDGEMENT WAS NEITHER DISAPPROVED AND OVERRULED IN THE CASE OF TOMAN EXPORTS (SUPRA) . 3 6 . AFTER TAKING RESPECTFUL COGN IZANCE OF HONBLE GUJARAT HIGH COURT IN THE CASE OF BANPAL OIL CHEM (P) LTD (SUPRA), WE SINCERELY AND VIGILANTLY PERUSED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MEGHALAYA STEEL LTD., (SUPRA) , WHICH WAS RENDERED ON 9.3.2016, WE CLEARLY OBSERVE THAT THE HONBLE SUPREME COURT HAS NOT ONLY CONSIDERED ITS EARLIER JUDGMENT IN THE CASE OF STERLING FOODS (SUPRA) AND LIBERTY INDIA (SUPRA) BUT HAS ALSO CONSIDERED CLAUSE (IIIB) & (IIID) TO SECTION 28 OF THE ACT. 3 7 . SPEAKING FOR APEX COURT, THEIR LORDSH IPS, IN THE CASE OF MEGHALAYA STEEL LTD., (SUPRA), FIRST OF ALL, TOOK COGNIZANCE OF ITS EARLIER DECISION IN THE MAGNUM SEA FOODS LTD P A G E 25 | 44 CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL COMPANY LIMITED VS CIT, 2 SCC 644 (SC) TO EXPLAIN THE LEGISLATIVE INTENT BEHIND USING EXPRESSION DERI VED FROM AND ANOTHER EXPRESSION ATTRIBUTABLE TO. THE RELEVANT PARA OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL COMPANY LTD (SUPRA) READ AS FOLLOWS: 17. AN ANALYSIS OF ALL THE AFORESAID DECISIONS CITED ON BEHALF OF THE REVENUE BECOMES NECESSARY AT THIS STAGE. IN THE FIRST DECISION, THAT IS IN CAMBAY ELECTRIC SUPPLY INDUSTRIAL COMPANY LIMITED V COMMISSIONER OF INCOME TAX, GUJARAT II, THIS COURT HELD T HAT SINCE AN EXPRESSION OF WIDER IMPORT HAD BEEN USED, NAMELY ATTRIBUTABLE TO INSTEAD OF DERIVED FROM, THE LEGISLATURE INTENDED TO COVER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF GENERATION AND DISTRIBUTION OF ELECTRICITY. IN SHORT, A STEP REMOVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING WOULD ALSO BE SUBSUMED WITHIN THE MEANING OF THE EXPRESSION ATTRIBUTABLE TO. SINCE WE ARE DIRECTLY CONCERNED WITH THE EXPRESSION DERIVED FROM, THIS JUDGMENT IS RELEVANT ONLY INSOF AR AS IT MAKES A DISTINCTION BETWEEN THE EXPRESSION DERIVED FROM, AS BEING SOMETHING DIRECTLY FROM, AS OPPOSED TO ATTRIBUTABLE TO, WHICH CAN BE SAID TO INCLUDE SOMETHING WHICH IS INDIRECT AS WELL. 3 8 . THEREAFTER, REFERRING TO ITS EARLIER DECISION S IN THE CASE OF STERLING FOODS (SUPRA), PANDIAN CHEMICALS LIMITED (SUPRA) AND LIBERTY INDIA (SUPRA) AND AFTER PERUSING RIVAL CONTENTIONS OF BOTH THE SIDES, THEIR LORDSHIPS ALSO REFERRED TO THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF M ERINO PLY & CHEMICALS LTD VS CIT, 209 ITR 508 (CAL) AND THE DECISION IN THE CASE OF CIT VS ANDAMAN TIMBER INDUSTRIES LTD., 242 ITR 204 (CAL) AND THEREAFTER HELD THAT THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF MERINO PLY & CHEMICALS LTD (SUPRA) HAVE CORRECTLY APPRECIATED THE LEGAL POSITION. THEIR LORDSHIPS ALSO REFERRED TO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS DHARAMPAL PREMCHAND LTD., 317 ITR 353 (DEL) MAGNUM SEA FOODS LTD P A G E 26 | 44 AGAINST WHICH SLP PREFERRED BEFORE THE HONBLE SUPREME COURT WAS DIS MISSED. IN THIS CASE, HONBLE DELHI HIGH COURT HELD THAT THE REFUND OF EXCISE DUTY SHOULD NOT BE EXCLUDED IN ARRIVING AT THE PROFIT DERIVED FROM BUSINESS FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 80 IB OF THE ACT. THEIR LORDSHIPS AFTER CONSIDER ING THE CLAUSE (IIIB) TO SECTION 28 OF THE ACT HELD THAT THE INCOME FROM CASH ASSISTANCE, BY WHATEVER NAME CALLED, RECEIVED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA, WILL BE INCOME CHARGEABLE TO INCOME TAX U NDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IF CASH ASSISTANCE RECEIVED OR RECEIVABLE AGAINST EXPORTS SCHEMES ARE INCLUDED AS BEING INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, IT IS OBVIOUS THAT SUBSIDIES WHICH GO TO REIMBURSEMENT OF COST IN THE PRODUCTION OF GOODS OF A PARTICULAR BUSINESS WOULD ALSO HAVE TO BE INCLUDED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, AND NOT UNDER THE HEAD INCOME FROM OTHER SOURCES. RELEVANT PARAS OF THE DECI SION OF HONBLE SUPREME COURT IN THE CASE OF MEGHALAYA STEELS LTD., (SUPRA) READ AS FOLLOWS: 13. A SERIES OF DECISIONS HAVE MADE A DISTINCTION BETWEEN PROFIT ATTRIBUTABLE TO AND PROFIT DERIVED FROM A BUSINESS. IN ONE OF THE EARLY JUDGMENTS, NAMELY, CAMBAY ELECTRIC SUPPLY INDUSTRIAL COMPANY LIMITED V. COMMISSIONER OF INCOME TAX, GUJARAT II, (19 78) 2 SCC 644, THIS COURT HAD TO CONSTRUE SECTION 80 - E OF THE INCOME TAX ACT, WHICH REFERRED TO PROFITS AND GAINS ATTRIBUTABLE TO THE BUSINESS OF GENERATION OR DISTRIBUTION OF ELECTRICITY. THIS COURT HELD: AS REGARDS THE ASPECT EMERGING FROM THE EXPRESSION 'ATTRIBUTABLE TO' OCCURRING IN THE PHRASE 'PROFITS AND GAINS ATTRIBUTABLE TO THE BUSINESS OF' THE SPECIFIED INDUSTRY (HERE GENERATION AND DISTRIBUTION OF ELECTRICITY) ON MAGNUM SEA FOODS LTD P A G E 27 | 44 WHICH THE LEARNED SOLICITOR GENERAL RELIED, IT WILL BE PERTINENT TO OBSERVE THAT THE LEGISLATURE HAS DELIBERATELY USED THE EXPRESSION 'ATTRIBUTABLE TO' AND NOT THE EXPRESSION 'DERIVED FROM'. IT CANNOT BE DISPUTED THAT THE EXPRESSION 'ATTRIBUTABLE TO' IS CERTAINLY WIDER IN IMPORT THAN THE EXPRESSION 'DERIVED FROM'. HAD THE EXPRESS ION 'DERIVED FROM' BEEN USED IT COULD HAVE WITH SOME FORCE BEEN CONTENDED THAT A BALANCING CHARGE ARISING FROM THE SALE OF OLD MACHINERY AND BUILDINGS CANNOT BE REGARDED AS PROFITS AND GAINS DERIVED FROM THE CONDUCT OF THE BUSINESS OF GENERATION AND DISTRI BUTION OF ELECTRICITY. IN THIS CONNECTION IT MAY BE POINTED OUT THAT WHENEVER THE LEGISLATURE WANTED TO GIVE A RESTRICTED MEANING IN THE MANNER SUGGESTED BY THE LEARNED SOLICITOR GENERAL IT HAS USED THE EXPRESSION 'DERIVED FROM', AS FOR INSTANCE IN S. 80J. IN OUR VIEW SINCE THE EXPRESSION OF WIDER IMPORT, NAMELY, 'ATTRIBUTABLE TO HAS BEEN USED, THE LEGISLATURE INTENDED TO COVER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF GENERATION AND DISTRIBUTION OF ELECTRICITY. (PARA 8) 14. I N COMMISSIONER OF INCOME TAX, KARNATAKA V. STERLING FOODS, MANGALORE, (1999) 4 SCC 98, THIS COURT HAD TO DECIDE WHETHER INCOME DERIVED BY THE ASSESSEE BY SALE OF IMPORT ENTITLEMENTS ON EXPORT BEING MADE, WAS PROFIT AND GAIN DERIVED FROM THE RESPONDENTS IN DUSTRIAL UNDERTAKING UNDER SECTION 80HH OF THE INDIAN INCOME TAX ACT. THIS COURT REFERRED TO THE JUDGMENT IN CAMBAY ELECTRIC SUPPLY (SUPRA) AND EMPHASIZED THE DIFFERENCE BETWEEN THE WIDER EXPRESSION ATTRIBUTABLE TO AS CONTRASTED WITH DERIVED FROM. IN T HE COURSE OF THE JUDGMENT, THIS COURT STATED THAT THE INDUSTRIAL UNDERTAKING ITSELF HAD TO BE THE SOURCE OF THE PROFIT. THE BUSINESS OF THE INDUSTRIAL UNDERTAKING HAD DIRECTLY TO YIELD THAT PROFIT. HAVING SAID THIS, THIS COURT FINALLY HELD: - WE DO NOT TH INK THAT THE SOURCE OF THE IMPORT ENTITLEMENTS CAN BE SAID TO BE THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. THE SOURCE OF THE IMPORT ENTITLEMENTS CAN, IN THE CIRCUMSTANCES, ONLY BE SAID TO BE THE EXPORT PROMOTION SCHEME OF THE CENTRAL GOVT. WHEREUNDER THE EXPORT ENTITLEMENTS BECOME AVAILABLE. THERE MUST BE FOR THE APPLICATION OF THE WORDS 'DERIVED FROM', A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING. IN THE INSTANT CASE THE NEXUS IS NOT DIRECT BUT ONLY INCIDENTAL. THE INDUSTRI AL UNDERTAKING EXPORTS PROCESSED SEA FOOD. BY REASON OF SUCH EXPORT, THE EXPORT PROMOTION SCHEME APPLIES. THEREUNDER, THE ASSESSEE IS ENTITLED TO IMPORT ENTITLEMENTS, WHICH IT CAN SELL. THE SALE CONSIDERATION THEREFROM CANNOT, IN OUR VIEW, BE HELD TO CONST ITUTE A PROFIT AND GAIN DERIVED FROM THE ASSESSEES' INDUSTRIAL UNDERTAKING. (PARA 13) 15. SIMILARLY, IN PANDIAN CHEMICALS LIMITED V COMMISSIONER OF INCOME TAX, 262 ITR 278, THIS COURT DEALT WITH THE CLAIM FOR A DEDUCTION UNDER SECTION 80HH OF THE ACT. THE QUESTION BEFORE THE COURT WAS AS TO WHETHER INTEREST EARNED ON A DEPOSIT MADE WITH THE ELECTRICITY BOARD FOR THE SUPPLY OF ELECTRICITY TO THE APPELLANTS INDUSTRIAL UNDERTAKING SHOULD BE MAGNUM SEA FOODS LTD P A G E 28 | 44 TREATED AS INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING UNDER SECT ION 80HH. THIS COURT HELD THAT ALTHOUGH ELECTRICITY MAY BE REQUIRED FOR THE PURPOSES OF THE INDUSTRIAL UNDERTAKING, THE DEPOSIT REQUIRED FOR ITS SUPPLY IS A STEP REMOVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. THE DERIVATION OF PROFITS ON THE DEPO SIT MADE WITH THE ELECTRICITY BOARD COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF. ON THIS BASIS, THE APPEAL WAS DECIDED IN FAVOUR OF REVENUE. 16. THE SHEET ANCHOR OF SHRI RADHAKRISHNANS SUBMISSIONS IS THE JUDGMENT OF THIS COUR T IN LIBERTY INDIA V. COMMISSIONER OF INCOME TAX, (2009) 9 SCC 328. THIS WAS A CASE REFERRING DIRECTLY TO SECTION 80 - IB IN WHICH THE QUESTION WAS WHETHER DEPB CREDIT OR DUTY DRAWBACK RECEIPT COULD BE SAID TO BE IN RESPECT OF PROFITS AND GAINS DERIVED FROM AN ELIGIBLE BUSINESS. THIS COURT FIRST MADE THE DISTINCTION BETWEEN ATTRIBUTABLE TO AND DERIVED FROM STATING THAT THE LATTER EXPRESSION IS NARROWER IN CONNOTATION AS COMPARED TO THE FORMER. THIS COURT FURTHER WENT ON TO STATE THAT BY USING THE EXPRESSI ON DERIVED FROM PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. THIS COURT WENT ON TO HOLD: - 34. ON AN ANALYSIS OF SECTIONS 80 - IA AND 80 - IB IT BECOMES CLEAR THAT ANY INDUSTRIAL UNDERTAKING, WHICH BECOMES ELIGIBLE ON SATISFYING SUB - SEC TION(2), WOULD BE ENTITLED TO DEDUCTION UNDER SUB - SECTION (1) ONLY TO THE EXTENT OF PROFITS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING AFTER SPECIFIED DATE(S). HENCE, APART FROM ELIGIBILITY, SUB - SECTION (1) PURPORTS TO RESTRICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF PROFITS. THIS IS THE IMPORTANCE OF THE WORDS 'DERIVED FROM INDUSTRIAL UNDERTAKING' AS AGAINST 'PROFITS ATTRIBUTABLE TO INDUSTRIAL UNDERTAKING'. 35. DEPB IS AN INCENTIVE. IT IS GIVEN UNDER DUTY EXEMPTION 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 PROVIDED FOR BY CREDIT TO CUSTOMS DUTY AGAINST EXPORT PRODUCT. UNDER DEPB, AN EXPORTER MAY APPLY FOR CREDIT AS PERCENTAGE OF FOB VALUE OF EXPORTS MADE IN FREELY CONVERTIBLE CURRENCY. CREDIT IS AVAILABLE ONLY AGAINST THE EXPORT PRODUCT AND AT RATES SPECIFIED BY DGFT FOR IMPORT OF RAW MATERIALS, COMPONENTS ETC.. DEPB CREDIT UNDER T HE SCHEME HAS TO BE CALCULATED BY TAKING INTO ACCOUNT THE DEEMED IMPORT CONTENT OF THE EXPORT PRODUCT AS PER BASIC CUSTOMS DUTY AND SPECIAL ADDITIONAL DUTY PAYABLE ON SUCH DEEMED IMPORTS. 36. THEREFORE, IN OUR VIEW, DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY CENTRAL GOVERNMENT OR FROM S. 75 OF THE CUSTOMS ACT, 1962, HENCE, INCENTIVES PROFITS ARE NOT PROFITS DERIVED FROM THE ELIGIBLE BUSINESS UNDER SECTION 80 - IB. MAGNUM SEA FOODS LTD P A G E 29 | 44 THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKIN GS. (PARAS 34,35 AND 36) 17. AN ANALYSIS OF ALL THE AFORESAID DECISIONS CITED ON BEHALF OF THE REVENUE BECOMES NECESSARY AT THIS STAGE. IN THE FIRST DECISION, THAT IS IN CAMBAY ELECTRIC SUPPLY INDUSTRIAL COMPANY LIMITED V COMMISSIONER OF INCOME TAX, GUJAR AT II, THIS COURT HELD THAT SINCE AN EXPRESSION OF WIDER IMPORT HAD BEEN USED, NAMELY ATTRIBUTABLE TO INSTEAD OF DERIVED FROM, THE LEGISLATURE INTENDED TO COVER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF GENERATION AND DISTR IBUTION OF ELECTRICITY. IN SHORT, A STEP REMOVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING WOULD ALSO BE SUBSUMED WITHIN THE MEANING OF THE EXPRESSION ATTRIBUTABLE TO. SINCE WE ARE DIRECTLY CONCERNED WITH THE EXPRESSION DERIVED FROM, THIS JUDGMEN T IS RELEVANT ONLY INSOFAR AS IT MAKES A DISTINCTION BETWEEN THE EXPRESSION DERIVED FROM, AS BEING SOMETHING DIRECTLY FROM, AS OPPOSED TO ATTRIBUTABLE TO, WHICH CAN BE SAID TO INCLUDE SOMETHING WHICH IS INDIRECT AS WELL. 18. THE JUDGMENT IN STERLING FO ODS LAYS DOWN A VERY IMPORTANT TEST IN ORDER TO DETERMINE WHETHER PROFITS AND GAINS ARE DERIVED FROM BUSINESS OR AN INDUSTRIAL UNDERTAKING. THIS COURT HAS STATED THAT THERE SHOULD BE A DIRECT NEXUS BETWEEN SUCH PROFITS AND GAINS AND THE INDUSTRIAL UNDERTAK ING OR BUSINESS. SUCH NEXUS CANNOT BE ONLY INCIDENTAL. IT THEREFORE FOUND, ON THE FACTS BEFORE IT, THAT BY REASON OF AN EXPORT PROMOTION SCHEME, AN ASSESSEE WAS ENTITLED TO IMPORT ENTITLEMENTS WHICH IT COULD THEREAFTER SELL. OBVIOUSLY, THE SALE CONSIDERATI ON THEREFROM COULD NOT BE SAID TO BE DIRECTLY FROM PROFITS AND GAINS BY THE INDUSTRIAL UNDERTAKING BUT ONLY ATTRIBUTABLE TO SUCH INDUSTRIAL UNDERTAKING INASMUCH AS SUCH IMPORT ENTITLEMENTS DID NOT RELATE TO MANUFACTURE OR SALE OF THE PRODUCTS OF THE UNDERT AKING, BUT RELATED ONLY TO AN EVENT WHICH WAS POST MANUFACTURE NAMELY, EXPORT. ON AN APPLICATION OF THE AFORESAID TEST TO THE FACTS OF THE PRESENT CASE, IT CAN BE SAID THAT AS ALL THE FOUR SUBSIDIES IN THE PRESENT CASE ARE REVENUE RECEIPTS WHICH ARE REIMBU RSED TO THE ASSESSEE FOR ELEMENTS OF COST RELATING TO MANUFACTURE OR SALE OF THEIR PRODUCTS, THERE CAN CERTAINLY BE SAID TO BE A DIRECT NEXUS BETWEEN PROFITS AND GAINS OF THE INDUSTRIAL UNDERTAKING OR BUSINESS, AND REIMBURSEMENT OF SUCH SUBSIDIES. HOWEVER, SHRI RADHAKRISHNAN STRESSED THE FACT THAT THE IMMEDIATE SOURCE OF THE SUBSIDIES WAS THE FACT THAT THE GOVERNMENT GAVE THEM AND THAT, THEREFORE, THE IMMEDIATE SOURCE NOT BEING FROM THE BUSINESS OF THE ASSESSEE, THE ELEMENT OF DIRECTNESS IS MISSING. WE ARE AFRAID WE CANNOT AGREE. WHAT IS TO BE SEEN FOR THE APPLICABILITY OF SECTIONS 80 - IB AND 80 - IC IS WHETHER THE PROFITS AND GAINS ARE DERIVED FROM THE BUSINESS. SO LONG AS PROFITS AND GAINS EMANATE DIRECTLY FROM THE BUSINESS ITSELF, THE FACT THAT THE IMMEDIATE SOURCE OF THE SUBSIDIES IS THE GOVERNMENT WOULD MAKE NO DIFFERENCE, AS IT CANNOT BE DISPUTED THAT THE SAID SUBSIDIES ARE ONLY IN ORDER TO REIMBURSE, WHOLLY OR PARTIALLY, COSTS ACTUALLY INCURRED BY THE ASSESSEE IN THE MANUFACTURING AND SELLING OF ITS PRODU CTS. THE PROFITS AND GAINS SPOKEN OF BY SECTIONS 80 - IB AND 80 - IC HAVE REFERENCE TO NET PROFIT. AND NET PROFIT CAN ONLY BE MAGNUM SEA FOODS LTD P A G E 30 | 44 CALCULATED BY DEDUCTING FROM THE SALE PRICE OF AN ARTICLE ALL ELEMENTS OF COST WHICH GO INTO MANUFACTURING OR SELLING IT. THUS UNDER STOOD, IT IS CLEAR THAT PROFITS AND GAINS ARE DERIVED FROM THE BUSINESS OF THE ASSESSEE, NAMELY PROFITS ARRIVED AT AFTER DEDUCTING MANUFACTURING COST AND SELLING COSTS REIMBURSED TO THE ASSESSEE BY THE GOVERNMENT CONCERNED. 19. SIMILARLY, THE JUDGMENT IN P ANDIAN CHEMICALS LIMITED V COMMISSIONER OF INCOME TAX IS ALSO DISTINGUISHABLE, AS INTEREST ON A DEPOSIT MADE FOR SUPPLY OF ELECTRICITY IS NOT AN ELEMENT OF COST AT ALL, AND THIS BEING SO, IS THEREFORE A STEP REMOVED FROM THE BUSINESS OF THE INDUSTRIAL UNDE RTAKING. THE DERIVATION OF PROFITS ON SUCH A DEPOSIT MADE WITH THE ELECTRICITY BOARD COULD NOT THEREFORE BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF, UNLIKE THE FACTS OF THE PRESENT CASE, IN WHICH, AS HAS BEEN HELD ABOVE, ALL THE SUBSID IES AFOREMENTIONED WENT TOWARDS REIMBURSEMENT OF ACTUAL COSTS OF MANUFACTURE AND SALE OF THE PRODUCTS OF THE BUSINESS OF THE ASSESSEE. 20. LIBERTY INDIA BEING THE FOURTH JUDGMENT IN THIS LINE ALSO DOES NOT HELP REVENUE. WHAT THIS COURT WAS CONCERNED WITH W AS AN EXPORT INCENTIVE, WHICH IS VERY FAR REMOVED FROM REIMBURSEMENT OF AN ELEMENT OF COST. A DEPB DRAWBACK SCHEME IS NOT RELATED TO THE BUSINESS OF AN INDUSTRIAL UNDERTAKING FOR MANUFACTURING OR SELLING ITS PRODUCTS. DEPB ENTITLEMENT ARISES ONLY WHEN THE UNDERTAKING GOES ON TO EXPORT THE SAID PRODUCT, THAT IS AFTER IT MANUFACTURES OR PRODUCES THE SAME. PITHILY PUT, IF THERE IS NO EXPORT, THERE IS NO DEPB ENTITLEMENT, AND THEREFORE ITS RELATION TO MANUFACTURE OF A PRODUCT AND/OR SALE WITHIN INDIA IS NOT PRO XIMATE OR DIRECT BUT IS ONE STEP REMOVED. ALSO, THE OBJECT BEHIND DEPB ENTITLEMENT, AS HAS BEEN HELD BY THIS COURT, IS TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY PAYMENT ON THE IMPORT CONTENT OF THE EXPORT PRODUCT WHICH IS PROVIDED FOR BY CREDIT TO CUSTOM S DUTY AGAINST THE EXPORT PRODUCT. IN SUCH A SCENARIO, IT CANNOT BE SAID THAT SUCH DUTY EXEMPTION SCHEME IS DERIVED FROM PROFITS AND GAINS MADE BY THE INDUSTRIAL UNDERTAKING OR BUSINESS ITSELF. 21. THE CALCUTTA HIGH COURT IN MERINO PLY & CHEMICALS LTD. V. CIT, 209 ITR 508 [1994], HELD THAT TRANSPORT SUBSIDIES WERE INSEPARABLY CONNECTED WITH THE BUSINESS CARRIED ON BY THE ASSESSEE. IN THAT CASE, THE DIVISION BENCH HELD: - WE DO NOT FIND ANY PERVERSITY IN THE TRIBUNALS FINDING THAT THE SCHEME OF TRANSPORT SU BSIDIES IS INSEPARABLY CONNECTED WITH THE BUSINESS CARRIED ON BY THE ASSESSEE. IT IS A FACT THAT THE ASSESSEE WAS A MANUFACTURER OF PLYWOOD, IT IS ALSO A FACT THAT THE ASSESSEE HAS ITS UNIT IN A BACKWARD AREA AND IS ENTITLED TO THE BENEFIT OF THE SCHEME. F URTHER IS THE FACT THAT TRANSPORT EXPENDITURE IS AN INCIDENTAL EXPENDITURE OF THE ASSESSEES BUSINESS AND IT IS THAT EXPENDITURE WHICH THE SUBSIDY RECOUPS AND THAT THE PURPOSE OF THE RECOUPMENT IS TO MAKE UP POSSIBLE PROFIT DEFICIT FOR OPERATING IN A BACKW ARD AREA. THEREFORE, IT IS BEYOND ALL MANNER OF DOUBT THAT THE SUBSIDIES WERE INSEPARABLY CONNECTED WITH THE PROFITABLE CONDUCT OF MAGNUM SEA FOODS LTD P A G E 31 | 44 THE BUSINESS AND IN ARRIVING AT SUCH A DECISION ON THE FACTS THE TRIBUNAL COMMITTED NO ERROR. 22. HOWEVER, IN CIT V. ANDAMAN TIMBER INDUSTRIES LTD. , 242 ITR 204 [2000], THE SAME HIGH COURT ARRIVED AT AN OPPOSITE CONCLUSION IN CONSIDERING WHETHER A DEDUCTION WAS ALLOWABLE UNDER SECTION 80HH OF THE ACT IN RESPECT OF TRANSPORT SUBSIDY WITHOUT NOTICING THE AFORESAID EARLIER JUDGMEN T OF A DIVISION BENCH OF THAT VERY COURT. A DIVISION BENCH OF THE CALCUTTA HIGH COURT IN C.I.T. V. CEMENT MANUFACTURING COMPANY LIMITED , BY A JUDGMENT DATED 15.1.2015, DISTINGUISHED THE JUDGMENT IN CIT V. ANDAMAN TIMBER INDUSTRIES LTD . AND FOLLOWED THE IMPUGNED JUDGMENT OF THE GAUHATI HIGH COURT IN THE PRESENT CASE. IN A PITHY DISCUSSION OF THE LAW ON THE SUBJECT, THE CALCUTTA HIGH COURT HELD: MR. BANDHYOPADHYAY, LEARNED ADVOCATE APPEARING FOR THE APPELLANT, SUBMITTED THAT THE IMPUGNED JUDGMENT IS CONT RARY TO A JUDGMENT OF THIS COURT IN THE CASE OF CIT V. ANDAMAN TIMBER INDUSTRIES LTD. REPORTED IN (2000) 242 ITR, 204 WHEREIN THIS COURT HELD THAT TRANSPORT SUBSIDY IS NOT AN IMMEDIATE SOURCE AND DOES NOT HAVE DIRECT NEXUS WITH THE ACTIVITY OF AN INDUSTRIA L UNDERTAKING. THEREFORE, THE AMOUNT REPRESENTING SUCH SUBSIDY CANNOT BE TREATED AS PROFIT DERIVED FROM THE INDUSTRIAL UNDERTAKING. MR. BANDHYPADHYAY SUBMITTED THAT IT IS NOT A PROFIT DERIVED FROM THE UNDERTAKING. THE BENEFIT UNDER SECTION 80IC COULD NOT T HEREFORE HAVE BEEN GRANTED. HE ALSO RELIED ON A JUDGMENT OF THE SUPREME COURT IN THE CASE OF LIBERTY INDIA V. COMMISSIONER OF INCOME TAX, REPORTED IN (2009) 317 ITR 218 (SC) WHEREIN IT WAS HELD THAT SUBSIDY BY WAY OF CUSTOMS DUTY DRAW BACK COULD NOT BE TRE ATED AS A PROFIT DERIVED FROM THE INDUSTRIAL UNDERTAKING. WE HAVE NOT BEEN IMPRESSED BY THE SUBMISSIONS ADVANCED BY MR. BANDHYOPADHYAY. THE JUDGMENT OF THE APEX COURT IN THE CASE OF LIBERTY INDIA (SUPRA) WAS IN RELATION TO THE SUBSIDY ARISING OUT OF CUSTOM S DRAW BACK AND DUTY ENTITLEMENT PASS - BOOK SCHEME (DEPB). BOTH THE INCENTIVES CONSIDERED BY THE APEX COURT IN THE CASE OF LIBERTY INDIA COULD BE AVAILED AFTER THE MANUFACTURING ACTIVITY WAS OVER AND EXPORTS WERE MADE. BUT, WE ARE CONCERNED IN THIS CASE WIT H THE TRANSPORT AND INTEREST SUBSIDY WHICH HAS A DIRECT NEXUS WITH THE MANUFACTURING ACTIVITY INASMUCH AS THESE SUBSIDIES GO TO REDUCE THE COST OF PRODUCTION. THEREFORE, THE JUDGMENT IN THE CASE OF LIBERTY INDIA V. COMMISSIONER OF INCOME TAX HAS NO MANNER OF APPLICATION. THE SUPREME COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. & OTHERS VERSUS COMMISSIONER OF INCOME TAX, REPORTED IN [1997] 228 ITR AT PAGE 257 EXPRESSED THE FOLLOWING VIEWS: - . SIMILARLY, SUBSIDY ON POWER WAS CONFINED TO POWER CONSUMED FOR PRODUCTION. IN OTHER WORDS, IF POWER IS MAGNUM SEA FOODS LTD P A G E 32 | 44 CONSUMED FOR ANY OTHER PURPOSE LIKE SETTING UP THE PLANT AND MACHINERY, THE INCENTIVES WILL NOT BE GIVEN. REFUND OF SALES TAX WILL ALSO BE IN RESPECT OF TAXES LEVIED AFTER COMMENCEMENT OF PRODUCT ION AND UP TO A PERIOD OF FIVE YEARS FROM THE DATE OF COMMENCEMENT OF PRODUCTION. IT IS DIFFICULT TO HOLD THESE SUBSIDIES AS ANYTHING BUT OPERATION SUBSIDIES. THESE SUBSIDIES WERE GIVEN TO ENCOURAGE SETTING UP OF INDUSTRIES IN THE STATE OF ANDHRA PRADESH B Y MAKING THE BUSINESS OF PRODUCTION AND SALE OF GOODS IN THE STATE MORE PROFITABLE. 23. WE ARE OF THE VIEW THAT THE JUDGMENT IN MERINO PLY & CHEMICALS LTD. AND THE RECENT JUDGMENT OF THE CALCUTTA HIGH COURT HAVE CORRECTLY APPRECIATED THE LEGAL POSITION. 2 4. WE DO NOT FIND IT NECESSARY TO REFER IN DETAIL TO ANY OF THE OTHER JUDGMENTS THAT HAVE BEEN PLACED BEFORE US. THE JUDGMENT IN JAI BHAGWAN CASE (SUPRA) IS HELPFUL ON THE NATURE OF A TRANSPORT SUBSIDY SCHEME, WHICH IS DESCRIBED AS UNDER: THE OBJECT OF T HE TRANSPORT SUBSIDY SCHEME IS NOT AUGMENTATION OF REVENUE, BY LEVY AND COLLECTION OF TAX OR DUTY. THE OBJECT OF THE SCHEME IS TO IMPROVE TRADE AND COMMERCE BETWEEN THE REMOTE PARTS OF THE COUNTRY WITH OTHER PARTS, SO AS TO BRING ABOUT ECONOMIC DEVELOPMENT OF REMOTE BACKWARD REGIONS. THIS WAS SOUGHT TO BE ACHIEVED BY THE SCHEME, BY MAKING IT FEASIBLE AND ATTRACTIVE TO INDUSTRIAL ENTREPRENEURS TO START AND RUN INDUSTRIES IN REMOTE PARTS, BY GIVING THEM A LEVEL PLAYING FIELD SO THAT THEY COULD COMPETE WITH TH EIR COUNTERPARTS IN CENTRAL (NON - REMOTE) AREAS. THE HUGE TRANSPORTATION COST FOR GETTING THE RAW MATERIALS TO THE INDUSTRIAL UNIT AND FINISHED GOODS TO THE EXISTING MARKET OUTSIDE THE STATE, WAS MAKING IT UNVIABLE FOR INDUSTRIES IN REMOTE PARTS OF THE COUN TRY TO COMPETE WITH INDUSTRIES IN CENTRAL AREAS. THEREFORE, INDUSTRIAL UNITS IN REMOTE AREAS WERE EXTENDED THE BENEFIT OF SUBSIDIZED TRANSPORTATION. FOR INDUSTRIAL UNITS IN ASSAM AND OTHER NORTH - EASTERN STATES, THE BENEFIT WAS GIVEN IN THE FORM OF A SUBSI DY IN RESPECT OF A PERCENTAGE OF THE COST OF TRANSPORTATION BETWEEN A POINT IN CENTRAL AREA (SILIGURI IN WEST BENGAL) AND THE ACTUAL LOCATION OF THE INDUSTRIAL UNIT IN THE REMOTE AREA, SO THAT THE INDUSTRY COULD BECOME COMPETITIVE AND ECONOMICALLY VIABLE. (PARAS 14 AND 15) MAGNUM SEA FOODS LTD P A G E 33 | 44 25. THE DECISION IN SAHNEY STEEL AND PRESS WORKS LTD. V. COMMISSIONER OF INCOME TAX, A.P. - I, HYDERABAD (1997) 7 SCC 764, DEALT WITH SUBSIDY RECEIVED FROM THE STATE GOVERNMENT IN THE FORM OF REFUND OF SALES TAX PAID ON RAW MATERIALS, MA CHINERY, AND FINISHED GOODS; SUBSIDY ON POWER CONSUMED BY THE INDUSTRY; AND EXEMPTION FROM WATER RATE. IT WAS HELD THAT SUCH SUBSIDIES WERE TREATED AS ASSISTANCE GIVEN FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE. 26. WE DO NOT FIND IT NECES SARY TO FURTHER ENCUMBER THIS JUDGMENT WITH THE JUDGMENTS WHICH SHRI GANESH CITED ON THE NETTING PRINCIPLE. WE FIND IT UNNECESSARY TO FURTHER SUBSTANTIATE THE REASONING IN OUR JUDGMENT BASED ON THE SAID PRINCIPLE. 27. A DELHI HIGH COURT JUDGMENT WAS ALSO C ITED BEFORE US BEING CIT V. DHARAMPAL PREMCHAND LTD ., 317 ITR 353 FROM WHICH AN SLP PREFERRED IN THE SUPREME COURT WAS DISMISSED. THIS JUDGMENT ALSO CONCERNED ITSELF WITH SECTION 80 - IB OF THE ACT, IN WHICH IT WAS HELD THAT REFUND OF EXCISE DUTY SHOULD NOT BE EXCLUDED IN ARRIVING AT THE PROFIT DERIVED FROM BUSINESS FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 80 - IB OF THE ACT. 28. IT ONLY REMAINS TO CONSIDER ONE FURTHER ARGUMENT BY SHRI RADHAKRISHNAN. HE HAS ARGUED THAT AS THE SUBSIDIES THAT ARE RECEI VED BY THE RESPONDENT, WOULD BE INCOME FROM OTHER SOURCES REFERABLE TO SECTION 56 OF THE INCOME TAX ACT, ANY DEDUCTION THAT IS TO BE MADE, CAN ONLY BE MADE FROM INCOME FROM OTHER SOURCES AND NOT FROM PROFITS AND GAINS OF BUSINESS, WHICH IS A SEPARATE AND D ISTINCT HEAD AS RECOGNISED BY SECTION 14 OF THE INCOME TAX ACT. SHRI RADHAKRISHNAN IS NOT CORRECT IN HIS SUBMISSION THAT ASSISTANCE BY WAY OF SUBSIDIES WHICH ARE REIMBURSED ON THE INCURRING OF COSTS RELATABLE TO A BUSINESS, ARE UNDER THE HEAD INCOME FROM OTHER SOURCES, WHICH IS A RESIDUARY HEAD OF INCOME THAT CAN BE AVAILED ONLY IF INCOME DOES NOT FALL UNDER ANY OF THE OTHER FOUR HEADS OF INCOME. SECTION 28(III)(B) SPECIFICALLY STATES THAT INCOME FROM CASH ASSISTANCE, BY WHATEVER NAME CALLED, RECEIVED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA, WILL BE INCOME CHARGEABLE TO INCOME TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IF CASH ASSISTANCE RECEIVED OR RECEIVABLE AGAINST EXPORTS SCHEMES AR E INCLUDED AS BEING INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, IT IS OBVIOUS THAT SUBSIDIES WHICH GO TO REIMBURSEMENT OF COST IN THE PRODUCTION OF GOODS OF A PARTICULAR BUSINESS WOULD ALSO HAVE TO BE INCLUDED UNDER THE HEAD PROFI TS AND GAINS OF BUSINESS OR PROFESSION, AND NOT UNDER THE HEAD INCOME FROM OTHER SOURCES. 29. FOR THE REASONS GIVEN BY US, WE ARE OF THE VIEW THAT THE GAUHATI, CALCUTTA AND DELHI HIGH COURTS HAVE CORRECTLY CONSTRUED SECTIONS 80 - IB AND 80 - IC. THE HIMACH AL PRADESH HIGH COURT, HAVING WRONGLY INTERPRETED THE JUDGMENTS IN STERLING FOODS AND LIBERTY INDIA TO ARRIVE AT THE OPPOSITE MAGNUM SEA FOODS LTD P A G E 34 | 44 CONCLUSION, IS HELD TO BE WRONGLY DECIDED FOR THE REASONS GIVEN BY US HEREINABOVE . 3 9 . FURTHERMORE, HONBLE RAJASTHAN HIGH COURT AT JAIPUR IN THE CASE OF CIT VS. SURESH KUMAR BAJORIA IN D.B. INCOME TAX APPEAL NO.294/2008 ORDER DATED 18.5.2017 AFTER REFERRING TO THE DECISION OF DELHI HIGH COURT IN THE CASE OF DHARMAM PAL PREM CHAND LTD (SUPRA) AND THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MEGHALAYA STEELS (SUPRA) , WHEREIN, IT WAS HELD THAT SUBSIDIES WHICH GO TO REIMBURSEMENT OF COST IN THE PRODUCTION OF GOODS OF PARTICULAR BUSINESS WOULD ALSO HAVE TO BE INCLUDED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AND NOT UNDER THE HEAD INCOME FROM OTHER SOURCES. AFTER REFERRING TO ABOVE NOTED DECISION, THEIR LORDSHIPS ANSWERED THE QUESTION IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT BY ALLOWING THE APPEAL OF THE ASSESSEE. 40 . SIMILARLY, HON BLE KARNATAKA HIGH COURT IN THE CASE OF HUBLI ELECTRICITY SUPPLY CO VS DCIT, 404 ITR 462 (KARN), AS HEAVILY RELIED BY LD COUNSEL FOR THE ASSESSEE, AFTER CONSIDERING THE RATIO OF DECISION IN THE CASE OF MEGHALAYA STEEL (SUPRA) AND THE DECISION OF HONBLE GU JARAT HIGH COURT IN THE CASE OF EMPIRE PUMPS PVT LTD VS ACIT, 229 TAXMAN 0379 (GUJARAT) HELD THAT INCOME FROM CASH ASSISTANCE, BY WHATEVER NAME CALLED, RECEIVED OR RECEIVABLE BY ANY PERSON CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFES SION SHALL BE INCLUDED UNDER THE SAME HEAD AND NOT UNDER THE HEAD INCOME FROM OTHER SOURCES. MAGNUM SEA FOODS LTD P A G E 35 | 44 41. IN VIEW OF FOREGOING DISCUSSION AND A FTER CONSIDERING PREPOSITIONS AND CASE LAWS RELIED BY LD REPRESENTATIVES OF BOTH THE SIDES, WE ADVERT TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE TO ADDRESS AND ADJUDICATE THE GRIEVANCE OF THE ASSESSEE. FROM RELEVANT PART OF THE ASSESSMENT ORDER AT PAGE 21 , WE OBSERVE THAT THE ASSESSEE, REPLYING TO THE SHOW CAUSE NOTICE ISSUED BY THE AO, VIDE LETTER DATED 15.1.2014 STATED THAT DEPB IS AN ASSISTANCE GIVEN BY THE CENTRAL GOVERNMENT, AS COMPENSATION TOWARDS DUTY COMPONENT ON PROCUREMENT OF EXPORTABLE GOODS WHICH THE ASSESSEE CAN IMPORT WITHOUT PAYMENT OF DUTY AND ALSO MEET THE HIGH TRANSPORT COST. THE OBJECT IVE OF THE SCHEME IS TO MAKE THE COST OF EXPORTABLE GOODS COMPETITIVE IN THE INTERNATIONAL MARKET SO THAT THE UNITS ARE ABLE TO EXPORT. ACCORDINGLY, THE ASSESSEE RECEIVES THE AMOUNT ON EXPORT OF ITS GOODS AS A PERCENTAGE AMOUNT OF EXPORT VALUE. SINCE THE AVAILABILITY OF THESE RECEIPTS ARE KNOWN TO EVERYBODY INCLUDING THE INTERNATIONAL BUYERS, THE EXPORT PRICE OF THE PRODUCTS TO BE EXPORTED ARE DETERMINED AFTER TAKING INTO ACCOUNT THE VALUE OF RECEIPT OF DEPB. BY REFERRING TO PROVISIONS OF SECTION 28 OF T HE ACT, IT IS STATED THAT THESE RECEIPTS SHALL BE CHARGEABLE TO INCOME TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AND THESE AMOUNTS FORMS PART OF THE ACTIVITIES OF AN INDUSTRIAL UNDERTAKING WITHOUT WHICH CENTRAL GOVERNMENT WOULD NOT HAVE SANCTIONED THE SAME. HENCE, IT IS STATED THAT THE AMOUNT OF DEPB RECEIVED IS DIRECTLY RELATABLE TO EXPORT ACTIVITIES OF THE ASSESSEE, WHICH PROFITS ARE ENTITLED TO THE BENEFIT U/S. 80IB(11A) OF THE ACT MAGNUM SEA FOODS LTD P A G E 36 | 44 AND THIS AMOUNT HAS TO BE TREATED AS PART OF SAL ES REALISATION AND PROFIT AND GAINS DERIVED FROM OPERATION OF SUCH BUSINESS ENTITLED FOR DEDUCTION U/S. 80 IB(11A) OF THE ACT IS ALSO TO BE CONSIDERED FOR CALCULATING THE DEDUCTION U/S. 80IB (11A) OF THE ACT . ACCORDINGLY, THE RECEIPTS OF DEPB BE ALLOWED AS PART OF INDUSTRIAL INCOME FOR CALCULATING DEDUCTION U/S. 80 IB OF THE ACT. 42. THEREAFTER, THE AO WITHOUT RECORDING ANY OBSERVATION OR FINDINGS ON THE ABOVE NOTED (PARA 41) EXPLANATION OF THE ASSESSEE AND WITHOUT CONSIDERING AND ADJUDICATING THE SAME JUMP ED TO RECORD FINAL CONCLUSION BY REFERRING TO THE DECISION OF ITAT AHMEDABAD BENCH IN THE CASE OF BLOOM DCOR LTD VS DCIT ORDER DATED 26.10.2012, DECISION OF HONBLE P&H HIGH COURT IN THE CASE OF JAI BHARAT GUM & CHEMICALS LTD VS ACIT, 326 ITR 36 (P&H), DE CISION OF HONBLE SUPREME COURT IN THE CASE OF STERLING FOODS (SUPRA) AND ANOTHER DECISION IN THE CASE OF LIBERTY INDIA (SUPRA) RECORDED HIS DECISION FOR MAKING THE IMPUGNED DISALLOWANCE. IN THE LAST OPERATING PARA AT PAGE 25, THE AO OBSERVED THAT DEDUCTIO N U/S. 80IB(11A) OF THE ACT IS FOR PROCESSING, PRESERVATION AND PACKAGING OF MARINE PRODUCTS. THERE IS NO MENTION OF EXPORT AS IN THE PROVISIONS OF SECTION 80 HHC OF THE ACT HAS BEEN GIVEN. THEREAFTER, THE AO WENT ON TO RECORD LITERAL RULE OF INTERPRETAT ION AND STATED THAT DEDUCTION IS AVAILABLE ONLY FOR PROCESSING, PRESERVATION AND PACKAGING AND NOT FOR EXPORT, MEANING THEREBY, THAT THE MOMENT THESE THREE ACTIVITIES ARE COMPLETED, I.E. GOODS LEAVE THE FACTORY MAGNUM SEA FOODS LTD P A G E 37 | 44 PREMISES THE BENEFIT OF DEDUCTION ENDS. THE AO ALSO OBSERVED THAT THE POINT OF SALE FOR CLAIM OF DEDUCTION IS THE FACTORY GATE AND NOT EXPORT. HOWEVER, HE ALSO NOTED THAT THE STATUTE IN 80IB(11A) MAKES NO DIFFERENCE BETWEEN AN EXPORT SALES AND DOMESTIC SALES AND THE ACT PROVIDES SAME LEVEL OF DEDUC TION FOR BOTH KIND OF SALES. THEREAFTER, THE AO RECORDED A CONTRARY FINDING TO ITS EARLIER OBSERVATION THAT EXPORT IS AN ACTIVITY WHICH IS DIFFERENT FROM THE SCOPE OF WORKS ENVISAGED BY STATUTE. THEREFORE, NO DEDUCTION ON ACCOUNT OF EXPORT SALES AND CONS EQUENT RECEIPT OF DEPB PREMIUM CAN BE ALLOWED U/S. 80 IB(11A) OF THE ACT. 43. FROM CAREFUL READING OF FIRST APPELLATE ORDER, WE OBSERVE THAT LD CIT(A) HAS CONFIRMED THE DISALLOWANCE BY REFERRING TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA) AND OBSERVED THAT THE ISSUE AS TO WHETHER DEPB RECEIPTS CAN BE TREATED AS PROFITS DERIVED FROM AN INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF CLAI MING DEDUCTION U/S. 80IB(11A) OF THE ACT HAS BEEN SETTLED BY HONBLE SUPREME COURT, THE STAND OF THE AO IN THIS REGARD IN THE ASSESSMENT ORDER IS QUITE IN ORDER AND CORRECT AND THE ASSESSEE CANNOT BE ALLOWED TO CALCULATE THE DISALLOWANCE U/S. 80 IB(11A) O F THE ACT BY INCLUDING DEPB RECEIPTS. 44. FIRST OF ALL, WE MAY POINT OUT THAT THE LEGISLATURE HAS USED WORD IN SUB - SECTION (11A) OF SECTION 80 IB PROFITS AND GAINS DERIVED FROM SUCH UNDERTAKING. THE PROVISIONS OF SECTION 80 IB (11A) OF THE ACT CANNOT B E CONSIDERED AND READ IN ISOLATION BY IGNORING THE NEWLY INSERTED CLAUSES (IIIB) MAGNUM SEA FOODS LTD P A G E 38 | 44 & (IIID) OF SECTION 28 OF THE ACT, WHICH PROVIDES THAT THE CASH ASSISTANCE BY WHATEVER NAME CALLED, RECEIVED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS UNDER ANY SCHEME OF TH E GOVERNMENT OF INDIA AND IN CLAUSE (IIID), ANY PROFIT FROM DUTY ENTITLEMENT PASSBOOK SCHEME UNDER THE EXPORT AND IMPORT POLICY FORMULATED AND ANNOUNCED UNDER SECTION 5 OF THE FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT, 1992 ARE PROFITS AND GAINS OF BUSINESS OR PROFESSION. THESE AMENDMENTS HAVE BEEN INSERTED W.R.E.F I.E. 1.4.1967 AND 1.4.1998, RESPECTIVELY BY THE TAXATION LAWS (AMENDMENT)ACT,2005 . 45. IN VIEW OF ABOVE RELEVANT PROVISIONS, WHEN WE CONSIDER THE LAW RENDERED BY HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS (SUPRA), THEN WE FIND THAT THEIR LORDSHIPS SPEAKING FOR HONBLE APEX COURT AFTER CONSIDERING THE PROVISIONS OF CLAUSE (IIIB) AND (IIID) OF SECTION 28 OF THE ACT, CATEGORICALLY HELD THAT THE AMOUNT OF DEPB ENTITLEMENTS HAS TO BE TREATED AS PROFITS AND GAINS OF BUSINESS OR PROFESSION. AT THE COST OF REPETITION, IT IS RELEVANT TO MENTION THAT THE AO FOR THE ASSESSMENT YEAR 2011 - 12 PASSED ORDER ON 24.2.2014 AND LD CIT(A) CONFIRMED THE ADDITION/DISALLOWANCE BY PASSING THE ORDER ON 4.9.2015 TILL THAT DATE, THE ORDERS OF HONBLE SUPREME COURT IN THE CASE OF STERLING FOODS (SUPRA) DATED 15.4.1999 AND LIBERTY INDIA (SUPRA) DATED 31.8.200 9 WERE HOLDING FIELD ON THE ISSUE OF ALLOWANCE DEDUCTION IN RESPECT OF AMOUNT OF DEPB ENTITLEMENTS RECEIVED BY THE ASSESSEE AGAINST EXPORT, WHICH WERE AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. THEREAFTER, THE DECISION OF HONBLE SUPREME COURT IN THE CASE MAGNUM SEA FOODS LTD P A G E 39 | 44 OF MEGHALAYA STEEL (SUPRA) WAS RENDERED ON 9.3.2016. THUS, AS THE TIME OF PASSING THE ASSESSMENT ORDER DATED 24.2.2014 BY THE AO AND LD CIT(A) DATED 4.9.2015, THE ORDER OF THE HONBLE SUPREME COURT IN THE CASE OF MEGHALAYA STEEL (SUPRA) WAS NOT I N EXISTENCE AND, THEREFORE, THE AUTHORITIES BELOW RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA) AND STERLING FOODS (SUPRA) DENIED THE CLAIM OF THE ASSESSEE REGARDING AMOUNTS RECEIVED ON DEPB ENTITLEMENTS BY THE ASSES SEE BY HOLDING THAT THESE ARE NOT TO BE INCLUDED IN THE AMOUNT OF DEDUCTION ALLOWABLE TO THE ASSESSEE U/S. 80IB(11A) OF THE ACT. THEREFORE, IN VIEW OF THE SUBSEQUENT DECISION OF HONBLE SUPREME COURT IN THE CASE OF MEGHALAYA STEEL (SUPRA), THE FINDINGS RE CORDED BY THE AUTHORITIES BELOW BASED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA) & STERLING FOODS (SUPRA) CANNOT BE HELD AS SUSTAINABLE AS THE HONBLE SUPREME COURT IN PARA 29 OF ITS DECISION IN THE CASE OF MEGHALAYA STEE L (SUPRA) HELD THAT THE HONBLE H.P.HIGH COURT HAVING WRONGLY INTERPRETED THE JUDGMENTS IN STERLING FOODS (SUPRA) AND LIBERTY INDIA (SUPRA) TO ARRIVE AT THE OPPOSITE CONCLUSION, IS HELD TO BE WRONGLY DECIDED. THEREFORE, IN OUR RESPECTFUL AND HUMBLE OPINIO N, THE HONBLE SUPREME COURT HAS OVER - RULED ITS EARLIER DECISION IN THE CASE OF STERLING FOODS (SUPRA) AND LIBERTY INDIA (SUPRA) AND NOW THE DECISION IN THE CASE OF MEGHALAYA STEEL (SUPRA) HOLDS THE FIELD. MAGNUM SEA FOODS LTD P A G E 40 | 44 46 . IN VIEW OF DECISION IN THE CASE OF MEGHALAYA S TEEL (SUPRA) AND SUBSEQUENT DECISION OF DIFFERENT HIGH COURTS, WE RESPECTFULLY HELD THAT THE BENEFIT OF JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF BAN PAL OIL CHEM (P) LTD (SUPRA)IS NOT AVAILABLE FOR THE REVENUE AS THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MEGHALAYA STEEL (SUPRA) IS A SUPREME PRECEDENCE WHICH IS BINDING ON ALL THE COURTS BELOW INCLUDING THIS TRIBUNAL. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MEGHALAYA STEEL (SUPRA), WE HOLD THAT THE D EPB ENTITLEMENT AMOUNT RECEIVED OR RECEIVABLE BY THE ASSESSEE UNDER THE GOVERNMENT OF INDIA EXPORT PROMOTION SCHEME IS AN INCOME INCLUDIBLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AS PER CLAUSE (IIIB) AND (IIID) TO SECTION 28 OF THE AC T. 47. AS WE HAVE NOTED ABOVE THAT THE AO HIMSELF NOTED, IN THE MIDDLE PARA AT PAGE 25 OF THE ASSESSMENT ORDER FOR A.Y. 2011 - 12, THAT THE STATUTE IN 80 IB(11A) MAKES NO DIFFERENCE BETWEEN AN EXPORT SALES AND DOMESTIC SALES, THE ACT PROVIDES SAME LEVEL OF DEDUCTION FOR BOTH KIND OF SALES. THEREAFTER, HE NOTED A COMPLETE CONTRADICTORY FINDING TO HIS EARLIER SAID OBSERVATIONS THAT EXPORT IS AN ACTIVITY WHICH IS DIFFERENT FROM THE SCOPE OF WORKS ENVISAGED BY THE STATUTE. THUS, NO DEDUCTION ON ACCOU NT EXPORT SALES AND CONSEQUENT RECEIPT OF DEPB PREMIUM CAN BE ALLOWED. AS WE HAVE NOTED ABOVE AT THE TIME OF PASSING ASSESSMENT ORDER, THE DECISIONS OF HONBLE SUPREME COURT IN THE CASES OF STERLING FOODS (SUPRA)AND LIBERTY MAGNUM SEA FOODS LTD P A G E 41 | 44 INDIA (SUPRA) WERE HOLDING FIEL D AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE, THUS, THE AO WAS BOUND TO FOLLOW THE SAME AND THUS, HE DENIED DEDUCTION IN RESPECT OF DEPB ENTITLEMENTS TO THE ASSESSEE. BUT THEREAFTER THE SCENARIO CHANGED ON 9.3.2016, WHEN THE HONBLE SUPREME COURT R ENDERED DECISION IN THE CASE OF MEGHALAYA STEELS LTD (SUPRA). WHEN THE STATUE IN SECTION 80 IB OF THE ACT HAS NOT MADE ANY DISTINCT BETWEEN EXPORT AND DOMESTIC SALES AND THE PROFIT ARISING FROM BOTH THE KIND OF SALES IS ENTITLED FOR DEDUCTION, THEN, THE P ROFIT EARNED BY THE ASSESSEE IN THE FORM OF DEPB ENTITLEMENT AMOUNT, WHICH IS DIRECTLY RELA TED AND CALCULATED ON THE AMOUNT OF EXPORT SALES, CANNOT BE REGARDED OR TAGGED AS INCOME FROM OTHER SOURCES TO TAKE IT OUT FROM THE BENEFIT OF DEDUCTION U/S. 80IB(11A) OF THE ACT TO THE ASSESSEE. 4 8 . WE MAY ALSO POINT OUT THAT THE OBJECTIVE BEHIND GRANTING SUCH BENEFIT WAS IN ORDER TO COMPENSATE HIGH COST OF PRODUCTION AND IN ORDER TO EXPORT SUCH PRODUCTS VIABLE, THUS, GOVERNMENT OF INDIA GRANTS CERTAIN INCENT IVES TO THE EXPORTERS. THE CLEAR OBJECTIVE BEHIND THE SCHEME WAS, THUS, TO REDUCE THE COST OF ITS PROCUREMENT AND TO NEUTRALISE CERTAIN INHERENT DISADVANTAGES ATTACHED TO SUCH PRODUCTS AND TO PROMOTE EXPORT OF VARIOUS FOOD PRODUCTS INCLUDING MARINE OR SEA FOOD. FOR ARRIVING AT ABOVE CONCLUSION, WE HAVE TAKEN RESPECTFUL COGNIZANCE OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BAJAJ TEMPO LTD (SUPRA), WHEREIN, IT WAS HELD THAT A PROVISION IN A TAXING STATUTE GRANTING INCENTIVES FOR PROMOTING MAGNUM SEA FOODS LTD P A G E 42 | 44 GROW TH AND DEVELOPMENT SHOULD BE CONSTRUED LIBERALLY , AND, THEREFORE, WHEN THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S. 80IB(11A) OF THE ACT ON THE PROFITS DERIVED FROM ITS INDUSTRIAL UNDERTAKING THEN IN VIEW OF SUBSEQUENT AMENDMENT TO SECTION 28 OF THE ACT W.E.R.F BY INSERTION OF CLAUSES (IIIB) & (IIID) O F THE ACT, DEPB ENTITLEMENT HAS TO BE INCLUDED AND TREATED AS INCOME FROM PROFITS AND GAINS OF BUSINESS AND PROFESSION AND SAME CANNOT BE TREATED AS INCOME FROM OTHER SOURCES. IN VIEW OF FOREGOING DISCUSSION, WE HOLD THAT DEPB ENTITLEMENT AMOUNT I S HAVING DIRECT NEXUS WITH THE INDUSTRIAL ACTIVITIES OF THE ASSESSEE, WHICH IS EXPORT ORIENTED ENTITLED FOR DEDUCTION U/S. 80IB(11A) OF THE ACT, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MEGHALAYA STEEL S LTD., (S UPRA), DEPB ENTITLEMENT AMOUNT IS AN INCOME DERIVED BY THE ASSESSEE FROM INDUSTRIAL UNDERTAKING OF THE ASSESSEE, THUS, THE SAME IS ALSO ENTITLED FOR DEDUCTION U/S. 80 IB(11A) OF THE ACT. ACCORDINGLY, GROUND NOS.5,6 & 7 FOR ASSESSMENT YEAR 2011 - 12 ARE ALLOWED. 4 9 . LD COUNSEL HAS PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF PIONEER FOODS & AGRO INDUSTRIES VS ITO, (2019) 3 NYPCTR 408 (BOM) AND SUBMITTED THAT THE ASSESSEE IS ALSO ENTITLED FOR DEDUCTION U/S. 80 IB(11A) OF THE ACT IN RESPECT OF BENEFITS UNDER VISHESH KRISHI AND GRAM UDYOG YOJANA (VKGUY). LD CIT DR, IN ALL FAIRNESS, SUBMITTED THAT THE DEPARTMENT HAS NO OBJECTION TO THIS PROPOSITION RENDERED BY HONBLE BOMBAY HIGH COURT. IN VIEW OF ABOVE CONTENTION OF BOTH THE MAGNUM SEA FOODS LTD P A G E 43 | 44 SIDES, RESPECTFULLY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF PIONEER FOODS & AGRO INDUSTRIES (SUPRA), WE HOLD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S. 80 IB(11A) OF THE ACT IN RESPECT OF BENEFITS RECEIVED UNDER VISHESH KR ISHI AND GRAM UDYOG YOJANA. HENCE, APPEAL FOR ASSESSMENT YEAR 2011 - 12 IS PARTLY ALLOWED. 50 . SINCE, FACTS AND CIRCUMSTANCES OF OTHER ASSESSMENT YEARS 2010 - 11, 2013 - 14 AND 2014 - 15 ARE SIMILAR AND IDENTICAL AND GROUND NOS. 5 & 6 FOR THE ASSESSMENT YEAR 2010 - 11, GROUND NO.3 FOR ASSESSMENT YEARS 2013 - 14 & 2014 - 15 ARE SIMILAR TO GROUND NO.5,6 & 7 FOR THE ASSESSMENT YEAR 2011 - 12, THEREFORE , OUR CONCLUSION ARRIVED AT IN THE ASSESSMENT YEAR 201 1 - 201 2 WILL APPLY MUTATIS MUTANDIS . REMAINING GROUNDS FOR THE ASSESSMENT YEAR 2010 - 11, 2013 - 14 & 2014 - 15 WERE NOT PRESSED, HENCE, THEY ARE DISMISSED AS NOT PRESSED. ACCORDINGLY, APPEALS FOR ASSESSMENT YEARS 2010 - 11, 2013 - 14 & 2014 - 15 ARE ALSO PARTLY ALLOWED. 50 . IN THE RESULT, AL L THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED ON 14 / 10 /2020. SD/ - SD/ - (LAXMI PRASAD SAHU) ( CHANDRA MOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER CUTTACK; DATED 14 /10/2020 B.K.PARIDA, SPS (OS) MAGNUM SEA FOODS LTD P A G E 44 | 44 COPY OF THE ORDER FOR WARDED TO : BY ORDER SR.PVT.SECRETARY ITAT, CUTTACK 1. THE APPELLANT : MAGNUM SEA FOODS LTD.,, 132 - A, SECTOR - A, ZONE - A, MANCHESWAR, INDUSTRIAL ESTATE, BHUBANESWAR 2. THE RESPONDENT. DCIT, CORPORATE CIRCLE, BHUBANESWAR. 3. THE CIT(A) - , BHUBANESWAR 4. PR.CIT - , BHUBANESWAR 5. DR, ITAT, CUTTACK 6. GUARD FILE. //TRUE COPY//