Sharda Exports, Meerut V. DCIT, Haridwar

ITA 807/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81502 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 08-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 07-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAMESH CHANDRA
• Assessee Lawyers: O P SAPRA
• Keywords: Business income
• Section: 234B; 80IB; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI C.M. GARG : JUDICIAL MEMBER ITA NO. 807/DEL/2013 ASSTT. YR: 2008-09 SHARDA EXPORTS, VS. DCIT CIRCLE, HARDWAR. PLOT NO. 11, SECTOR-4, INTEGRATED INDUSTRIAL AREA, SIDKUL RANIPUR, HARDWAR. PAN: AAYFS 1694 N ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI O.P. SAPRA ADV. RESPONDENT BY : SHRI RAMESH CHANDRA CIT DR DATE OF HEARING : 14-07-2014 DATE OF ORDER : 07-08-2014. O R D E R THIS APPEAL, BY THE ASSESSEE, IS DIRECTED AGAINST T HE ORDER DATED 15-1- 2013 PASSED BY THE LD. CIT(A)-II, DEHRADUN, IN APPE AL NO. 37/HRD/2010-11, RELATING TO A.Y. 2008-09. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A PARTNERSHIP FIRM, FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME AT NIL. T HE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR WAS MANUFACTURING CARPETS AND CLAIM ED DEDUCTION OF RS. 51,27,47,399/- U/S 80IC. THE AO NOTICED THAT THIS SUM INCLUDED AN AMOUNT OF RS. 13,98,31,925/- AS DUTY DRAW BACK TOWARDS EXP ORT INCENTIVES. THE AO EXAMINED THE ALLOWABILITY OF DEDUCTION U/S 80IC OF EXPORT INCENTIVE WITH REFERENCE TO VARIOUS DECISIONS INCLUDING THE DECISI ON OF HONBLE SUPREME ITA 807/DEL/2013 SHARDA EXPORTS VS. DCIT 2 COURT IN THE CASE OF LIBERTY INDIA VS. CIT 317 ITR 218 AND CONCLUDED THAT IN VIEW OF THIS DECISION, THE ASSESSEE WAS NOT ENTI TLED FOR DEDUCTION U/S 80IC ON EXPORT INCENTIVE. THE AO, INTER ALIA, POINTED OU T THAT SOURCE OF INVESTMENT IS NOT THE ELIGIBLE BUSINESS OF THE UNDERTAKING BUT THE SCHEME OF GOVERNMENT OF INDIA. HE OBSERVED THAT EXPORT INCENTIVES CAN, A T THE MOST, BE HELD TO BE ATTRIBUTABLE TO ELIGIBLE BUSINESS AS THERE IS COMME RCIAL CONNECTION BETWEEN THEM BUT COULD NOT BE SAID TO BE PROFITS DERIVED F ROM ELIGIBLE UNDERTAKING/ ENTERPRISE, AS REQUIRED BY SEC. 80IC. 2.1. IN APPEAL, THE LD. CIT(A) CONFIRMED THE AO'S A CTION. BEING AGGRIEVED, WITH THE ORDER OF LD. CIT(A), THE ASSESSEE IS IN AP PEAL AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. THAT THE AUTHORITY BELOW WERE WHOLLY UNJUSTIFIE D BOTH ON LAW AND FACTS OF THE CASE IN DISALLOWANCE THE DEDUC TION AS CLAIMED BY THE APPELLANT UNDER SECTION 80-IC OF THE INCOME-TAX ACT, 1961 ON THE DUTY DRAW BACK OF RS. 13,98,31,925 /-. VARIOUS OBSERVATION MADE BY THE AUTHORITIES BELOW I N THEIR RESPECTIVE ORDERS ARE INCORRECT AND UNTENABLE. 2.THAT WITHOUT PREJUDICE TO THE GROUNDS NO. 1 ABOVE , THE AUTHORITIES BELOW HAD WRONGLY TAKEN THE FIGURE OF D UTY DRAWBACK AT RS. 13,98,31,925/- AS AGAINST THE CORRE CT FIGURE OF DUTY DRAW BACK ACTUALLY RECEIVED AT RS. 7,29,34,000 /-. THE AUTHORITIES BELOW HAD EITHER IGNORED OR HAD NOT APPRECIATED THE SUBMISSIONS MADE BY THE APPELLANT O N THE ABOVE ISSUE. 3. THAT THE INTEREST HAS CHARGED UNDER SECTION 234B AND 234C BEING WHOLLY ILLEGAL DESERVE TO BE DELETED AT ANY RATE WITHOUT PREJUDICE THE INTEREST HAS CHARGED WAS VERY EXCESSIVE. ITA 807/DEL/2013 SHARDA EXPORTS VS. DCIT 3 3. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT LD. CIT(A) VIDE PARA 3 OF HIS APPELLATE ORDER HAS HELD THAT THE ISSUE IS COV ERED BY THE APPELLATE ORDER FOR A.Y. 2009-10 IN ASSESSEES OWN CASE ( APPEAL NO . 207/CIT(A)- II/2011- 12 ORDER DATED 01-06-2012) AND THEN AFTER RECORDING THE FOLLOWING FIGURES, HAS HELD THAT ENTIRE DUTY DRAW BACK IS LIABLE TO BE TAXED DURING THIS YEAR: DUTY DRAW BACK RECEIVED RS. 7,29,34,000/- DUTY DRAW BACK RECEIVABLE RS. 6,68,97,925/- RS. 13,98,31,925 3.1. LD. COUNSEL FURTHER SUBMITTED THAT IN COMING T O HIS CONCLUSION LD. CIT(A) RELIED ON THE DECISIONS IN THE CASES OF : - LIBERTY INDIA VS. CIT 317 ITR 218 (SC); - CIT VS. RAJA BAHADUR KAMAKSHYA NARAYAN SINGH 16 ITR 375 (PC); - MRS. BACHA F. GUZDAR VS. CIT 27 ITR 1 (SC); - STERLING FOODS 237 ITR 53 (SC) - PANDIAN CHEMICALS LTD. 262 ITR 278. 3.2. LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT IN ANY VIEW OF THE MATTER, THE AMOUNT OF DUTY DRAW BACK RECEIVED ONLY COULD BE CONSIDERED FOR DISALLOWING DEDUCTION U/S 80IC AND NOT THE ENTIRE A MOUNT. 3.3. LD. COUNSEL SUBMITTED THAT ON DISALLOWANCE OF DEDUCTION U/S 80IC ON THE AMOUNT OF DUTY DRAW BACK, IN AY 2009-10, THE AS SESSEES APPEAL IS PENDING BEFORE HONBLE UTTRAKHAND HIGH COURT. HE SU BMITTED THAT THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LI BERTY INDIA (SUPRA), IS NOT APPLICABLE TO THE FACTS OF ASSESSEES CASE BECA USE THE DECISION IN THE CASE OF LIBERTY INDIA (SUPRA) WAS RENDERED WITH REFERENC E TO SECTIONS 80I, 80IA AND 80IB AND NOT WITH REFERENCE TO SECTION 80IC. FU RTHER, THE DECISION IN THE CASE OF LIBERTY INDIA RELATES TO A.Y. 2001-02 WHERE AS THE PROVISIONS OF SECTION 80IC WERE INSERTED BY FINANCE ACT 2003 W.E. F. 1-4-2004 AND, ITA 807/DEL/2013 SHARDA EXPORTS VS. DCIT 4 THEREFORE, THE HONBLE SUPREME COURT HAD NO OCCASIO N TO CONSIDER SECTION 80IC. FURTHER, THE MARGINAL NOTE TO SECTIONS 80IA, 80IB ETC. TALKS ABOUT DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM CERT AIN INDUSTRIAL UNDERTAKINGS OR ENTERPRISES, WHILE MARGINAL NOTE TO SECTION 80IC READS SPECIAL PROVISION IN RESPECT OF CERTAIN UNDERTAKINGS OR ENTERPRISES I N CERTAIN SPECIAL CATEGORY STATES. HE RELIED ON THE DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF K.P. VARGHESE VS. ITO 131 ITR 597 TO SUBMIT THAT THE MARGINAL NOTE TO A SECTION CANNOT BE REFERRED TO FOR THE PURPOSE OF CO NSTRUING THE SECTION BUT IT CAN CERTAINLY BE RELIED UPON AS INDICATING THE DRIF T OF THE SECTION OR TO SHOW WHAT THE SECTION IS DEALING WITH. IT CANNOT CONTROL THE INTERPRETATION OF THE WORDS OF A SECTION PARTICULARLY WHEN THE LANGUAGE O F THE SECTION IS CLEAR AND UNAMBIGUOUS BUT, BEING PART OF THE STATUTE, IT PRIM A FACIE FURNISHES SOME CLUE AS TO THE MEANING AND PURPOSE OF THE SECTION. THEREFORE, SECTION 80IC STANDS ON ALTOGETHER DIFFERENT FOOTING AS COMPARED TO SECTION 80IV. 3.4. LD. COUNSEL IN BRIEF HAS GIVEN THE FOLLOWING D ISTINGUISHING FEATURES BETWEEN SECTION 80IC AND 80IB: HEADING SS(1) SECTION 80IC [SPECIAL PROVISIONS IN RESPECT OF CERTAIN UNDERTAKING OR ENTERPRISES IN CERTAIN SPECIAL CATEGORY STATES WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (2), 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, AS SPECIFIED IN SUB-SECTION (3). SECTION 80IB DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM CERTAIN INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS. (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) AND (11A) (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 ITA 807/DEL/2013 SHARDA EXPORTS VS. DCIT 5 SS(3) (3) THE DEDUCTION REFERRED TO IN SUB- SECTION (1) SHALL BE IN THE CASE OF ANY UNDERTAKING OR ENTERPRISE REFERRED TO IN SUB-CLAUSES (I) AND (III) OF CLAUSE (A) OR SUB-CLAUSES (I) AND (III) OF CLAUSE (B), OF SUB-SECTION (2), ONE HUNDRED PER CENT OF SUCH PROFITS AND GAINS FOR TEN ASSESSMENT YEARS COMMENCING WITH THE INITIAL ASSESSMENT YEAR; IN THE CASE OF ANY UNDERTAKING OR ENTERPRISE REFERRED TO IN SUB-CLAUSE (II) OF CLAUSE (A) OR SUB-CLAUSE (II) OF CLAUSE (B), OF SUB-SECTION (2), ONE HUNDRED PERCENT OF SUCH PROFITS AND GAINS FOR FIVE ASSESSMENT YEARS COMMENCING 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. PERCENTAGE AND FOR SUCH NUMBER OF ASSESSMENT YEARS AS SPECIFIED IN THIS SECTION. (3) THE AMOUNT OF DEDUCTION IN THE CASE OF AN INDUSTRIAL UNDERTAKING SHALL BE TWENTY FIVE PER CENT (OR THIRTY PER CENT WHERE THE ASSESSEE IS A COMPANY) OF THE PROFITS AND GAINS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS ( OR TWELVE CONSECUTIVE ASSESSMENT YEARS WHERE THE ASSESSEE IS A CO-OPERATIVE SOCIETY) BEGINNING WITH THE INITIAL ASSESSMENT YEAR SUBJECT TO THE FULFILLMENT OF THE FOLLOWING CONDITIONS, NAMELY:- 3.5. LD. COUNSEL FURTHER SUBMITTED THAT DUTY DRAW B ACK IS NOTHING BUT THE RETURN OF DUTIES LIKE SALES-TAX AND EXCISE PAID AT THE TIME OF BUYING OF RAW MATERIAL BUT WAS REFUNDABLE TO THE ASSESSEE IF GOOD WERE EXPORTED. THE SUBMISSION IS THAT SINCE IN THE YEAR OF PURCHASE TH E PROFITS GOT REDUCED BECAUSE OF PAYMENT OF DUTIES LIKE SALES-TAX AND EXC ISE, THEREFORE, WHEN THE SAME IS REFUNDED TO ASSESSEE IN THE FORM OF DUTY DR AW BACK THEN IT CANNOT BE CONSIDERED DE HORS THE ASSESSEES BUSINESS. THE REF UND HAS BEEN RECEIVED ONLY IN THE FORM OF BUSINESS PROFITS. 3.6. HE FURTHER POINTED OUT THAT U/S 28(IIIC), DUTY DRAW BACK RECEIPTS WERE TO BE TREATED AS BUSINESS INCOME AND THEY HAVE BEEN ASSESSED TO TAX ACCORDINGLY. THEREFORE, DEDUCTION U/S 80IC SHOULD H AVE BEEN ALLOWED ON THE DUTY DRAW BACK. ITA 807/DEL/2013 SHARDA EXPORTS VS. DCIT 6 3.7. LD. COUNSEL FURTHER POINTED OUT THAT IN A.Y. 2 005-06 DEDUCTION U/S 80IC HAD BEEN ALLOWED ON DUTY DRAW BACK ALSO, AS IS EVIDENT FROM THE COPY OF ASSESSMENT ORDER PLACED AT PAGES 45 TO 48 OF THE PB. SIMILARLY, FOR A.Y. 2006-07( ASSESSMENT ORDER AVAILABLE AT PAGES 49-51 OF THE PB), THE DEDUCTIONS HAVE BEEN ALLOWED ON DUTY DRAW BACK ALSO . FOR A.Y. 2007-08 (ASSESSMENT ORDER AVAILABLE AT PAGE 52 OF THE PB), 80IC DEDUCTION HAS BEEN ALLOWED. 4. LD. CIT(DR) SUBMITTED THAT THE ISSUE IS SQUAREL Y COVERED BY THE TRIBUNALS OWN DECISION DATED 14-6-2013 IN ASSESSEE S OWN CASE FOR A.Y. 2009-10. LD. CIT(DR) ALSO RELIED ON THE DECISION OF ITAT IN THE CASE OF ITO VS. ULTIMATE MAKER LTD. (2556/D/2005 DATED 26-1 0-2007). 4.1. AS FAR AS ASSESSEES CLAIM REGARDING EXCLUSION OF DUTY DRAW BACK RECEIVABLE IS CONCERNED, LD. CIT(DR) SUBMITTED THAT THE SAME CANNOT BE ACCEPTED BECAUSE ASSESSEE WAS MAINTAINING ACCOUNTS ON MERCANTILE BASIS. LD. CIT(DR) FURTHER POINTED OUT THAT BEFORE THE CIT (A)/AO THERE WAS NO ASSERTION THAT CLAIM OF 80IC ON DEPB HAS TO BE SEEN ONLY IN RESPECT OF ACTUALLY RECEIVED AMOUNT WHEREAS IN THE PRESENT APP EAL THE ASSESSEE HAS ADVANCED THIS ARGUMENT WHICH IS TOTALLY NEW. HE POI NTED OUT THAT THIS NEW PLEA CANNOT BE RAISED IN VIEW OF THE DECISION IN TH E CASE OF CHEVALIER I IYYAPPAN AIR 1966 SC 1017. 4.2. LD. CIT(DR) FURTHER POINTED OUT THAT PRESENT A PPEAL IS FOR A.Y. 2008- 09 WHICH WAS PENDING WHEN THE APPEAL FOR A.Y. 2009- 10 WAS DECIDED THOUGH ASSESSEE WRONGLY STATED IN ITS SYNOPSIS THAT THE APPEAL WAS PENDING BEFORE THE LD. CIT(A). ITA 807/DEL/2013 SHARDA EXPORTS VS. DCIT 7 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND HAVE PE RUSED THE RECORD OF THE CASE. WE FIND THAT THE ISSUE IS COVERED BY THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR A.Y. 2009-10, AGAINST WHICH APPEAL IS ALSO PENDING BEFORE HONBLE UTTRAKHAND HIGH COURT. THEREFORE, WE RESPECTFULLY FOLLOW THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR A.Y. 2009-10, WHEREIN IT HAS BEEN HELD AS UNDER:- IN COMPUTATION FOR DEDUCTION UNDER SEC. 80IC, ASSE SSEE HAS INCLUDED A SUM OF RS. 12.90 CRORES WHICH REPRESENTS THE EPB RECEIPTS. THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED ON RECORD A NOTE AS TO HOW DEDUCTION ON EPB RECEIPTS U NDER SEC. 80IC ARE ADMISSIBLE. HOWEVER, WE FIND THAT THIS ISS UE IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT REPORTED IN 317 ITR 218. HONBLE COURT HAS HELD THA T DEPB RECEIPTS ARE NOT DERIVED FROM AN INDUSTRIAL UNDERTA KING RATHER THEIR GENESIS IS FROM THE BENEFICIARY SCHEME FORMUL ATED UNDER CENTRAL EXCISE ACT ETC. THEY ARE THE ANCILLARY PROF IT. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE HONBLE SUPREME COURT HAS NOT TAKEN INTO CONSIDERATION THE AMENDMENT IN SEC. 28 WHICH HA BEEN GIVEN EFFECT FROM IST OF A PRIL 1998. THIS AMENDMENT SUGGESTS THAT ON SALE OF DEPB RECEIP TS, IF THE IS ANY PROFIT, THEN IT WILL BE A REVENUE RECEIPTS. WE FIND THAT THIS AMENDMENT WAS BROUGHT BY ACT OF 2005, W.E.F. 01-04- 1998. THE DECISIONS OF THE HONBLE SUPREME COURT IS DATED 31- 09-2009. THUS, THE DECISION OF HONBLE SUPREME COURT IS SUBS EQUENT TO THE AMENDMENT, HENCE, THE DECISION CANNOT BE DISTIN GUISHED ON THIS ARGUMENT. IN VIEW OF THE ABOVE DISCUSSION, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION UNDER SEC . 80IC OF THE ACT A PER LAW EXCLUDED ON THE DEPB RECEIPTS. 5.1. AS FAR AS THE ASSESSEES PLEA REGARDING TAKING OF FIGURE OF DUTY DRAW BACK OF RS. 13,98,31,925/- IS CONCERNED, WE DO NOT FIND ANY SUBSTANCE IN THE SAID PLEA BECAUSE IN PARA 4.1 LD. CIT(A) HAS CLEARL Y OBSERVED THAT THE ASSESSEE HAD RECEIVED RS. 7,29,34,000/- AND THE BAL ANCE SUM WAS SHOWN AS ITA 807/DEL/2013 SHARDA EXPORTS VS. DCIT 8 OUTSTANDING AND THE ASSESSEE WAS MAINTAINING ACCOUN TS ON MERCANTILE BASIS. FURTHER, ASSESSEE HIMSELF HAS INCLUDED THIS AMOUNT IN THE NET PROFIT AND CLAIMED DEDUCTION U/S 80IC. THEREFORE, THE ENTIRE A MOUNT HAD TO BE CONSIDERED AND HAS RIGHTLY BEEN CONSIDERED BY LD. C IT(A). 6. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 07-08-2014. SD/- SD/- ( C.M. GARG ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 07-08-2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR