ACIT, Jaipur V. RANJANA JOHARI, Jaipur

ITA 763/JPR/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99451 (ITAT-JAIPUR)
• Duration Of Justice: 3 year(s) 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 10-09-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: VIKAS RAJVANSHI C A DHK
• Keywords: Business income; Rule of consistency
• Section: 143(3); 80HHC; 115JB; 80IB; 10B; 28

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA-@ ITA NO. 763/JP/2012 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-6, JAIPUR. CUKE VS. SMT. RANJANA JOHARI PROP. M/S. GLOBAL ART EXPORTS, S-249, MAHAVEER NAGAR, TONK ROAD, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AEOPJ 3476 P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT C.O. NO. 66/JP/2012 (ARISING OUT OF ITA NO. 763/JP/2012 ASSESSMENT YEAR : 2009-10. SMT. RANJANA JOHARI PROP. M/S. GLOBAL ART EXPORTS, S-249, MAHAVEER NAGAR, TONK ROAD, JAIPUR. CUKE VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-6, JAIPUR. VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI KAILASH MANGAL JCIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI VIKAS RAJVANSHI (C.A.) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 16/10/2015. MN~ ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 30/10/2015 2 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. VKNS'K@ ORDER PER: T.R. MEENA, A.M. THIS IS AN APPEAL BY THE REVENUE AND THE CROSS OBJE CTION IS BY THE ASSESSEE AGAINST THE ORDER DATED 06.06.2012 PASSED BY THE LEARNED CIT (A)-II, JAIPUR FOR A.Y. 2009-10. THE EFFECTIVE GROUNDS OF AP PEAL ARE AS UNDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT (APPEALS) HAS ERRED IN (1) ALLOWING EXEMPTION U/S 10BA TO A TRADING AND EXPORT FIRM WHICH IS NOT INVOLVED IN MANUFACTURING OR PRODUCTION OF ELIGIBLE ARTISTIC ARTICLES. (2) TREATING DUTY DRAW BACK AND EXPORT LICENSE SALE AS P ROFIT DERIVED BY AN UNDERTAKING FROM THE EXPORT OUT OF IN DIA OF ELIGIBLE ARTICLES OR THINGS. 2. THE FIRST GROUND IN REVENUES APPEAL IS AGAINST A LLOWING EXEMPTION UNDER SECTION 10BA TO A TRADING AND EXPORT FIRM WHICH WAS N OT INVOLVED IN MANUFACTURING OR PRODUCTION OF ELIGIBLE ARTISTIC AR TICLES. 3. THE AO OBSERVED THAT ASSESSEE IS A MANUFACTURER O F WOODEN FURNITURE. SHE FILED HER RETURN OF INCOME ON 30.09.2009 AT NIL INCOME. THE CASE WAS SCRUTINIZED UNDER SECTION 143(3) OF THE IT ACT. DURI NG THE YEAR UNDER CONSIDERATION THE ASSESSEE WAS DERIVING INCOME FROM EXPORT OF WOODEN FURNITURE IN THE NAME AND STYLE OF M/S. GLOBAL ART EXPORTS AT SITAPURA INDUSTRIAL AREA, JAIPUR. IN THE PROFIT & LOSS ACCOUNT, THE NET PROF IT HAS BEEN SHOWN AT 3 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. RS.1,85,48,714/- ON TOTAL TURNOVER OF RS. 15,07,34, 997/-. AFTER REDUCING DONATION AND RENTAL INCOME ETC., PROFIT HAS BEEN SH OWN AT RS. 1,92,52,903/- AND CLAIMED EXEMPTION UNDER SECTION 10BA OF THE IT ACT. THE AO FURTHER OBSERVED THAT IN A.Y. 2004-05, 2005-06, 06-07, 07-08 AND 08- 09 THE DEDUCTION UNDER SECTION 10BA WAS DISALLOWED ON THE GROUND THAT PURCHA SES WERE MADE FOR TRADING PURPOSES ON FORM 17B OF THE SALES TAX ACT/RU LES, NO ARTISTIC ITEMS ARE MANUFACTURED BY THE ASSESSEE AND AS PER SUB-SECTION (2) OF SECTION 10BA, THE ASSESSEES ACTIVITIES WERE NOT MANUFACTURING OR PROD UCTION OF ELIGIBLE ARTICLES OR THINGS. DURING THE YEAR ALSO, THERE IS NO CHANGE I N THE MANUFACTURING ACTIVITY OF THE ASSESSEE. THEREFORE, THE AO GAVE REASONABLE OPPO RTUNITY OF BEING HEARD ON DEDUCTION UNDER SECTION 10BA OF THE IT ACT BEFORE DI SALLOWING THE CLAIM OF THE ASSESSEE. THE ASSESSEE ALSO FILED REPLY BEFORE THE AO AND ALSO RELIED UPON THE ASSESSEES OWN CASE DECIDED BY THE ITAT FOR A.YS. 200 4-05, 05-06, 06-07 WHEREIN THE ASSESSEE WAS ALLOWED DEDUCTION UNDER SECTI ON 10BA AGAINST THE DISALLOWANCE MADE BY THE AO. THE AO FINALLY HELD THA T ASSESSEE IS PRIMARILY ENGAGED IN PURCHASING READYMADE FURNITURE FROM VARI OUS SUPPLIERS AND EXPORTING THE SAME AFTER MINOR POLISHING AND PACKING. THE TERM MANUFACTURING IS VERY DISTINCTIVE TERM WHICH HAS BEEN AN ISSUE FOR CONSIDE RATION IN A NUMBER OF DECISIONS BY VARIOUS COURTS. IN THIS CONNECTION DE CISION OF APEX COURT IN THE CASE OF LUCKY MINERAL PVT. LTD. (226 ITR 245) IS A LANDMA RK DECISION. IN THIS DECISION IT 4 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. HAS BEEN HELD THAT MERE MINING OF LIMESTONE AND MAR BLE AND CUTTING THE SAME BEFORE IT WAS SOLD IN THE MARKET CANNOT BE CALLED MA NUFACTURING. THERE MUST BE TRANSFORMATION OF THE ITEM WHICH IS DISTINGUISHABLE FROM THE ORIGINAL MATERIAL. ASSEMBLY OF DIFFERENT PARTS AND POLISHING THEM IS N OT MANUFACTURING. 3.1. THE ASSESSEE HAS CLAIMED THAT RS. 98,15,615/- W ERE PAID AS JOB WORK CHARGES TO DISPROVE THAT ASSESSEE WAS NOT SIMPLY IN THE TRADING. HERE IT MAY BE STATED THAT LABOUR CHARGES WERE RS. 13,33,214/- WHICH IS FAR LESS THAN THE JOB WORK CHARGES. THAT IS TO SAY THAT THE SAID MANUFACTUR ING WAS THROUGH JOB WORKER. IN THIS CONNECTION IT MAY BE STATED THAT THI S ALSO IS NOT MANUFACTURING. IN THE CASE OF LIBERTY GROUP MARKETING DIVISION VS. AC IT (ITAT, DEL) 61 TTJ 566 IT HAS BEEN HELD THAT SHOES GOT MANUFACTURED FROM COBB LER ON PIECE RATE BASIS IS NOT MANUFACTURING SINCE THEY ARE NOT EMPLOYEE OF TH E ASSESSEE. SAME VIEW HAS BEEN UPHELD BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. AR BALRAMAN, 242 ITR 470. 3.2. THE ASSESSING OFFICER, IN VIEW OF THE ABOVE AND CONSIDERING THE HISTORY OF THE CASE HELD THAT THE ASSESSEE DOES NOT FULFILL TH E BASIC CONDITION OF MANUFACTURING AND HAND MADE ARTISTIC WOODEN ARTICLES , AS LAID DOWN U/S 10BA OF THE IT ACT. SO FAR AS DECISIONS OF ITAT ARE CONCERNED , THE SAME HAVE NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEAL HAS BEEN FILE D BEFORE THE HONBLE HIGH 5 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. COURT. THEREFORE, FOLLOWING DEPARTMENTS STAND, EXEMP TION CLAIMED UNDER SECTION 10BA OF RS. 1,92,52,908/- WAS DISALLOWED IN THE YEAR UNDER CONSIDERATION. 4. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE LD . CIT (A), WHO HAD ALLOWED THE ASSESSEES APPEAL BY OBSERVING AS UNDER :- 3.1. I HAVE DULY CONSIDERED THE SUBMISSIONS OF TH E APPELLANT. I FIND THAT THE ISSUE OF ALLOW ABILITY OF EXEMPTION U/S 10BA HAS BEEN DECIDED IN THE FAVOUR OF THE ASSESSEE BY THE ORDER OF HONBLE JAIPUR TRIBUNAL (ITA NO.1111, 1112 & 1113/JP/2010) DATED 14.07.2011 FOR A.Y 2004-05, A.Y. 2005-06 AND A. Y. 2006-07. THE OBSERVA TIONS OF THE HONBLE TRIBUNAL IN PARA 12 ARE REPRODUCED AS UNDER: WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THE M CAREFULLY. WE HAVE ALSO PERUSED VARIOUS EVIDENCES FILED BEFORE LD. CIT (A) IN SUPPORT OF THE CASE OF THE ASSESSEE AND ALSO THE DE TAILED WRITTEN SUBMISSIONS PLACED ON RECORD ALONG WITH THE SUBMISSI ON OF LD. CIT DR. AFTER CONSIDERING THE SUBMISSION AND PERUSING A LL OTHER MATERIALS, WE FIND THAT LD. CIT (A) WAS JUSTIFIED IN H OLDING THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION CLAIMED UNDER SE CTION 10BA OF THE ACT FOR ALL THE THREE YEARS. FACTS AND SUBMISSIONS HAVE BEEN DISCUSSED BY LD. CIT (A) IN DETAIL. THE OBJECTION OF THE ASSESSING OFFICER RAISED IN HIS ASSESSMENT ORDER AS WELL AS IN HIS REMAND REPORT WERE ALSO TAKEN INTO CONSIDERATION BY LD. CIT( A) AND THEREAFTER LD. CIT (A) HAS ARRIVED AT THE CONCLUSION THAT ASSESSEE IS NOT MERELY A PROCESSOR BUT HAS DONE SUBSTANTIAL ACT IVITY OF MANUFACTURING THE HANDICRAFT GOODS AND, THEREFORE, THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 10BA OF THE AC T. THE MAIN PLANK OF ARGUMENT OF LD. CIT DR IS THAT ASSESSEE IS SIMPLY A PROCESSOR AS HE HAS INCURRED ONLY 1% OF THE TOTAL TURNOVER AS LA BOUR EXPENSES. THIS IS NOT CORRECT. 1% LABOUR EXPENSES ARE INCURRED ON PRIVATE LABOURER ENGAGED BY THE ASSESSEE ON JOB WORK GOT DON E BY THE ASSESSEE, OTHERWISE THE ASSESSEE HAS ITS OWN MANUFACT URING 6 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. PREMISES WHERE PERMANENT EMPLOYEES ARE EMPLOYED AND IF THIS EXPENDITURE IS TAKEN INTO CONSIDERATION THEN IT IS NOT 1% BUT IT IS SUBSTANTIAL EXPENDITURE. THIS ASPECT HAS ALSO BEEN E XAMINED BY LD. CIT (A) AND FOUND THAT THE ASSESSEE HAS INCURRED SUB STANTIAL EXPENDITURE ON ITS MANUFACTURING ACTIVITY. STATEMEN TS OF 12 PERSONS WERE RECORDED BY ASSESSING OFFICER DURING REMAND PRO CEEDINGS AND THOSE PERSONS HAVE CATEGORICALLY STATED THAT THEY S OLD UNFINISHED GOODS TO THE ASSESSEE AND MAJOR PORTION OF WORK ON T HOSE GOODS HAVE BEEN DONE BY THE ASSESSEE ITSELF IN THEIR PREM ISES. NEITHER THE FACTS NARRATED BY THE SUPPLIER WERE FOUND INCORRECT NOR THERE WAS ANY OTHER EVIDENCE TO HOLD THAT THE ASSESSEE IS ONL Y DOING MANUFACTURING PROCESS. ON SIMILAR FACTS, THE TRIBUNA L IN CASE OF MANGALAM ARTS IN ITA NO.815/JP/2007 DATED 20.06.200 8 HAS HELD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER S ECTION 10BA. THE LD. CIT (A) HAS ALSO TAKEN THIS CASE INTO CONSIDERED VIEW AND IN VIEW OF RULE OF CONSISTENCY, THE LD. CIT (A) WAS JUSTIFIE D IN HOLDING THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTIO N 10BA OF THE ACT. NEITHER ANY FRESH MATERIAL WAS BROUGHT ON RECORD BY LD. CIT DR NOR THE FINDINGS OF LD. CIT (A) COULD BE CONTROVERTER BY PLACING POSITIVE MATERIAL THEREFORE FOR THIS REASON ALSO, WE ARE OF THE VIEW THAT ORDER OF LD. CIT (A) IS LIABLE TO BE CONFIRMED FOR ALL THE THREE YEARS. ACCORDINGLY, WE CONFIRMED THE FINDING OF LD.CIT(A) IN THIS REGARD FOR ALL THE THREE YEARS. 3.2 AS PER SECTION 10BA(2), THE FOLLOWING CONDITIONS WERE NECESSARY FOR CLAIMING THE DEDUCTION: A) IT MANUFACTURES OR PRODUCES THE ELIGIBLE ARTICLE S OR THINGS WITHOUT THE USE OF IMPORTED RAW MATERIAL; ELIGIBLE ARTICLE MEANS ALL HANDMADE ARTICLES OR T HINGS, WHICH ARE OF ARTISTIC VALUE AND WHICH REQUIRES THE USE OF WOOD AS THE MAIN RAW MATERIAL. SINCE THE BUSINESS OF THE ASSESSEE IS EXPORT OF WOOD EN HANDICRAFT ITEMS HAVING ARTISTIC VALUE WITH AN ANTIQUE LOOK, RA W MATERIALS SUCH 7 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. AS WOODEN ITEMS, POLISH, STONES, BRASS, IRON, ETC. A RE USED FOR MAKING IT AN ARTISTIC ITEM. SINCE GROOVING, BRASS WO RK, INLAY WORK, METAL WORK, CARVING, STUDDING WORK, STONE WORK AND OTH ER RELATED PROCESS CANNOT BE CARRIED OUT WITH THE HELP OF MACHI NES (SINCE BEING A METICULOUS WORK) IT INVOLVES THOUGHT, PERSONAL SKI LLS AND CONSTRUCTIVE POWER TO MANUFACTURE THE PRODUCT OF ART ISTIC NATURE. THE SEMI FINISHED WOKEN ITEMS AND ARTICLE AND THINGS PURCHASED AGAINST FORM 17B ARE FURTHER SUBJECTED TO MANUFACTU RING PROCESS AND CONVERTED INTO ELIGIBLE HANDMADE CRAFTED ARTIST IC WOODEN ARTICLES AND THINGS. FOR EXAMPLE FOR MANUFACTURING A TABLE, ONLY A TOP WAS PURCHASED WHICH TOO HAD A SKELETON SHAPE. THEREAFTER LEGS OF THE TABLE WERE MADE BY THE ASSESSEE ON WHICH TABLE TOP WAS FITTED. ALL THE CARVING WORK AS DESIRED BY THE CUSTOMER WAS DONE BY THE ASSESSEE. THEREAFTER FINISHING OF THE TABLE WAS DONE BY THE ASSESSEE. SIMILARLY, IN CASE OF ALL ITEMS, THE ASSE SSEE HAD DONE MAJOR ACTIVITY OF MANUFACTURING TO BRING THE ARTICL E IN A NEW AND FINISHED SHAPE. THEREFORE, IT COULD NOT BE SAID THA T ASSESSEE WAS MERELY A PROCESSOR AND NO SUBSTANTIAL WORK HAD BEEN DONE BY THE ASSESSEE. HENCE THE ASSESSEE QUALIFIED THE FIRST CO NDITION. NO IMPORTED RAW MATERIAL WAS USED BY THE ASSESSEE AND SH E HAD CARRIED OUT THE MANUFACTURING ACTIVITY AS HELD BY I TAT. B) IT IS NOT FORMED BY THE SPLITTING UP OR THE RECO NSTRUCTION, OF A BUSINESS ALREADY IN THE EXISTENCE. THE ASSESSEE STARTED FIRST TIME NEW UNDERTAKING AND MANUFACTURING W.E.F. 05.11.2003 AS PER COPY OF S.S.I. PERMANENT RE GISTRATION CERTIFICATE BY DISTRICT INDUSTRIAL CENTER, UDYOG BH AWAN, JAIPUR ON 09.11.2005. THEREFORE, THE CONTENTION OF THE ASSESS ING OFFICER WAS WRONG THAT THE UNIT WAS FORMED BY THE SPLITTING UP OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN THE EXISTE NCE. C) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINES S OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. 8 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. SINCE ASSESSEE HAS STARTED A NEW UNDERTAKING AS DESC RIBED ABOVE AND THE ASSESSEE HAD PURCHASED ALL NEW PLANT & MACHI NERY FOR MANUFACTURING PROCESS. THEREFORE THIS CONDITION IS A LSO FULFILLED. THE MAIN MACHINERY WAS HAND TOOL, GRINDER, SANDING MACHI NE & DRILL MACHINE REQUIRED FOR WOODEN HANDICRAFT ARTISTIC WORK . D) NINETY PERCENT R MORE OF ITS SALE DURING THE PRE VIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR ARE BY WAY OF EXPOR TS OF THE ELIGIBLE ARTICLES OR THING; DURING THE YEAR ALSO, THE ASSESSEE HAS EXPORTED 99. 85% OF ELIGIBLE ARTICLES OR THINGS. HENCE THE ABOVE SAID CONDITION OF SECTION 10BA IS FULFILLED BY THE ASSESSEE. E) IT EMPLOYS TWENTY OR MORE WORKERS DURING THE PREVI OUS YEAR IN THE PROCESS OF MANUFACTURE OR PRODUCTION. SECTION 10BA OF THE INCOME TAX ACT SPECIFIES THAT TH E ASSESSEE EMPLOYS TWENTY OR MORE WORKERS DURING THE PREVIOUS YE AR IN THE PROCESS OF MANUFACTURE OR PRODUCTION. AS PER THE WAG ES REGISTER SO PRODUCED BEFORE THE ASSESSING OFFICER, TOTAL WORKERS EMPLOYED BY THE ASSESSEE DURING THE RELEVANT YEAR WERE MORE THAN 20. HOWEVER TOTAL WORKERS EMPLOYED THROUGH CONTRACTOR TO WHOM JOB CHARGES PAID WERE AROUND 150 DURING THE YEAR. THUS, IT IS AMP LY CLEAR ON FACTS AND IN LAW BOTH THAT THE APPELLANT IS A MANUF ACTURING EXPORTER AND HAD SATISFIED ALL THE CONDITIONS LAID DOWN U/S 1 0BA(2) (E) AND HENCE THE ENTIRE DEDUCTION WAS TO BE ALLOWED. 3.3 IT WAS ALSO HELD BY THE HONBLE JODHPUR TRIBUNAL IN THE CASE OF KWAL PRO EXPORTS VS ITO (ITA NO.543,544,545/JP/JD /2007 AND 415/JD/2008) THAT THE ASSESSING OFFICER HAD INFERRE D THAT THE ASSESSEE SIMPLY CARRIED OUT TRADING OF MANUFACTURED ITEMS PURCHASED LOCALLY AND THIS FINDING WAS FOUND TO BE P ERVERSE ON FACTS. THE TRIBUNAL OBSERVED THAT VARIOUS STEPS UNDERTAKEN B Y THE ASSESSEE ON THE SEMI-FINISHED GOODS AND OTHER ARTIC LES GAVE THEM A COMMERCIAL LOOK MAKING THE ARTICLE COMPLETELY DISTI NCT IN CHARACTER AND MAKING THEM MARKETABLE COMMODITY. THE TRIBUNAL FU RTHER 9 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. OBSERVED THAT EVEN THOUGH THE ORIGINAL IDENTITY OF THE MATERIAL DID NOT LOOSE ITS IDENTITY COMPLETELY YET A DIFFERENT C OMMERCIAL COMMODITY HAD BEEN BROUGHT INTO EXISTENCE BY THE AS SESSEE AND THAT THE END PRODUCT SO PRODUCED WAS DIFFERENT AND D ISTINCT BOTH IN CHARACTER AND USE AS WELL. THE TRIBUNAL HELD THAT IF C HANGE MADE IN THE ARTICLE RESULTED IN A NEW AND DIFFERENT ARTICLE THEN IT WOULD AMOUNT TO MANUFACTURING ACTIVITY WHICH WOULD IMPLY A CHANGE AND TRANSFORMATION. IT WAS HELD THAT IN A CASE WHEREIN A SSESSEE HAD UNDERTAKEN A CHAIN OF ACTIVITIES TO CONVERT THE LOC ALLY PURCHASED SEMI FINISHED GOODS AND OTHER ARTICLES INTO MARKETA BLE COMMODITY ALTOGETHER DIFFERENT BOTH IN CHARACTER AND USE THAN WHAT WAS PURCHASED ORIGINALLY THEN THE ASSESSEE WOULD BE ENTI TLED TO DEDUCTION U/S 10B OF THE INCOME TAX ACT. FURTHER IT WAS HELD THAT EVEN THOUGH THE ORIGINAL MATERIAL DID NOT LOOSE ITS IDENTITY COMPLETELY, YET A DIFFERENT COMMERCIAL COMMODITY HA D BEEN BROUGHT INTO EXISTENCE BY THE ASSESSEE WHICH TANTAMOUNTED TO MANUFACTURING ACTIVITY. 3.4 THE APPELLANT HAD CLAIMED TOTAL PURCHASES AND DI RECT EXPENSES OF RS.11,50,23,177/- AND RS.2,68,78,651/- RESPECTIVELY. THE PURCHASES OF SEMI FINISHED GOODS AS PER FORM 17B WERE OF RS.4,28,54,811/-. HENCE VALUE ADDITION WAS MADE ON 37.26% OF THE TOTAL PURCHASES OF SEMI FINISHED GOODS. THE MANUFACT URING & OTHER DIRECT EXPENSES WERE AT RS.1,12,88,316/- WHICH CONSTI TUTED 41.99% OF TOTAL DIRECT EXPENSES. THEREFORE THE VALUE ADDITI ON WAS MADE AFTER PRODUCTION ACTIVITIES AND GOODS WERE NOT EXPOR TED AS SUCH. ONLY ON THE BASIS OF PURCHASES BEING MADE AGAINST F ORM 17B, IT COULD NOT BE SAID THAT THE ASSESSEE HAD NOT DONE AN Y MANUFACTURING ACTIVITY BECAUSE AS PER RULE 23(1)(B) OF RST ACT, TH ERE WAS NO PROHIBITION ON THE BUYER EXPORTER FROM MAKING CHANG ES IN THE PRODUCTS TO BE EXPORTED AND THERE WAS NOTHING WHICH COULD WARRANT ADVERSE INFERENCE ON THE GROUND THAT PURCHASES WERE MADE AGAINST SALE TAX 17B FORM. IN VIEW OF ABOVE FACTS, I DIRECT THE ASSESSING OFFICER TO ALLOW EXEMPTION U/S 10BA TO THE APPELLANT SUBJECT TO 10 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. OTHER CONDITIONS AS DISCUSSED IN PARA 4.1 OF THIS A PPELLATE ORDER. THIS GROUND OF APPEAL IS ALLOWED. 5. NOW THE REVENUE IS BEFORE US. THE LD. D/R SUPPOR TED THE ORDER OF THE AO. THE LD. A/R OF THE ASSESSEE ARGUED THAT THE ASSESSEE S CASE IS COVERED BY THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR A.YS. 200 4-05, 05-06, 06-07 AND RECENTLY ON 27.02.2015 FOR A.Y. 2008-09 IN ITA NO. 222/JP/2012 IN FAVOUR OF THE ASSESSEE. THEREFORE, HE REQUESTED THAT THE ISSUE HA S ALREADY BEEN CONSIDERED BY THE HONBLE BENCH, THEREFORE, THE SAME MAY BE AL LOWED. 6. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE LD. CIT (A) CONSIDERED THE FINDINGS FOR A.YS. 2004-0 5, 05-06 AND 06-07 AND ALLOWED THE APPEAL IN FAVOUR OF THE ASSESSEE. THEREFO RE, THIS ISSUE IS COVERED BY THE EARLIER YEARS FINDINGS OF THIS BENCH AND SQUAR ELY APPLICABLE ON THE IDENTICAL FACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE, WE U PHOLD THE ORDER OF THE LD. CIT (A). THIS GROUND OF APPEAL IS DISMISSED. 7. SECOND GROUND OF REVENUE IS AGAINST TREATING DUT Y DRAW BACK AND EXPORT LICENSE SALE AS PROFIT DERIVED BY AN UNDERTAKING FR OM THE EXPORT OUT OF INDIA OF ELIGIBLE ARTICLES OR THINGS. 8. THE AO OBSERVED THAT THE ASSESSEE HAD CREDITED RS . 89,17,211/- AS DUTY DRAW BACK. IN THE PROFIT & LOSS ACCOUNT ALSO INCOME FROM SALE OF EXPORT LICENSE HAS BEEN SHOWN BY RS. 85,64,175/-. BOTH THESE INCOME S ARE BUSINESS PROFIT, 11 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. HOWEVER, IT CANNOT BE TREATED AS INCOME DERIVED FROM UNDERTAKING FROM THE EXPORT OUT OF INDIA. AS PER PROVISIONS OF SECTION 1 0BA, ONLY PROFIT AND GAINS DERIVED BY AN UNDERTAKING FROM THE EXPORT OUT OF IN DIA OF ELIGIBLE ARTICLES OR THINGS, SHALL BE ALLOWED AS DEDUCTION FROM THE TOTAL INCOME OF THE ASSESSEE. THEREFORE, THE AO GAVE SHOW CAUSE NOTICE ON THIS ISSU E WHICH WAS REPLIED BY THE ASSESSEE. AFTER CONSIDERING THE ASSESSEES REPLY, T HE AO HELD THAT DUTY DRAW BACK AND EXPORT LICENSE SALE ARE EXPORT INCENTIVES, NOT INCOME DERIVED FROM THE UNDERTAKING. THE WORD DERIVE HAS BEEN EXPLAINED AT LENGTH IN THE JUDGEMENT OF APEX COURT IN THE CASE OF LIBERTY INDIA, 317 ITR 208. THE HONBLE SUPREME COURT HELD THAT DEPB/DUTY DRAW BACK ARE EXPORT INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY CENTRAL GOVERNMENT OR FROM SECTIO N 75 OF THE CUSTOMS ACT, 1962, HENCE INCENTIVE PROFITS ARE NOT PROFITS DERIV ED FROM THE ELIGIBLE BUSINESS. THOUGH THIS DECISION WAS GIVEN IN THE CONTEXT OF SECT ION 80IB BUT IT HAS DIRECT BEARING IN SUCH CASES OF DEDUCTION U/S 10BA ALSO. S INCE HERE ALSO THE LEGISLATURE HAS USED PHRASE DERIVED FROM NOT THE WORD ATTRIBU TABLE. THE ASSESSEE HAS ARGUED THAT THE PROFIT ELIGIBLE FOR DEDUCTION ARE P ROFIT DERIVED FROM BUSINESS UNDERTAKING. SHE HAD TRIED TO MAKE DISTINCTION BETWE EN INDUSTRIAL UNDERTAKING AND BUSINESS UNDERTAKING. OF COURSE THE PROFITS WH ICH ARE TO BE CONSIDERED FOR DEDUCTION ARE PROFIT OF BUSINESS UNDERTAKING, THE L EGISLATURE HAS NOT USED WORD INDUSTRIAL UNDERTAKING. BUT IT IS NOT TO BE READ IN ISOLATION. WHEN BOTH THE SUB 12 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. SECTIONS ARE READ TOGETHER, IT BECOMES CLEAR THAT T HE PROFIT WHICH IS ELIGIBLE FOR DEDUCTION IS THAT WHICH IS DERIVED FROM EXPORT OF IT EMS MANUFACTURED OR PRODUCED BY IT. NO OTHER PROFIT IS ELIGIBLE. THE A SSESSEE HAS RELIED ON PROVISIONS OF SECTION 80HHC WHEREIN THE PROPER METHOD OF WORKIN G OF DEDUCTION HAS BEEN GIVEN. IN THAT WORKING, THEY SEPARATELY DEALT THE EX PORT INCENTIVES. THE SEPARATE TREATMENT ITSELF INDICATES THAT EVEN IN THAT SECTIO N THE INCENTIVES WERE NOT TREATED AT PAR WITH THE PROFIT FROM EXPORT OF GOODS ETC. THE ASSESSEE HAS RELIED UPON THE CASE OF GOVIND PRASAD SINGHAL OF ITAT. THE ARGUMENT WAS CONSIDERED AND NOT FOUND ACCEPTABLE. THE ITAT HAD NOT STATED HO W THE DECISION OF HONBLE SUPREME COURT IS NOT APPLICABLE. THEY HAD ONLY STAT ED HOW THE WORKING HAS TO BE DONE FOR DEDUCTION. MOREOVER, THE DECISION HAD N OT BEEN ACCEPTED BY THE DEPARTMENT. THUS THE AO CALCULATED THE DEDUCTION UND ER SECTION 10BA AT RS.17,69,034/-. 9. BEING AGGRIEVED BY THE ORDER OF AO, ASSESSEE CAR RIED THE MATTER BEFORE LD. CIT (A), WHO HAD PARTLY ALLOWED THE APPEAL BY OBSERVIN G AS UNDER :- 4.1 I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE A PPELLANT. THE ISSUE UNDER CONSIDERATION HAS BEEN DECIDED BY THE H ONBLE JAIPUR ITAT IN THE CASE OF GOVERDHAN PRASAD SINGHAL VS ACIT, CIRCLE-6, JAIPUR IN APPEAL ITA NO.415/JP/2010 DATED 20.05.201 1 FOR A.Y 2007-08. THE OBSERVATIONS OF THE HONBLE ITAT IN PARA 12 TO 15 OF ITS ORDER DATED 20.05.2011 ARE REPRODUCED AS UNDER: 13 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. HOWEVER, IN RESPECT OF DEDUCTION CLAIMED SECTION 10 BA FOR JODHPUR UNIT, THERE WAS AN AMOUNT OF RS.10,07,995/- ON ACCOU NT OF DUTY DRAW-BACK WHICH WAS INCLUDED FOR THE PURPOSE OF EXEMP TION UNDER SECTION 10BA. THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA HAS HELD THAT DEDUCTION UNDER SECTION 80IB ON ACCOUNT OF DEPB/DUTY DRAW-BACK WHICH ARE INCENTIVES IN NATURE WH ICH FLOW FROM THE SCHEMES FRAMED BY CENTRAL GOVERNMENT OR FR OM SECTION 75 OF THE CUSTOMS ACT, 1962, HENCE, INCENTIVE PROFITS ARE NOT PROFITS DERIVED FROM THE ELIGIBLE BUSINESS AND, THEREFORE, DUTY DRAW BACK RECEIPTS/DEPB BENEFITS DO NOT FORM PART OF NET PROF IT OF THE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF SECTION 80IA OR 80IB . AFTER CONSIDERING THE SUBMISSIONS, WE NOTED THAT THE ASSES SEE IN HIS JODHPUR UNIT HAS CREDITED A SUM OF RS.10,07,995/- A S DRAW BACK. DUTY DRAW BACK AND PROFIT ON TRANSFER OF DEPB ARE TO CONSIDERED AS PROFIT AND GAINS OF BUSINESS OR PROFESSION AS PER S ECTION 28 OF THE IT ACT. THE HONBLE COURT IN CASE LIBERTY INDIA VS CIT ( 317 ITR218) HAD ON OCCASION TO CONSIDER AS TO WHETHER THE DUTY DRAW AND PROFIT FROM DEPB CAN BE CONSIDERED AS PROFIT DERIVED FROM INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF SECTION 80IB. THE HON BLE APEX COURT HELD THAT SUCH INCENTIVES CANNOT BE CONSIDERED AS P ROFIT DERIVED FROM THE INDUSTRIAL UNDERTAKING. HOWEVER, THIS BELO NGS TO THE CATEGORY OF ANCILLARY PROFITS OF THE UNDERTAKING. THE LD. CIT (A) REPRODUCED SECTION 10BA(1) AND 10BA(4 ) OF THE IT ACT ON PAGE 12 OF HIS ORDER. THE LD. CIT (A) FURTHER AT PAGES 12 & 13 OF HIS ORDER HELD AS UNDER :- SUB-SECTION (1) OF SECTION 10BA DEFINES THE ELIGI BILITY FOR ALLOWING DEDUCTION UNDER SECTION 10BA WHILE SUB-SECTION (4) OF SECTION 10BA SPECIFIES AS TO HOW THE QUANTUM OF DEDUCTION IS TO B E CALCULATED. THUS THE DEDUCTION WHICH IS TO BE ALLOWED TO AN ELIGIB LE UNDERTAKING IS TO BE CONSIDERED IN ACCORDANCE WHICH SECTION 10BA (1) WHILE 14 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. DEDUCTION IS TO BE COMPUTED AS PER SECTION 10BA(4). THE HONBLE APEX COURT IN THE CASE OF AJANTA PHARMA LTD. VS. CI T, 327 ITR 305 HAD AN OCCASION TO CONSIDER AS TO WHETHER THE DEDUCT ION UNDER SECTION 80HHC IN A CASE WHERE THE INCOME IS BEING TA XED UNDER SECTION 115JB IS TO BE ALLOWED FOR THE PURPOSE OF DE DUCTION MENTIONED IN SECTION 80HHC(3) OR IS TO BE RESTRICTE D UNDER SECTION 80HHC(1)(B) OF THE IT ACT. THE HONBLE APEX COURT HEL D THAT SECTION 80HHC(1) AND 1(B) REFERS TO THE ELIGIBILITY WHILE SE CTION 80HHC(3) REFERS TO THE DEDUCTIBILITY. CONSIDERING THE DISTIN CTION DRAWN BETWEEN THE WORDS ELIGIBILITY AND DEDUCTIBILITY B Y THE HONBLE APEX COURT IN THE CASE OF AJANTA PHARMA LTD., ONE WILL HA VE TO CONSIDER THE DEDUCTIBILITY UNDER SECTION 10BA(4). THE PROVISI ONS SIMILAR TO SECTION 10BA(4) AND 10BA(1) ARE THERE IN SECTION 10 B OF THE IT ACT. SIMILAR PROVISIONS ARE IN SECTION 10B HAS BEEN SUBS TITUTED BY THE FINANCE ACT, 2001 WITH EFFECT FROM 1.04.2001. WHILE INTERPRETING THE SECTION 10BA(1) AND SECTION 10BA(4), THE BANGAL ORE BENCH IN THE CASE OF ACIT VS. MOTOROLA INDIA PVT. LTD. 114 IT D 387 HELD THAT ENTIRE PROFIT INCLUDING THE INTEREST INCOME ASSESSE D AS BUSINESS INCOME OF THE ASSESSEE IS ENTITLED FOR DEDUCTION. T HE PROVISIONS SIMILAR TO PROVISIONS OF SECTION 10BA(1) AND 10BA(4 ) ARE CONTAINED IN SECTION 10A OF THE IT ACT. THE MUMBAI BENCH OF T HE TRIBUNAL IN THE CASE OF LIVINGSTONES JEWELLERY PVT. LTD. VS. DCI T, 31 SOT 323 HAS HELD THAT THE SECTION 10A(4) REMOVES THE RESTRI CTION FOR COMPUTING DEDUCTION UNDER SECTION 10A ON THE PROFIT S OF THE BUSINESS AND SUCH PROFITS OF THE BUSINESS SHOULD NO T BE RESTRICTED TO PROFIT DERIVED FROM THE UNDERTAKING. IT IS TRUE TH AT DELHI BENCH OF THE TRIBUNAL IN THE CASE OF GLOBAL VANTAGE (P) LTD. VS. DCIT, 37 SOT 1 HELD THAT DEDUCTION UNDER SECTION 10A CANNOT BE G IVEN ON MISC. INCOME AS THE SAME IS NOT A PROFIT DERIVED BY AN UN DERTAKING. HOWEVER, IN THIS CASE THE DELHI BENCH OF THE TRIBUNAL HAS NOT CONSIDERED SUB SECTION (4) OF SECTION 10A. WE, THER EFORE, HOLD THAT THE COMPUTATION OF DEDUCTION UNDER SECTION 10A IS T O BE DRAWN IN ACCORDANCE WITH SECTION 10BA(4). THE CREDIT OF DUTY D RAW BACK OR PROFIT FROM DEPB IS TO BE INCLUDED IN THE TOTAL TUR NOVER FOR COMPUTING DEDUCTION UNDER SECTION 10BA AS PER SECTI ON 10BA(4). THE AO WILL RE-COMPUTE THE DEDUCTION UNDER SECTION 10 BA ON THE DUTY DRAW BACK AFTER INCLUDING THE SAME IN THE PROFI T OF THE BUSINESS AND ALSO INCLUDING THE SAME AS PART OF THE TOTAL TU RNOVER. THUS THE COMPUTATION WILL BE DONE BY THE AO AS PER THE FINDIN G RECORDED ABOVE. 15 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. THE LD. CIT (A) ALLOWED THE DEDUCTION UNDER SECTION 1 0BA AT RS. 1,72,40,782/- AS AGAINST RS. 1,92,52,908/- CLAIMED BY THE APPELLANT. THUS HE ALLOWED THE APPEAL PARTLY. 10. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD. D/R SUPPORTED THE ORDER OF THE AO AND ARGUED THAT HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA) HAS CONSIDERED THE ISSUE OF DUTY DRAW BACK/D EPB UNDER SECTION 80IA/80IB OF THE IT ACT AND HELD THAT RECEIPTS FROM DUTY DRAW BACK AND DEPB ARE NOT DERIVED FROM INDUSTRIAL UNDERTAKING FROM TH E EXPORT OUT OF INDIA OF ELIGIBLE ARTICLES OR THINGS. LATER ON, THE HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS VS. CIT (2012) 342 ITR 49 (SC) HAS HELD THAT ENTIRE SALE PROCEEDS OF DEPB NOT TO BE TREATED AS PROFITS BUT O NLY DIFFERENCE BETWEEN SALE VALUE AND FACE VALUE OF CREDIT SHOULD BE TREATED IN COME FROM DEPB. THEREFORE, HE REQUESTED TO CONFIRM THE ORDER OF THE AO. 11. AT THE OUTSET, THE LD. A/R OF THE ASSESSEE HEAV ILY RELIED ON THE DECISION OF LD. CIT (A). HE FURTHER ARGUED THAT CBDT BY CIRCULAR NO. 564 DATED 05.07.1990 AND 557 DATED 01.08.1990 HAD CLARIFIED THAT EXPORT INCENTIVES, NAMELY, CASH COMPENSATORY SUPPORT AND DUTY DRAW BACK HAVE TO BE I NCLUDED IN PROFIT OF THE BUSINESS FOR COMPUTING THE DEDUCTION UNDER SECTION 80HHC. THE ISSUE IS FURTHER CLARIFIED BY THE HONBLE SUPREME COURT IN THE CASE OF B. DESRAJ VS. CIT (2008) 16 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. 171 TAXMAN 481 (SC) 301 ITR 439 (2008) BY REJECTING T HE DEPARTMENTS STAND THAT CASH COMPENSATORY SUPPORT AND DUTY DRAW BACK WOU LD NOT BE AN ELIGIBLE INCOME FOR THE PURPOSE OF DEDUCTION UNDER SECTION 8 0HHC EVEN IF PART OF INCOME CHARGEABLE TO TAX AS BUSINESS PROFIT UNDER SECTION 28(IIIB). AS PER LD. A/RS SUBMISSION, SECTION 10BA IS AKIN TO SECTION 80HHC N OT SIMILAR TO 80IB SO AS THE SAME FOOTING THE ASSESSEE IS ALSO ELIGIBLE FOR DEDU CTION UNDER SECTION 10BA OF THE IT ACT. THE HONBLE SUPREME COURT DECISION IN T HE CASE OF LIBERTY INDIA (SUPRA) IS DISTINGUISHABLE. 11.1 THE LD. A/R FURTHER SUBMITTED THAT THE AMOUNT O F DUTY DRAW BACK/DEPB WAS INTENDED TO NEUTRALIZE THE INCIDENCE OF DUTY ON INPUTS CONSUMED/UTILIZED IN THE MANUFACTURE OF EXPORTED GOODS RESULTING INTO IN CREASED PROFITS DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING WHICH PRO FITS QUALIFIED FOR DEDUCTION UNDER SECTION 10BA. SINCE NO EXCISE DUTY/CUSTOMS DU TY WAS PAYABLE ON RAW MATERIALS CONSUMED/UTILIZED IN MANUFACTURING GOODS EXPORTED OUT OF INDIA, THE DUTY PAID STOOD REFUNDED UNDER SECTION 37(2)(XVIA) OF THE CENTRAL EXCISE ACT, 1944 AND UNDER SECTION 75 OF THE CUSTOMS ACT, 1962 READ WITH CUSTOMS, CENTRAL EXCISE DUTIES AND SERVICE TAX DRAWBACK RULES, 1995. TH E AMOUNT OF DEPB WAS GRANTED UNDER EXIM POLICY ISSUED IN TERMS OF POWERS CONFERRED UNDER SECTION 5 OF THE FOREIGN TRADE (DEVELOPMENT AND REGULATION) AC T, 1992. THE DEPB SCHEME IS A DUTY REMISSION SCHEME WHICH ALLOWS DRAWBAC K OF IMPORT CHARGES 17 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. PAID ON INPUTS USED IN THE EXPORT PRODUCT. THE OBJEC T BEING TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY ON THE IMPORT CONTENT OF THE EXPORT PRODUCT BY WAY OF GRANT OF DUTY CREDIT. THE DEPB BENEFIT IS FREELY TRA NSFERABLE. THUS, DUTY DRAWBACK/DEPB BENEFIT RECEIVED HAD TO BE CREDITED AG AINST THE COST OF MANUFACTURE OF GOODS/PURCHASES DEBITED TO THE PROFI T & LOSS ACCOUNT. THAT, SUCH CREDIT WAS NOT AN INDEPENDENT SOURCE OF PROFIT. IN THIS CONNECTION RELIANCE HAS BEEN PLACED ON ACCOUNTING STANDARD-2 ISSUED BY ICAI ON VALUATION OF INVENTORIES WHICH INDICATES THAT WHILE DETERMINING COST OF PURCHASE, COST OF CONVERSION AND OTHER COSTS INCURRED IN BRINGING THE INVENTORIES TO THEIR PRESENT LOCATION AND CONDITION SHOULD BE CONSIDERED AND THA T TRADE DISCOUNTS, REBATES, DUTY DRAWBACK AND SUCH OTHER SIMILAR ITEMS HAVE TO B E DEDUCTED IN DETERMINING THE COST OF PURCHASE. AS PER AS-2, WHERE EXCISE DUT Y PAID WAS SUBSEQUENTLY RECOVERABLE BY WAY OF DRAWBACK, THE SAME WOULD NOT FOR M PART OF THE MANUFACTURING COST. THE PAYMENT OF EXCISE DUTY/CUSTO MS DUTY ON INPUTS CONSUMED IN MANUFACTURE OF GOODS BY AN INDUSTRIAL U NDERTAKING ELIGIBLE FOR DEDUCTION UNDER SECTION 10BA, IT WAS INEXTRICABLY L INKED TO THE EXPORT OPERATIONS OF THE ELIGIBLE UNDERTAKING WITHOUT WHICH MANUFACTUR ING OPERATIONS CANNOT BE UNDERTAKEN, HENCE THE DUTY, WHICH WAS PAID IN THE FI RST INSTANCE AND WHICH HAD DIRECT NEXUS TO THE EXPORT ACTIVITY WHEN RECEIVED BA CK, HAD FIRST DEGREE NEXUS WITH THE INDUSTRIAL ACTIVITY OF THE ELIGIBLE UNDERTA KING AND CONSEQUENTLY THE 18 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. REIMBURSEMENT OF THE SAID AMOUNT CANNOT BE TREATED AS INCOME OF THE ASSESSEE(S) DE HORS THE EXPENSE ORIGINALLY INCURRED BY WAY OF PAYMENT OF DUTY. CONSEQUENTLY, RECEIPT OF DUTY DRAWBACK/DEPB STOOD LI NKED DIRECTLY TO THE MANUFACTURE/PRODUCTION/EXPORT OF GOODS. HENCE, DUTY DRAWBACK AND INCOME ON SALE OF LICENSE IS REGARDED PROFIT DERIVED FROM UND ERTAKING AND ELIGIBLE FOR SEC. 10BA. 11.2. THE LD. A/R PLACED RELIANCE ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT OF RAJASTHAN IN THE LANDMARK CASE OF SARAF SE ASONING UDYOG VS. ITO, 219 CTR 461 (RAJ.) 317 ITR 202 WHEREIN IT HAS BEEN HELD TH AT ON A COMBINED READING OF SEC. 80IB(4) AND SEC. 28(IIID), AS INTRO DUCED, DOES MAKE CLEAR, THAT THE PROFIT DERIVED ON TRANSFER OF DEPB LICENSES, DO ES VERY MUCH FALL WITHIN FOUR CORNERS OF PROFITS AND GAINS, DERIVED FROM SUCH IND USTRIAL UNDERTAKING, BEING ASSESSEE, AND IS CAPABLE OF BEING TAXED ONLY UNDER SEC. 28, SUBJECT TO EXEMPTION, AS PROVIDED IN SEC. 80IB, AND/OR OTHER E LIGIBLE PROVISIONS . HENCE THE AMOUNT OF DUTY DRAW BACK AND SALE OF LICENSE IS RELA TED TO EXPORT OF ELIGIBLE GOODS WHICH IS PRIME CONDITION OF SEC. 10BA AND ELIG IBLE FOR DEDUCTION U/S 10BA. 11.3. IN VIEW OF THE ABOVE LANDMARK CASES AND FACT O F THE CASE AND AS PER INCOME TAX ACT, 1961 THE EXPORT INCENTIVES ARE PART OF BUSINESS PROFIT OF THE ASSESSEE AND ELIGIBLE FOR 10BA DEDUCTION. 19 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. 11.4. THE LD. A/R OF THE ASSESSEE FURTHER SUBMITTED THAT FROM THE ABOVE IT IS CLEAR THAT SUB-SECTION (1) DEFINES THE ELIGIBILITY FOR ALLOWING THE DEDUCTION U/S 10BA WHILE SUB-SECTION (4) SPECIFIES AS TO HOW THE QU ANTUM OF DEDUCTION IS TO BE CALCULATED. THE DEDUCTION WHICH IS TO BE ALLOWED TO A ELIGIBLE UNDERTAKING IS TO BE CONSIDERED IN ACCORDANCE WITH SECTION 10BA(1) WHILE D EDUCTION IS TO BE COMPUTED AS PER SEC. 10BA(4). THE HONBLE SUPREME C OURT OF INDIA IN THE CASE OF AJANTA PHARMA LTD. VS. CIT, 327 ITR 305 HELD THAT ACCORDING TO THE DEPARTMENT, THE ASSESSEE HEREIN IS TRYING TO READ T HE VARIOUS PROVISIONS OF SECTION 80HHC IN ISOLATION WHEREAS AS PER CLAUSE (IV ) OF EXPLANATION TO SECTION 115JB, IT IS CLEAR THAT BOOK PROFIT SHALL BE REDUCE D BY THE AMOUNT OF PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC AS COMPU TED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF SUB SECTION (3) OR SUB- SECTION (3A), AS THE CASE MAY BE, OF THAT SECTION AND SUBJECT TO THE CONDITIONS S PECIFIED IN THAT SECTION, THEREBY MEANING THAT THE DEDUCTION ALLOWABLE WOULD BE ONLY TO THE EXTENT OF DEDUCTION COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 80HHC. THUS, ACCORDING TO THE DEPARTMENT, BOTH ELIGIBILITY AS WELL AS DEDUCTIBILITY OF THE PROFIT HAVE GOT TO BE CONSIDERED TOGETHER FOR WORKIN G OUT THE DEDUCTION AS MENTIONED IN CLAUSE (IV) OF EXPLANATION TO SECTION 115JB. WE FIND NO MERIT IN THIS ARGUMENT. IF THE DICHOTOMY BETWEEN ELIGIBILITY OF PROFIT AND DEDUCTIBILITY OF PROFIT IS NOT KEPT IN MIND THEN SECTION 115JB WILL C EASE TO BE A SELF-CONTAINED 20 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. CODE. IN SECTION 115JB, AS IN SECTION 115JA, IT HAS BEEN CLEARLY STATED THAT THE RELIEF WILL BE COMPUTED UNDER SECTION 80HHC(3)/(3A), SUBJECT TO THE CONDITIONS UNDER SUB-CLAUSES (4) AND (4A) OF THAT SECTION. THE CONDITIONS ARE ONLY THAT THE RELIEF SHOULD BE CERTIFIED BY THE CHARTERED ACCOUNT ANT, SUCH CONDITION IS NOT A QUALIFYING CONDITION BUT IT IS A COMPLIANCE CONDITI ON. THEREFORE, ONE CANNOT RELY UPON THE LAST SENTENCE IN CLAUSE (IV) OF EXPLANATIO N TO SECTION 115JB (SUBJECT TO THE CONDITIONS SPECIFIED IN SUB-CLAUSES (4) AND (4A ) OF THAT SECTION) TO OBLITERATE THE DIFFERENCE BETWEEN ELIGIBILITY AND DEDUCTIBIL ITY OF PROFITS AS CONTENDED ON BEHALF OF THE DEPARTMENT. SO, HONBLE SUPREME COURT HELD THAT SECTION 80HHC(1) AND 1(B) REFERS TO ELIGIBILITY WHILE 80HHC (3) REFERS TO THE DEDUCTIBILITY. HENCE, CONSIDERING THE DIFFERENCE BETWEEN THE WORD E LIGIBILITY AND THE WORD DEDUCTIBILITY, YOUR HONOUR SHOULD CONSIDER THE DE DUCTIBILITY U/S 10BA(4). THERE IS NO WORD LIKE PROFIT FROM INDUSTRIAL UNDERTAKING I N SUB-SECTION (4) OF SEC. 10BA, THERE IS CLEAR CUT THAT THE PROFIT DERIVED FROM EXP ORT OUT OF INDIA OF THE ELIGIBLE ARTICLE OR THING IS ELIGIBLE FOR DEDUCTION. SINCE, DUTY DRAWBACK AND SALE OF LICENSE IS DERIVED FROM EXPORT OUT OF INDIA HENCE ELIGIBLE FOR DEDUCTION U/S 10BA. 11.5. THE LD. A/R, HENCE SUBMITTED THAT FROM THE ABO VE IT IS AMPLY CLEAR THAT 10BA IS ALLOWED ON THE PROFIT DERIVED BY AN UNDERTAK ING FROM EXPORT OUT OF INDIA AND DUTY DRAWBACK AND CASH INCENTIVES ARE PROFIT DER IVED DUE TO EXPORT OUT OF INDIA. IT WAS ALSO HELD BY THE ITAT JAIPUR BENCH IN THE CASE OF GOVERDHAN PRASAD 21 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. SINGHAL VS. ACIT, CIRCLE-6, JAIPUR VIDE ITA NO. 415/ JP/2010 SUBMITTED ALSO COPY OF ITA NO. 200/JP/2008, 964/JP/2007, 797/JP/2008 AN D 1000/JP/2008 ENCLOSED VIDE PAGE NO. 129 TO 162 WHICH IS FULLY SIMILAR TO OUR CASE AND SAME ISSUE WAS DECIDED BY ITAT THAT WE, THEREFORE HOLD THAT THE COMPUTATION OF DEDUCTI ON U/S 10A IS TO BE DRAWN IN ACCORDANCE WITH SECTION 10BA(4) . THE CREDIT OF DUTY DRAWBACK AND PROFIT FROM DEPB IS TO BE INCLUDED IN T HE TOTAL TURNOVER FOR COMPUTING DEDUCTION U/S 10BA AS PER SECTION 10BA(4) . THE AO WILL RE-COMPUTE THE DEDUCTION U/S 10BA ON THE DUTY DRAWBACK AFTER IN CLUDING IN THE PROFIT OF THE BUSINESS AND ALSO INCLUDING THE SAME AS PART OF THE TOTAL TURNOVER. THUS THE COMPUTATION WILL BE DONE BY THE AO AS PER THE FINDIN G RECORDED ABOVE. HENCE ON THE BASIS OF DECISION OF JURISDICTIONAL ITAT YOUR HONOUR IS KINDLY REQUESTED TO CONSIDER DUTY DRAWBACK AND SALE OF LICENSE AS PART O F THE TOTAL TURNOVER AND EXPORT TURNOVER. HENCE, YOUR HONOUR IS REQUESTED TO DISMISS THE DEPARTMENTS APPEAL. 11.6 THE LD AR HAS DRAWN OUR ATTENTION ON DECISION O F HONBLE ITAT JODHPUR BENCH, JODHPUR IN THE CASE OF ANGIRA ART EXPORTS AN D SURAJ EXPORTS INDIA AND OTHERS IN ITA NO. 360/JODH/2012 ORDER DATED 31/1/20 13 WHEREIN 15 APPEALS HAD BEEN DECIDED AND HONBLE JODHPUR ITAT HAS CONSIDERE D THE ISSUE OF AMOUNT OF DUTY DRAWBACK IS RELATED TO MANUFACTURING OF HANDICR AFTS ARTICLES AND ON EXPORT SALE. HENCE THE AMOUNT OF DUTY DRAW BACK HAS BEEN R ECEIVED BY THE ASSESSEE 22 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. COMPANY COMPLETING THE FULL CONDITIONS OF PROVISION S U/S 10BA WHEREIN HON'BLE SUPREME COURT DECISION IN THE CASE OF LIBERTY INDIA AND TOPMAN EXPORTS (SUPRA) HAVE BEEN CONSIDERED. THE HONBLE ITAT HELD THAT SEC TION 80HHC AND SECTION 10BA ARE MORE NEARER, THEREFORE, ANY DECISION IN WHI CH SECTION 80HHC IS INVOLVED WOULD ALSO MUTATIS MUTANDIS TO THE INTERPRE TATION OF SECTION 10BA. THE HONBLE BENCH HAS HELD THAT DEPB IS CHARGEABLE AS I NCOME AND CLAUSE (B) 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 TH E ASSESSEE IS CHARGEABLE AS INCOME UNDER CLAUSE (D) OF SECTION 28 OF THE ACT IN HIS HANDS IN THE YEAR IN WHICH HE MAKES THE TRANSFER. THE HONBLE MUMBAI BENCH IN THE CASE OF ARTS & CRAFTS EXPORTS VS. ITO 66 DTR 69 (ITAT MUMBAI BENCH) A FTER CONSIDERING THE DECISION OF LIBERTY INDIA (SUPRA) HAD TAKEN A CLEAR CUT DECISION IN FAVOUR OF THE ASSESSEE. THEREFORE, HE PRAYED TO ALLOW THE DEDUCTIO N U/S 10BA ON DEPB. 12. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA) HAS CONSIDERED THE ISSUE OF DEPB AND DUTY DRAW BACK AND WITH REFERENCE T O SECTION 80IA/80IB HELD THAT DEPB/DUTY DRAW BACK BENEFIT WOULD NOT FORM PART OF THE NET PROFIT. THE SECTION 80IA AND 80IB DEDUCTION IS PROVIDED BY THE STATUTE FOR INDUSTRIAL UNDERTAKING AND PROFIT & GAINS DERIVED FROM ANY BUS INESS OF AN INDUSTRIAL UNDERTAKING A CERTAIN PERCENTAGE DEDUCTION BE ALLOWE D FOR NUMBER OF 23 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. ASSESSMENT YEARS SPECIFIED UNDER THE LAW. WHEREAS IN SECTION 80IB DEDUCTION IS ALLOWED TO CERTAIN INDUSTRIAL UNDERTAKING OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKING FROM THE PROFIT AND GAINS DERIVED FROM ANY BUSINESS REFERRED TO IN SUB SECTION (3) TO (11), (11A) AND 11B) AS SUCH BUS INESS BEING REFERRED TO AS THE ELIGIBLE BUSINESS ON CERTAIN PERCENTAGE BASIS AND F OR SUCH NUMBER OF ASSESSMENT YEARS SPECIFIED UNDER THE LAW. SECTION 10BA ALSO PRO VIDES SPECIAL DEDUCTION OF SUCH PROFIT OF ELIGIBLE ARTICLE OR THINGS. THIS SECT ION APPLIES TO ANY UNDERTAKING WHICH FULFILL THE FOLLOWING CONDITIONS, NAMELY, (A) IT MANUFACTURES OR PRODUCES THE ELIGIBLE ARTICLES O R THINGS WITHOUT THE USE OF IMPORTED RAW MATERIALS ; (D) NINETY PER CENT OR MORE OF ITS SALES DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR ARE BY WAY OF EXPOR TS OF THE ELIGIBLE ARTICLES OR THINGS. BESIDES THESE, OTHER CONDITIONS PROVIDED IN CLAUSE (B), (C) AND (E) ARE TO BE FULFILLED FOR CLAIMING DEDUCTION. THE SUB SECTION (4 ) OF SECTION 10BA READS AS UNDER :- SUB SECTION (4) : FOR THE PURPOSES OF SUB-SECTION ( 1), THE PROFITS DERIVED FROM EXPORT OUT OF INDIA OF THE ELIGIBLE ARTICLES OR THINGS SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, 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 UNDERTAKING. 24 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. AS PER SUB-SECTION (6) OF SECTION 10BA, THE SUB-SEC TION (8) AND SUB-SECTION (1) OF SECTION 80IA ALSO APPLICABLE IN RELATION TO THE UND ERTAKING REFERRED TO IN THIS SECTION AS THEY APPLY FOR THE PURPOSE OF UNDERTAKIN G REFERRED TO IN SECTION 80IA. SECTION 10BA WAS INSERTED BY THE FINANCE ACT, 2003 WI TH EFFECT FROM 1.4.2004 WHEREAS SECTION 80IA WAS INSERTED BY THE FINANCE ACT, 1999 WITH EFFECT FROM 1.4.2000. ORIGINALLY SECTION 80IA WAS INSERTED BY TH E FINANCE ACT, 1991 WITH EFFECT FROM 1.4.1991. THE LANGUAGES OF BOTH THE SECT IONS ARE SAME BUT THE EFFECTIVE DATES ARE DIFFERENT. THEREFORE, FINDINGS O F HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA SQUARELY ARE APPLICABLE IN CA SE OF DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 10BA AND CREDITED DUTY DRAW B ACK AND DEPB IN THE PROFIT & LOSS ACCOUNT, BUT IS NOT DERIVED INCOME FROM UNDE RTAKING. THEREFORE, WE REVERSE THE ORDER OF LD. CIT (A) TO THAT EXTENT. 12.1. HOWEVER, HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS (SUPRA) HELD THAT ENTIRE SALE PROCEEDS NOT TO BE TREATED AS PROFITS BUT ONLY DIFFERENCE BETWEEN SALE VALUE AND FACE VALUE OF CREDIT DEPB C REDIT CHARGEABLE AS INCOME UNDER SECTION 28(IIIB) IN YEAR IN WHICH APPLIED FOR AGAINST EXPORTS. FURTHER, PROFIT ON TRANSFER OF CREDIT CHARGEABLE UNDER SECTION 28(I IID) IN YEAR IN WHICH TRANSFERRED. THE LD AR HAS ALSO REFERRED THE DECISI ON OF ITAT JODHPUR BENCH, JODHPUR IN THE CASE OF ANGIRA ART EXPORTS AND SURAJ EXPORTS INDIA AND OTHERS IN ITA NO. 360/JODH/2012 ORDER DATED 31/1/2013 AND ALS O ITAT MUMBAI BENCH IN 25 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. THE CASE OF ARTS & CRAFTS EXPORTS VS. ITO 66 DTR 69 (ITAT MUMBAI BENCH) AND CLAIMED THAT BOTH THE ITATS HAVE ALLOWED THE ASSESSE ES APPEAL BY CONSIDERING THE HON'BLE SUPREME COURT DECISION IN THE CASE OF L IBERTY INDIA AND TOPMAN EXPORTS (SUPRA). WE HAVE CONSIDERED THE ASSESSEES SUBMISSION BUT FACT OF BOTH THE CASES ARE NOT VERIFIABLE FROM THE SUBMISSIONS MADE BY THE ASSESSEE, THEREFORE THE ASSESSING OFFICER IS DIRECTED TO CONS IDERING THE ORDER OF THE HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS (SUPRA) AND CASE LAWS REFERRED BY THE ASSESSEE I.E. DECISION OF ITAT JODHPUR BENCH, JO DHPUR IN THE CASE OF ANGIRA ART EXPORTS AND SURAJ EXPORTS INDIA AND OTHERS AND ITAT MUMBAI BENCH DECISION IN THE CASE OF ARTS & CRAFTS EXPORTS VS. ITO (SUPRA) AND RECALCULATE THE INCOME ACCORDINGLY. THEREFORE, THIS GROUND OF APPEAL IS SET ASIDE TO THE LD ASSESSING OFFICER. 13. IN THE RESULT, BOTH I.E. REVENUES APPEAL AND C .O. OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT ON 30/10/2015. SD/- SD/- VKJ-IH-RKSYKUH VH-VKJ-EHUK (R.P.TOLANI) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 30 TH OCTOBER,2015 *RANJAN 26 ITA NO. 763/JP/2012 & C.O. NO.66/JP/2012 A.Y.2009-1 0 ACIT VS. SMT. RANJANA JOHARI, JAIPUR. VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- ACIT CIRCLE-6, JAIPUR 2. IZR;FKHZ @ THE RESPONDENT- SMT. RANJANA JOHARI, JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 763/JP/2012 & C.O. NO. 66/JP/20 12) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR