M/S. LA OPALA RG LTD.,KOLKATA V. D.C.I.T., CIRCLE - 11(1), KOLKATA

ITA 1891/KOL/2024

AI Insights

The case involves M/s. La Opala RG Ltd. appealing against the order of the CIT(A), which upheld the disallowance of certain deductions under section 80IC of the Income Tax Act by the Assessing Officer. The main issues were the allocation of common expenses between eligible and non-eligible units for section 80IC benefits, and the inclusion of certain income types (like export incentives and duty drawbacks) as 'derived from' the industrial undertaking eligible for section 80IC relief. The Tribunal found that the Assessing Officer's initial examination of the expense allocation was insufficient and remanded this issue for further detailed analysis. Regarding the income types, the Tribunal upheld the CIT(A)'s decision, agreeing that these incomes were not 'derived from' the industrial undertaking as per the legal precedents cited.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 314548 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Other Referred Cases: Liberty India vs. CIT, Sterling Foods vs. CIT, Pandian Chemicals Ltd. vs. CIT, Saraf Exports vs. CIT, Reckitt Benckiser (India) Ltd. vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MONALISHA PAL MUKHERJEE
• Assessee Lawyers: A. K. TULSYAN
• Keywords: Set aside; Business income; Difference of opinion; Change of opinion; Principle of natural justice; Revision of order
• Section: 143(3); 263; 37; 10

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “B BENCH KOLKATA BEFORE SHRI PRADIP KUMAR CHOUBEY, JUDICIAL MEMBER AND SHRI SANJAY AWASTHI, ACCOUNTANT MEMBER ITA No. 1891/KOL/2024 Assessment Year: 2017-18 M/s. La Opala RG Ltd. 8th Floor, Premises No.803 & 804 Eco Centre EM-4, Sector-V, Kolkata-91. (PAN: AAACL5569J) Vs. DCIT, Circle-11(1) (formerly Circle-12(1), Kolkata) (Appellant) (Respondent) Present for: Appellant by : Shri A. K. Tulsyan, FCA Respondent by : Smt. Monalisha Pal Mukherjee, JCIT, Sr. DR Date of Hearing : 30.04.2025 Date of Pronouncement : 06.05.2025 O R D E R Per Sanjay Awasthi, Accountant Member : The present appeal emanates from order passed u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) on 31.07.2024 by Ld. CIT(A), NFAC, Delhi. 1.1. It is seen that on the two issues surviving for adjudication at the second appellate stage (i.e. allocation of common expenses between the four units; and allowing the claim of duty draw back etc. for relief u/s. 80IC of the Act), the Ld. Assessing Officer has given a detailed finding, which may be briefly summarized. Regarding the issue of allocation of common expenses between the eligible unit (Sitarganj in Uttarakhand) and other three units elsewhere (outside the purview of section 80IC of the Act), it has been recorded that initially the 2 ITA No. 1891/Kol/2024 M/s. La Opala RG Ltd., AY: 2017-18 assessee had not allocated expenses under Fuel & Gas, sitting fees, audit fees, commission to non-executive Directors and provision for Excise between the eligible and non-eligible units. The Ld. Assessing Officer also detected an allegedly improper allocation of expenses under the heads Misc. Expenses, employee expenses and electricity expenses. It is seen from the Ld. Assessing Officer’s order (page 5) that the assessee had admitted to not bifurcating the said expenses exactly between the eligible and non-eligible units. Thereafter, it is seen from the Ld. Assessing Officer’s order that the assessee had attempted a bifurcation of sorts (pages 6 – 9 of Ld. Assessing Officer’s order) which did not find favour with the ld. Assessing Officer. Secondly, on the issue of deduction claimed in respect of indirect income of the assessee, it has been recorded that non-operating expenses of Rs.25,39,952/- and Export incentive receipt of Rs.2,43,75,193/- (pages 14 and 15 of Ld. Assessing Officer’s order), were not ‘derived’ from the industrial undertaking eligible for relief u/s. 80IC of the Act. Thereafter, the ld. Assessing Officer disallowed Rs.80,74,544/- from the relief available to the assessee. It needs to be mentioned that the Ld. Assessing Officer has relied on a number of authorities to arrive at the conclusion that such income cannot be said to be ‘derived’ from the industrial undertaking as is mentioned in 80IC of the Act. 1.2. Aggrieved with these additions to income, the assessee approached the Ld. CIT(A), where also he could not succeed. Regarding the first issue of allocation of expenses between eligible and non-eligible units, the Ld. CIT(A) has recorded on page 41 of the impugned order that “I am of the considerate (sic) opinion that though the appellant has claimed to have allocated common expenses but has not filed the requisite documentary evidence and sufficient explanation to support its claim. Therefore, the alternative methodology adopted by the ld. 3 ITA No. 1891/Kol/2024 M/s. La Opala RG Ltd., AY: 2017-18 Assessing Officer i.e. selecting sales of respective unit as allocation key is found to be reasonable for allocating these common costs”. Regarding the second issue of other income being claimed as part of income exigible for relief u/s. 80IC of the Act, the ld. CIT(A) is seen to have upheld the action of Ld. Assessing Officer (pages 42-43 of impugned order) by following the cases of Liberty India [316 ITR 218 (SC)] and the case of Sterling Foods [237 ITR 218 (SC)], to hold that such income was not ‘derived’ from the industrial undertaking and hence, not eligible for relief u/s. 80IC of the Act. 1.3. Further aggrieved with this order of Ld. CIT(A), the assessee has filed the present appeal with the following grounds: “1. That the Ld. CIT(A)- NFAC was wrong in passing the order u/s 250 without giving an opportunity of hearing via Video Conferencing (VC). The appellant requested for an opportunity of video conferencing for the first time on 29.09.2023 to explain the written submission, Paper Book, etc. The appellant has further requested for an opportunity of hearing through video conferencing several times on 25.07.2024, 13.06.2024, 09.04.2024 etc. Thus, passing the appellate order u/s 250 without giving an opportunity of hearing to the appellant via Video Conferencing (VC) is denial of Natural Justice. 2. That the Ld. CIT(A) - NFAC erred in upholding the disallowance of Rs.2,75,53,739/- being 30 percent of Rs.9,18,45,798/- made by the Ld.AO on account of expenses alleging that excess deduction claimed u/s 80lC of the Act by wrong allocation of the expenses between eligible and non-eligible units when detailed explanation was provided by assessee. The specific power, electricity charges, fuel & gases of each unit are separate and in support of that bills were also provided. The assessee company has rightly claimed the deduction and also rightly segregated the expenses according to eligible and non-eligible units. The assessee has consistently followed such method of allocation over the years and the same has never been disputed before. Further, all the expenses cannot be segregated according to the turnover ratio only, some are directly linked and some proportionated according to the ratios. The Ld. CIT(A)-NFAC has not pointed out any defect in the documents provided during the appeal proceedings. Hence, addition made by AO and confirmed by Ld. CIT(A)-NFAC is wrong and needs to be deleted. 3. That the Ld. CIT (A) - NFAC erred in upholding the disallowance of Rs. 80,74,544/- made by the Ld. AO on account of deduction claimed u/s 80lC of the I. Tax Act by treating the 30% of the receipts from export incentives & other income not to be part of eligible profit. The Ld. CIT (A) - NFAC failed to take cognizance that the said issue is already covered by assessee in its own case by the Hon'ble ITAT for AY 2013-14 bearing ITA No.559/Koll2018 dated 31.10.2019 and for AY 2015-16 bearing ITA No. 153/Kol/2021 dated 4 ITA No. 1891/Kol/2024 M/s. La Opala RG Ltd., AY: 2017-18 18.05.2022. Following the view taken in the aforesaid orders, for the AY 2017-18 in ITA No. 296/Kol/2022 dated 24.11.2022, the tribunal set- aside the order passed u/s 263 of the Act. The Ld. CIT(A) - NFAC has failed to consider that the appellant has duly filed Audit Report in Form 10CCB for the AY. 2017-18 which certifies the financials of eligible unit. Hence, addition made by AO and confirmed by Ld. CIT(A)-NFAC is wrong and needs to be deleted. 4. That the assessee craves to leave or add, alter, amend or withdraw any or all of the ground(s) of appeal before or at the time of hearing.” 2. Before us, the Ld. AR mentioned at the Bar that he was not pressing ground no. 1 (i.e. protesting denial of opportunity by the Ld. CIT(A) for presentation through video conferencing). This ground is accordingly dismissed, as not pressed. 2.1. Regarding ground no. 2, the Ld. AR vehemently argued with the help of a paper book running to 394 pages, that all the 4 (four) units, including the one at Sitarganj, maintained individual accounts, which were later consolidated. The Ld. AR stated that it was not a correct presumption that expenses were not accurately allocated unit-wise. The Ld. AR pointed out the details of electricity expenses (pages 122- 152 of the paper book) and employees expenses (pages 293 to 347 of the paper book) pertaining to the Sitarganj (eligible unit) and stated that a majority of expenses were easily allocatable between eligible and ineligible units. It was also averred that admittedly some details were filed on 18.12.2019 and the Ld. Assessing Officer’s order is dated 21.12.2019. Thus, it was possible that the Ld. Assessing Officer could not examine the facts in depth. In conclusion, the ld. AR prayed for an opportunity to present the facts before the Ld. Assessing Officer regarding the issues pertaining to Ground number 2. 2.2. Regarding Ground number 3, the ld. AR placed on record three (3) orders of ITAT in assesee’s own case for AYs 2013-14, 2015-16 and 2017-18 [ITA No. 559/Kol/2010, ITA No. 153/Kol/2021 and ITA No. 296/Kol/2022 respectively]. It has been pointed out that in all of 5 ITA No. 1891/Kol/2024 M/s. La Opala RG Ltd., AY: 2017-18 these three cases, the assessee’s challenge on these very same issues had been accepted by the ITAT, even though the challenge was on orders u/s. 263 of the Act in all these three cases. 2.3. The Ld. DR, on the other hand, relied on the orders of authorities below and on the case laws of the Hon’ble Apex Court relied on by both the ld. Assessing Officer as well as the Ld. CIT(A). 3. We have carefully considered the submissions of Ld. AR/DR and have also gone through the documents before us, including the paper book filed by the assessee. 3.1. Regarding Ground No. 2, we find that on 18.12.2019 the assessee had submitted considerable details in an attempt to segregate the expenses between the eligible unit and non-eligible units. However, a cursory glance a the voluminous details filed in the paper book (pages 89 to 100) do not reveal a clear picture of the bifurcation of expenses between the 4 units, including the Sitarganj Unit. It is felt that while some expenses like audit fees, Directors’ remuneration etc. would have to be allocated on a pro-rata basis, but other expenses like electricity charges or employee expenses would be readily allocatable to various units. Accordingly, we set aside the order of Ld. CIT(A) on this specific point and remand the matter pertaining to Ground no. 2 to the file of Ld. Assessing Officer for working out, with the assessee’s assistance, the expenses allocatable to various units. Certain common expenses, which cannot be readily segregated, may be allocated on a pro-rata basis in line with the turnover of business reported for each of the four units. We remand this issue back to the Ld. Assessing Officer accordingly. 4. Regarding Ground No. 3, on a careful perusal of the three orders of Hon’ble ITAT relied upon by the assessee in its own case, it is seen 6 ITA No. 1891/Kol/2024 M/s. La Opala RG Ltd., AY: 2017-18 that all of the three orders are on the issue of whether the Ld. Pr. CIT/CIT in these cases were justified in invoking powers u/s. 263 of the Act to set aside the order of Ld. Assessing Officer on the ground that the claim u/s. 80IC of the Act, including the various constituents of that claim, were not examined by the Ld. Assessing Officer. The lead case in this regard is also the first case of the three cases relied upon by the assessee, being ITA No. 559/Kol/2018, order dated 31.10.2019. This particular case has to be analysed to determine if it really constitutes a binding precedent for deciding the issues contained in Ground number 3, since the present appeal has its genesis from an order u/s. 143(3) of the Act (dated 21.12.2019) and not any order u/s. 263 of the Act. 4.1. It is seen that all of the 3 cases relied upon by the assessee challenge the orders u/s. 263 of the Act whereby in all the three cases somewhat similar items (like duty draw back, interest income etc.) were not allegedly added back/disallowed from computation u/s. 80IC of the Act by the ld. Assessing Officer in all of the three assessment years in question in those cases. In the lead/first case [ITA No. 559/Kol/2018, order dated 31.10.2019] the concluding para 12 at pages 17 and 18 deserves to be extracted: “In view of the discussion made in preceding paras, we are of the considered opinion that while passing the assessment order allowing the deduction u/s. 80IC in respect of items of other income and export incentives, the Assessing Officer did not follow a view which can be said to be ‘unsustainable in law’. In the circumstances, therefore, the jurisdictional facts for usurping the jurisdiction, being absent, we hold that the action of Ld. Pr. CIT was without jurisdiction and all subsequent actions are ‘null’ in the eyes of law. We, therefore, quash the order impugned before us.: 4.2. Thus, the critical finding here is that the Ld. Assessing Officer, in that case, had followed a legal view point which was not really unsustainable in law as was demonstrated in the body of that order. This finding itself follows a discussion in which some classical 7 ITA No. 1891/Kol/2024 M/s. La Opala RG Ltd., AY: 2017-18 authorities on the subject of ‘derived from’ as compared to ‘attributable to’ have been sought to be distinguished merely to show that a different view, to that of the Pr. CIT seized of proceedings u/s. 263 of the act, was ‘plausible’ [see last line at page 11 para 2 of ITA No. 559/Kol/2018 (supra)]. In fact, the detailed finding in this order of ITAT [ITA No. 559/Kol/2018] is intended to convey that the requisite details were duly called for by the ld. Assessing Officer in that case and the assessee had duly replied thereon. The conclusion drawn was that, the Ld. Assessing Officer was convinced by the assessee’s submissions and had thereafter not deemed it fit to disturb the computation of relief u/s. 80IC of the Act. It is seen that after this detailed discussion on an alternative interpretation of what is allowable u/s. 80IC of the Act, the Hon’ble ITAT concluded that the Ld. Assessing Officer’s order was not erroneous and prejudicial to the interest of the Revenue, thereby allowing the assessee’s appeal. Thus, even at the expenses of repetition, it needs to be emphasized that the Hon’ble ITAT was seized of whether the Ld. Pr. CIT had correctly assumed jurisdiction u/s. 263 of the Act or not. The discussion regarding the merit of the claim u/s. 80IC of the Act was focussed on whether the Ld. Assessing Officer’s view could have some judicial sanction or not. It was also under consideration by that Bench that whether the Ld. Pr. CIT was merely moving ahead on the basis of mere change of opinion on the same set of facts as were before the Ld. Assessing Officer in that case. Thus, it is clear that the Hon’ble ITAT found that the Ld. Assessing Officer’s view was possible in law and thereby the Ld. Pr. CIT could not assume jurisdiction merely because he had a different view. At this stage, there is no need to discuss the findings in remaining two cases of ITAT, since they follow the first one [ITA No. 559/Kol/2018 supra]. Thus, it is evident that the law and facts have to be examined here not from the angle of section 263 of 8 ITA No. 1891/Kol/2024 M/s. La Opala RG Ltd., AY: 2017-18 the Act but from the angle of section 143(3) of the Act and whether the law has been correctly applied by the Ld. Assessing Officer or not in the case before us. Also, the analysis needs to focus on whether the Ld. Assessing Officer/CIT(A) have correctly applied the principles laid down by the Hon’ble Apex Court in determining whether a particular item of income is ‘derived’ from the industrial undertaking or not. 4.3. To begin with, we need to understand the genesis of the issue about whether an item of income is “derived” from an industrial undertaking or is generally “attributable” to it. For correctly understanding the term ‘derived from’, we may take the assistance of Justice T.P. Mukherji’s Law Lexicon. The word ‘derived’ is not a term of art. Its use in the definition indeed demands an enquiry into the genealogy of the product. But the enquiry should stop as soon as the effective source is discovered - CIT v. Trivikram, AIR 1956 SC 1836, relying on CIT v. Kamakhaya Narayan Singh 16 ITR 325 (PC). The expression ‘any income derived from property’ must refer to the effective source from which the income arises. It is not sufficient that the property should be indirectly responsible for the income. The income must directly and substantially arise from the property held under Trust [J.K Trust v. CIT 23 ITR 143 (Bom)]. As per the Hon’ble Bombay High Court in the case of Hindustan Lever Ltd. v. CIT [1980] 121 ITR 951, the word ‘derived’ as far as Income Tax law is concerned, has been given a narrow meaning, indeed a strict meaning. The meaning has been understood in the restricted sense of a direct derivation and not understood in the broad sense as equivalent to be derived directly or indirectly. In other words, only the proximate source has to be considered and not the source to which it may ultimately be referable. 9 ITA No. 1891/Kol/2024 M/s. La Opala RG Ltd., AY: 2017-18 There are some important decisions delivered by the Apex Court on sections 80-I and 80-E of the Act. Amongst the decisions of the Apex Court the decision in the case of Cambay Electric Supply Industrial Co. Ltd. 113 ITR 84 (SC) is the most important one, as it has been followed in several of the subsequent decisions. The relevant decisions of the Supreme Court need to be discussed for deciding the issue at hand:- (i) The case of Cambay Electric Supply Industrial Co. Ltd. 113 ITR 84 (SC) - The relevant part of the head note, is reproduced below : \"The Legislature has deliberately used the expression ‘attributable to’, having a wider import than the expression ‘derived from’, thereby intending to cover receipts from sources other than the actual conduct of the business of the specified industry.\" From the ratio of the aforesaid decision of the Apex Court, it is clear that the phrase ‘derived from’ covers receipts from the actual conduct of business of the specified industry. The term ‘specified industry’ here means the industrial undertaking and not the manufacturing activity of such industrial undertaking. Thus, the words \"specified industries\" in section 80E of the Act, have been replaced by ‘Industrial undertakings’ in section 80-I of the Act. It clearly means that as per the Hon’ble Supreme Court’s decision in Cambay Electric Supply Industrial Co. Ltd. case (supra) receipts from the actual conduct of business of the industrial undertaking, are the profits and gains derived therefrom. Otherwise also the Apex Court has clearly laid down that the expression \"attributable to\" intends to cover receipts from other sources, thereby confirming the conclusion that the expression \"derived from\" covers the receipts by way of all the profits and gains of the industrial undertaking. In other words, it is clear that all the income earned from the actual conduct of business by an industrial undertaking is entitled to deduction under section 80-I of the Act, whereas the income from other sources is not so entitled. 10 ITA No. 1891/Kol/2024 M/s. La Opala RG Ltd., AY: 2017-18 (ii) The case of CIT v. Sterling Foods [1999] 237 ITR 579 (SC)- some relevant findings may be discussed. In this case before the Hon’ble Supreme Court, the facts were that the assessee firm was engaged in processing prawns and other sea food, which it exported during the assessment years 1975-76 and 1976-77. The assessee also earned some import entitlements granted by the Central Government under the Export Promotion Scheme for exporting sea foods. Such import entitlements could have been used by the assessee itself or could also be sold to others. The assessee sold the import entitlements to others. Its total income for the assessment year under appeal included the sale proceeds of such import entitlements and it claimed relief under section 80HH of the Act on such sale proceeds. It was held that: ‘The word \"derived\" has received judicial interpretation apart from its narrow meaning in the dictionary. As far back in 1948, the Privy Council in CIT v. Raja Bahadur Kamakhya Narayan Singh [1948] 16 ITR 325 (PC), considered the scope of that word. It was held that interest on rent of agricultural land was not an agricultural income as it was not revenue derived from the land.’ \"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 import entitlement can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Government 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 industrial 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 constitute a profit and gain derived from the assessee’s industrial undertaking.\" (iii) The case of Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC)- In this case the relevant facts, which bear some similarity to the present matter, were that interest income was earned by the assessee on the deposit made with the electricity department for supply of electricity to the assessee’s industrial undertaking. The assessee claimed deduction in respect of the above interest income under section 80HH of the Act on the ground that such income was 11 ITA No. 1891/Kol/2024 M/s. La Opala RG Ltd., AY: 2017-18 derived from the industrial undertaking. The contention of the assessee was that without supply of electricity the industrial undertaking could not run and since electricity was an essential requirement of the industrial undertaking, the industrial undertaking could not survive without it. For getting this essential input, the law required it to make a deposit as a pre-condition for supply of electricity. In the circumstances, the interest received on such deposit should be treated as “derived” from the industrial undertaking. The Hon’ble Supreme Court held that: \". . . . the words ‘derived from’ in section 80HH of the Income-tax Act, 1961 must be understood as something which has a direct or immediate nexus with the appellant’s industrial undertaking. Although electricity may be required for the purposes of the industrial undertaking, the deposit required for supply is a step removed from the business of the industrial undertaking. The derivation of profits on the deposit made with Electricity Board cannot be said to flow directly from the industrial undertaking itself.\" (iv) The case of Liberty India 317 ITR 218 (SC)- Some relevant extracts on the issue of duty drawbacks (squarely applicable on the facts of the present case) may be mentioned as under: “Analysing Chapter VI-A, one may find that sections 80-IB and 80-IA are the Codes by themselves as they contain both substantive as well as procedural provisions. It is evident that section 80-IB provides for allowing of deduction in respect of profits and gains derived from the eligible business. The words 'derived from' are narrower in connotation as compared to the words 'attributable to'. In other words, by using the expression 'derived from', the Parliament intended to cover sources not beyond the first degree.” [Para 14] “Further, sub-section (13) of section 80-IB provides for applicability of the provisions of sub-section (5) and sub-sections (7) to (12) of section 80-IA, so far as may be applicable to the eligible business under section 80-IB. Therefore, one needs to read sections 80-I, 80-IA and 80-IB as having a common scheme. On perusal of sub-section (5) of section 80-IA, it may be noticed that it provides for manner of computation of profits of an eligible business. Accordingly, such profits are to be computed as if such eligible business is the only source of income of the assessee. Therefore, the devices adopted to reduce or inflate the profits of eligible business have got to be rejected in view of the overriding provisions of sub-section (5) of section 80- IA, which are also required to be read into section 80-IB. Sections 80-I, 80- IA and 80-IB have a common scheme and if so read, it is clear that the said sections provide for incentives in the form of deduction(s) which are linked to profits and not to investments. On analysis of sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-section (2), would be entitled to deduction under sub-section 12 ITA No. 1891/Kol/2024 M/s. La Opala RG Ltd., AY: 2017-18 (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 words 'profits attributable to industrial undertaking”. [Para 15] “DEBP is an incentive. It is given under Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEBP 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 project. 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 project at rates specified by DGFT for import of raw materials, components, etc. DEPB credit under the 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. Therefore, DEPB/Duty Drawback remissions are incentives which flow from the schemes framed by the Central Government or from section 75 of the Customs Act, 1962. Hence, incentive profits are not profits derived from the eligible business under section 80-IB. They belong to the category of ancillary profits of such undertakings.” [Para 16] “What is duty drawback? Section 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 and excise duty paid by an assessee. The refund is of the average amount of duty paid on materials of any particular class or description of goods used in the manufacture of export goods of specified class. The rules do not envisage a refund of an amount arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cum-manufacturer. Sub-section (2) of section 75 requires the amount of drawback to be determined on a consideration of all the circumstances prevalent in a particular trade and also based on the fact situation relevant in respect of each of various classes of goods imported. Basically, the source of duty drawback receipt lies in section 75 of the Customs Act and section 37 of the Central Excise Act.” [Para 17] “Analysing the concept of remission of duty drawback and DEPB, it is evident that the remission of duty is on account of the statutory/policy provisions in the Customs Act/Scheme(s) framed by the Government of India. In the circumstances, the profits derived by way of such incentives do not fall within the expression \"profits derived from industrial undertaking\" in section 80-IB.” [Para 18] “The duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of section 80-I/80-IA/80- IB.” [Para 24] (v) The relatively recent case of Saraf Exports reported in 453 ITR 625 (SC)[dated 10-04-2023]- Some relevant extracts from this case law are as under: “Section 80-IB provides for deductions in respect of profits and gains from certain industrial undertakings. Therefore, as such for claiming deductions 13 ITA No. 1891/Kol/2024 M/s. La Opala RG Ltd., AY: 2017-18 under section 80-IB, it must be on the 'profits and gains derived from industrial undertakings' mentioned in section 80-IB. An identical question came to be considered by this Court and, more particularly, with respect to the profit from DEPB and Duty Drawback Schemes, in the case of Liberty India v. CIT [2009] 317 ITR 218 (SC).” [Para 7.2] “After taking into consideration the DEPB and Duty Drawback Schemes, ultimately, it is observed and held in the case of Liberty India (supra) that DEPB/Duty Drawback Schemes are incentives which flow from the schemes framed by the Central Government or from section 75 of the Customs Act, 1962 and, hence, incentive profits are not profits derived from the eligible business under section 80-IB. It is observed that they belong to the category of ancillary profits of such undertakings.” [Para 7.3] “Therefore, following the law laid down by this Court in the case of CIT v. Sterling Foods [1999] 237 ITR 579 and Liberty India (supra) as such, no error has been committed by the High Court in holding that on the profit from DEPB and Duty Drawback claims, the assessee shall not be entitled to the deductions under section 80-IB as such income cannot be said to be an income 'derived from' industrial undertaking and even otherwise as per section 28(iiid) and (iiie), such an income is chargeable to tax.” [Para 7.6] “In view of the reasons stated above, the High Court has rightly held that the assessee is not entitled to the deductions under section 80-IB on the amount of DEPB as well as Duty Drawback Schemes. It is held that on the profit earned from DEPB/Duty Drawback Schemes, the assessee is not entitled to deduction under section 80-IB.” [Para 8] (vi) The case of Reckitt Benckiser (India) Ltd. Reported in 231 Taxman 585 (Calcutta)- In this case the Hon’ble Calcutta High Court was dealing with the issue of allowability of interest income and some other items like scrap, under section 80IC of the Act. Regarding interest income the following portion is relevant: “ To our mind the facts of this case where the assessee has earned income from fixed deposits which deposits were profits and gains of the undertaking, the income obtained as interest on such profits and gains cannot be said to be derived from the business of manufacture or production of any article or thing by the assessee's undertaking.” [Para 20] Thus, from a reading of the aforesaid decisions of the Apex Court, it is clear that : (a) the expression ‘derived from’ used in section 80-IC, is a narrower concept than the expression ‘attributable to’; (b) the expression ‘derived from’ includes within its ambit only those receipts which are earned from actual conduct of the business of the industrial undertaking; (c) it is not sufficient that a particular receipt has some commercial connection with the industrial undertaking for 14 ITA No. 1891/Kol/2024 M/s. La Opala RG Ltd., AY: 2017-18 it to be held as ‘derived from’ the industrial undertaking, but it should be the result of only those activities which were undertaken by the assessee in the course of actual conduct of the business of the industrial undertaking; (d) if the activity of the assessee which has yielded the receipt was not an activity undertaken for the actual conduct of the business of the industrial undertaking, but was merely an incidental activity, i.e., the activity was a step removed from the actual conduct of the business of the industrial undertaking, then such receipt cannot be held as ‘derived from’ the industrial undertaking but has to be held as an ‘incidental receipt’ as the rule of first degree connection with the source would be violated. 4.4. At this point we may take a moment to advert to the facts surrounding this controversy. On pages 14 and 15 of the Ld. AO’s order the items of income, in question, have been mentioned as under: (i) Interest income (Rs 14,74,823) (ii) Sundry balances written off (Rs 75,031) (iii) Insurance claim received (Rs 1,97,861) (iv) Rent received (Rs 7,92,437) (v) Export incentive receipt (Rs 2,43,75,193) It is these items which need to be considered in the light of judicial pronouncements discussed in para 4.2 (supra) of this order. 4.5. In the light of the discussion above and respectfully following the binding judicial precedents, the action of Ld. Assessing Officer/CIT(A) is upheld, with respect to ground of appeal number 2. Thus, it is held that items like interest, rent receipt, export incentive etc. not “derived” from the Industrial Undertaking. However, we are considerably persuaded by the finding in ITA No. 559/Kol/2018 (supra) at page 11, last paragraph to direct that only the net interest 15 ITA No. 1891/Kol/2024 M/s. La Opala RG Ltd., AY: 2017-18 should be considered for the purposes of computing deduction u/s. 80IC of the Act. 4.6. Before parting with this issue, we feel that there is some scope for a short discussion on a further explanation as to why the three ITAT’s orders relied upon by the assessee, in its own case have not helped him in the present matter. Thus, it is observed that in the lead case [ITA No. 559/Kol/2018 for AY 2013-14], the ITAT Bench was examining whether the view apparently taken by the Ld. Assessing Officer, which was not agreed to by the ld. Pr. CIT, was reasonable or entirely erroneous. Thus, it has been written on page 9, para 10 of ITA No. 559/Kol/2018 (supra). “Now, we proceed to answer the question as to whether the decision of the Assessing Officer, after perusal of the reply of the assessee in respect of deduction u/s. 80IC of the Act, can be held to be unsustainable in law or whether can it be said to be a plausible (emphasis added) view.” Thus, we find that the Bench had embarked on an analysis of the action of Ld. Pr. CIT with this objective in view and had arrived at the conclusion that indeed the action of Ld. Assessing Officer was within the realm of plausibility and had, thereafter, struck down the order u/s. 263 of the Act. Clearly, the issue before us is whether or not the authorities below erred in excluding certain income receipts from the purview of section 80IC of the Act. As has been discussed earlier, we find that the authorities below have applied the judicial pronouncement in the case of Liberty India (supra), Pandian Chemicals (supra) and Sterling Foods (supra) and other leading authorities to arrive at, in our considered view, a correct finding of law on the peculiar facts of this case. Needless to say, the Ld. Assessing Officer would exclude only the net interest income from the purview of section 80IC of the Act, while giving effect to this order. 16 ITA No. 1891/Kol/2024 M/s. La Opala RG Ltd., AY: 2017-18 5. In result, Ground no. 2 is remanded back to Ld. Assessing Officer and hence, it is partly allowed for statistical purposes. Ground no. 3 is dismissed, however, with the directions to exclude only the net figure of interest from calculation of relief u/s. 80IC of the Act. Ground No. 3 is general and is not specifically adjudicated. As mentioned earlier, Ground No. 1 was not pressed by the ld. AR. 6. In the result, this appeal is partly allowed. Order is pronounced in the open court on 6th May, 2025. Sd/- Sd/- (Pradip Kumar Choubey) (Sanjay Awasthi) Judicial Member Accountant Member Dated: 6th May, 2025 JD, Sr. P.S. Copy to: 1. The Appellant: M/s. La Opala RG Ltd. 2. The Respondent. DCIT, Circle-11(1) 3. CIT(A), NFAC, Delhi 4. Pr. CIT 5. DR, ITAT, Kolkata Bench, Kolkata 6. Guard file. True Copy By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata "