M/s Shakti Impex, Ahmedgarh. V. ITO, Malerkotla

ITA 982/CHANDI/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90204 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 10-11-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR AMA RVEER SINGH
• Section: 147; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NOS. 982 & 983/CHD/2014 ASSESSMENT YEAR : 2007-08 & 2008-09 M/S SHAKTI IMPEX, VS THE ITO, JAGERA ROAD, WARD IV(4), HO AHMEDGARH. MALERKOTLA. PAN: AAXFS1081J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMA R RESPONDENT BY : DR. AMARVEER SINGH DATE OF HEARING : 22.06.2015 DATE OF PRONOUNCEMENT : 23.06.2015 O R D E R PER BHAVNESH SAINI,JM BOTH THE APPEALS BY ASSESSEE ARE DIRECTED AGAINST D IFFERENT ORDERS OF LD. CIT(APPEALS)-II LUDHIANA DATED 24.09. 2014 FOR ASSESSMENT YEAR 2007-08 AND 2008-09 CHALLENGING THE DISALLOWANCE OF CLAIM OF DEDUCTION UNDER SECTION 80 IC OF THE ACT ON THE AMOUNTS RECEIVED AS DUTY DRAW BACK AND VISHESH KRISHI UPAJ YOJNA. 2. BRIEF FACTS ARE THAT THE ASSESSEE IS DOING BUSIN ESS OF PROCESSING AND EXPORT OF HONEY. THE ASSESSEE CLAIM ED DEDUCTION UNDER SECTION 80IC OF THE ACT ON EXPORT I NCENTIVES I.E. DUTY DRAW BACK. THE ASSESSING OFFICER WAS OF THE VIEW THAT IN VIEW OF THE JUDGEMENT OF THE HON'BLE SUPREM E COURT IN THE CASE OF STERLING FOODS LTD. 235 ITR 238 (S.C .), 2 DEDUCTION UNDER SECTION 80IC IS NOT ALLOWABLE ON TH ESE INCOMES. THE ASSESSING OFFICER ISSUED NOTICES UNDE R SECTION 147 OF THE ACT AND HELD THAT THE AMOUNTS RECEIVED O N ACCOUNT OF EXPORT INCENTIVES AS REFERRED TO ABOVE W ERE NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE AC T AND ACCORDINGLY, DISALLOWED THE DEDUCTION SO CLAIMED BY THE ASSESSEE. THE ASSESSEE MERELY CONTENDED BEFORE LD. CIT(APPEALS) THAT DISALLOWANCE OF DEDUCTION UNDER S ECTION 80IC WAS NOT JUSTIFIED. THE LD. CIT(APPEALS), HOWE VER, DISMISSED THE APPEALS OF THE ASSESSEE BY FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 2009-10 IN WHICH THE LD. CIT(AP PEALS) FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS CIT 317 ITR 218 DISMISSED BOTH THE APPEALS OF THE ASSESSEE. THE FINDINGS OF THE LD. CIT(APPEALS) ARE SAME IN BOTH THE YEARS. THE FINDI NGS GIVEN IN ASSESSMENT YEAR 2007-08 ARE, THEREFORE, REPRODUC ED FOR THE SAKE OF CONVENIENCE : 3.4. I HAVE CAREFULLY CONSIDERED THE APPELLANT'S SUBMISSIONS. SIMILAR DISALLOWANCE WAS MADE IN THE APPELLANT'S CASE FOR ASSESSMENT YEAR 2009-10. IN TH IS CASE VIDE ORDER DATED 27.12.2012 IN APPEAL NO. 517/IT/CIT(II)/LDH/11-12, THE DISALLOWANCE WAS CONF IRMED BY ME. IN THIS ORDER DATED 27.12.2012 IT WAS HELD A S UNDER - 'I HAVE CAREFULLY CONSIDERED THE APPELLANT'S SUBMISSIONS. THE ADMITTED FACT IS THAT THE DUTY DRAWBACK AMOUNTING TO RS. 25,88,032/- AND VISHESH KRISHI UPAJ YOJNA AMOUNTING TO RS. 1,20,08,028/- WE RE RECEIVED AS EXPORT INCENTIVES AGAINST EXPORT SALES OF RS. 27,51,44,260/- THESE INCENTIVES ARE PAID BY THE GOV T. UNDER THE VARIOUS INCENTIVES SCHEME AND ARE NOT DERIVED FROM THE ELIGIBLE BUSINESS. THE SOURCE OF T HESE RECEIPTS IS NOT INDUSTRIAL UNDERTAKING BUT INCENTIV E SCHEMES OF THE GOVT. THESE INCENTIVES THEREFORE DO NOT QUALIFY FOR DEDUCTION U/S 80IC OF THE ACT. THE MATT ER IS COVERED BY THE JUDGMENT OF THE HON'BLE SUPREME COUR T IN STERLING FOODS [1999] 237 ITR 579, WHICH HAS BEE N FOLLOWED BY HON'BLE PUNJAB AND HARYANA HIGH COURT I N 3 NAHAR EXPORTS LTD, V. CIT I.T.R. NO. 642 OF 2005 DECIDED ON JULY 4, 2006, [2007] 288 ITR 294, CIT V. NAHAR SPINNING MILLS LTD I.T.C. NO. 201 OF 1994, DECIDED ON APRIL 19, 2006, 120071293 ITR 516 (P & H ) AND LIBERTY SHOES LTD. V. CIT I.T.A. NO. 140 OF 200 5 DECIDED ON AUGUST 17, 2006, [2007] 293 ITR 478 (P & H) AND LIBERTY INDIA VS CIT 293 ITR 520 (P&H). THE CRUCIAL ISSUE IS WHETHER THE INCOME WAS 'DERIVED FR OM ' THE SPECIFIED BUSINESS AS AGAINST THE INCOME FROM A NY OTHER SOURCE, IRRESPECTIVE OF THE QUESTION WHETHER SUCH SOURCE WAS INEXTRICABLY CONNECTED WITH THE BUSINESS ACTIVITY OF THE APPELLANT. THE NATURE OF INCOME DER IVED FROM DUTY DRAWBACK AND VISHESH KRISHI UPAJ YOJANA I S SIMILAR TO THE NATURE OF INCOME DERIVED BY THE ASSE SSEE IN STERLING FOODS' CASE [1999] 237 ITR 579 (SO, WHI CH WAS CONSIDERED BY THE HON'BLE SUPREME COURT. BEFORE THE HON'BLE SUPREME COURT, THE QUESTION FOR CONSIDERATION WAS IN RESPECT OF INCOME FROM IMPORT ENTITLEMENTS, WHICH WAS SIMILAR TO INCOME FROM DUTY DRAWBACK. INTERPRETING SIMILAR LANGUAGE IN SECTION 80HH, THE HON'BLE SUPREME COURT IN STERLING FOODS' CASE [1999] 237 ITR 579 OBSERVED: 'WE DO NOT THINK THAT THE SOURCE OF THE IMPORT ENTITLEMENTS CAN BE SAID TO BE THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. THE SOURCE OF THE IMPO RT ENTITLEMENTS CAN, IN THE CIRCUMSTANCES, ONLY BE SAI D TO BE THE EXPORT PROMOTION SCHEME OF THE CENTRAL GOVERNMENT WHEREUNDER THE EXPORT ENTITLEMENTS BECOM E AVAILABLE. THERE MUST BE, FOR THE APPLICATION OF TH E WORDS 'DERIVED FROM', A DIRECT NEXUS BETWEEN THE PR OFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING. IN THE IN STANT CASE, THE NEXUS IS NOT DIRECT BUT ONLY INCIDENTAL. THE INDUSTRIAL UNDERTAKING EXPORTS PROCESSED SEA FOOD. BY REASON OF SUCH EXPORT, THE EXPORT PROMOTION SCHEME APPLIES. THEREUNDER, THE ASSESSEE IS ENTITLED TO IM PORT ENTITLEMENTS, WHICH IT CAN SELL. THE SALE CONSIDERA TION THEREFROM CANNOT, IN OUR VIEW, BE HELD TO CONSTITUT E A PROFIT AND GAIN DERIVED FROM THE ASSESSEES INDUST RIAL UNDERTAKING. ' HON'BLE SUPREME COURT HAS ALSO AFFIRMED THE DECISIO N OF THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CA SE OF LIBERTY INDIA VS CIT 293 ITR 520 (P&H). VIDE ITS DECISION IN THE CASE OF LIBERTY INDIA VS CIT 317 IT R 218 (SC), THE HON 'BLE SUPREME COURT HELD AS UNDER : 'DEPB IS AN INCENTIVE. IT IS GIVEN UNDER THE DUTY EXEMPTION REMISSION SCHEME. ESSENTIALLY, IT IS AN E XPORT INCENTIVE. NO DOUBT, THE OBJECT BEHIND DEPB IS TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY PAYMENT ON THE IMPORT CONTENT OF EXPORT 'PRODUCT. THIS NEUTRALIZA TION IS PROVIDED FOR BY CREDIT TO CUSTOMS DUTY AGAINST EXPO RT PRODUCT. UNDER DEPB, AN EXPORTER MAY APPLY FOR CRED IT AS A PERCENTAGE OF THE FOB VALUE OF EXPORTS MADE IN FREELY CONVERTIBLE CURRENCY. CREDIT IS AVAILABLE ON LY 4 AGAINST THE EXPORT PRODUCT AND AT RATES SPECIFIED B Y THE DGFT FOR IMPORT OF RAW MATERIALS, COMPONENTS, ETC., DEPB CREDIT UNDER THE SCHEME HAS TO BE CALCULATED B Y TAKING INTO ACCOUNT THE DEEMED IMPORT CONTENT OF TH E EXPORT PRODUCT AS PER BASIC CUSTOMS DUTY AND SPECIA L ADDITIONAL DUTY PAYABLE ON SUCH DEEMED IMPORTS. THEREFORE, IN OUR VIEW, DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOM S ACT, 1962, HENCE, INCENTIVES PROFITS ARE NOT PROFIT S DERIVED FROM THE ELIGIBLE BUSINESS UNDER SECTION 80 -IB. THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKINGS. THE NEXT QUESTION IS - WHAT IS DUTY DRAWBACK ? SECT ION 75 OF THE CUSTOMS ACT, 1962, AND SECTION 37 OF THE CENTRAL EXCISE ACT, 1944, EMPOWER THE GOVERNMENT OF INDIA TO PROVIDE FOR REPAYMENT OF CUSTOMS DUTY AND EXCISE DUTY PAID BY AN ASSESSEE. THE REFUND IS OF T HE AVERAGE AMOUNT OF DUTY PAID ON MATERIALS OF ANY PARTICULAR CLASS OR DESCRIPTION OF GOODS USED IN TH E MANUFACTURE OF EXPORT GOODS OF SPECIFIED CLASS. THE RULES DO NOT ENVISAGE A REFUND OF AN AMOUNT ARITHMETICALLY EQUAL TO CUSTOMS DUTY OR CENTRAL EXC ISE DUTY ACTUALLY PAID BY AN INDIVIDUAL IMPORTER-CUM- MANUFACTURER. SUB-SECTION (2) OF SECTION 75 OF THE CUSTOMS ACT REQUIRES THE AMOUNT OF DRAWBACK TO BE DETERMINED ON A CONSIDERATION OF ALL THE CIRCUMSTAN CES PREVALENT IN A PARTICULAR TRADE AND ALSO BASED ON T HE FACTS SITUATION RELEVANT IN RESPECT OF EACH OF VARI OUS CLASSES OF GOODS IMPORTED. BASICALLY, THE SOURCE OF THE DUTY DRAWBACK RECEIPT LIES IN SECTION 75 OF THE CUS TOMS ACT AND SECTION 37 OF THE CENTRAL EXCISE ACT. ANALYSING THE CONCEPT OF REMISSION OF DUTY DRAWBACK AND DEPB, WE ARE SATISFIED THAT THE REMISSION OF DUTY I S ON ACCOUNT OF THE STATUTORY/POLICY PROVISIONS IN THE C USTOMS ACT/SCHEME(S) FRAMED BY THE GOVERNMENT OF INDIA. IN THE CIRCUMSTANCES, WE HOLD THAT PROFITS DERIVED BY WAY OF SUCH INCENTIVES DO NOT FALL WITHIN THE EXPRESSION 'PROFI TS DERIVED FROM INDUSTRIAL UNDERTAKING' IN SECTION 80-IB. ' THE APPELLANT HAS REFERRED TO THE PROVISIONS OF SEC TION 28 OF THE I.T. ACT AND CONTENDED THAT RECEIPTS FROM DU TY DRAWBACK AND VISHESH KRISHI UPAJ YOJNA FALL AMONG T HE CATEGORIES REFERRED TO IN SECTION 28. THE PROVISION S OF SECTION 28 MERELY REFER TO THE VARIOUS TYPES OF INC OME WHICH ARE CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION. FOR DEDUCTION U/S 80IC THE INCOME HAS NOT ONLY TO BE TAXABLE UNDER THE HEAD P ROFITS' & GAINS OF BUSINESS BUT SHOULD ALSO BE DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFE RRED TO IN SUB-SECTION 2 OF SECTION 80IC. AS DISCUSSED ABO VE, BY NO STRETCH OF IMAGINATION CAN BE INCOME FROM DUTY D RAW BANK AND VISHESH KRISHI UPAJ YOJNA BE SAID TO HAVE BEEN DERIVED FROM THE BUSINESS OF THE APPELLANT. 5 KEEPING IN VIEW THE AFORESAID FACTUAL AND LEGAL POS ITION THE ADDITION MADE BY THE AO IS CONFIRMED. THIS GROUND O F APPEAL IS ACCORDINGLY DISMISSED. ' 3.5. FACTS IN THE CURRENT YEAR ARE IDENTICAL TO THE FACTS IN ASSESSMENT YEAR 2009-10. FOLLOWING THE ORDER FOR ASSESSMENT YEAR 2009-10 THE DISALLOWANCE MADE BY TH E AO IS CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED . 3. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PA RTIES. FOR CLAIMING THE DEDUCTION UNDER SECTION 80IC OF TH E ACT, INCOME HAS NOT ONLY TO BE TAXABLE UNDER THE HEAD P ROFITS & GAINS OF BUSINESS BUT SHOULD ALSO BE DERIVED BY AN UNDERTAKING OR AN ENTERPRISES FROM ANY BUSINESS REF ERRED TO IN SUB-SECTION 2) OF SECTION 80IC OF THE ACT. THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA) HELD THAT, THE CONNOTATION OF THE WORDS DERIVED FROM IS NORROWER AS COMPARED TO THAT OF THE WORDS ATTRIBUT ABLE TO. BY USING THE EXPRESSION DERIVED FROM PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND FIRST DEGREE. BY NO STRETCH OF IMAGINATION CAN THE INCOME FROM DUTY DRAW BANK AND VISHESH KRISHI UPAJ YOJNA BE SAID TO HAVE BEEN DERI VED FROM THE BUSINESS OF THE ASSESSEE. THE LD. CIT(APPEALS) WAS, THEREFORE, JUSTIFIED IN DECIDING THE ISSUE AGAINST THE ASSESSEE BY FOLLOWING THE JUDGEMENT OF HON'BLE SUPR EME COURT IN THE CASE OF LIBERTY INDIA VS CIT (SUPRA). THE LD. COUNSEL FOR THE ASSESSEE COULD NOT CONTRIBUTE MUCH ON THE ABOVE ISSUE. 4. THE TOTALITY OF THE FACTS AND CIRCUMSTANCES AND FINDINGS GIVEN BY LD. CIT(APPEALS) CLEARLY SHOW THA T ISSUE IS 6 COVERED AGAINST THE ASSESSEE BY JUDGEMENT OF HON'BL E SUPREME COURT IN THE CASE OF LIBERTY INDIA VS CIT ( SUPRA). WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORD ER OF LD. CIT(APPEALS) IN DISMISSING THE APPEAL OF THE ASSESS EE ON THIS ISSUE. BOTH THE APPEALS OF THE ASSESSEE ON TH IS ISSUE ARE, ACCORDINGLY, DISMISSED. 5. THE ASSESSEE IN BOTH THE APPEALS ALSO RAISED ANO THER GROUND THAT LD. CIT(APPEALS) WAS NOT JUSTIFIED IN N OT ADJUDICATING THE GROUND OF APPEAL RELATING TO APPLI CABILITY OF PROVISIONS OF SECTION 147 OF THE ACT. THE LD. COUN SEL FOR THE ASSESSEE DID NOT ARGUE THIS GROUND BEFORE US, THERE FORE, NO FURTHER INTERFERENCE IS CALLED FOR IN THE MATTER. THIS GROUND OF APPEAL OF THE ASSESSEE, IN BOTH THE APPEALS, IS ALSO DISMISSED. 6. IN THE RESULT, BOTH APPEALS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JUNE,2015. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23 RD JUNE,2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH