DEPB and duty drawback deduction for supporting manufacturers requires factual verification of the benefit actually received

A supporting manufacturer's claim for deduction on DEPB and duty drawback benefits cannot be rejected outright merely because the incentives are not sale consideration. The governing computation principles under Section 80HHC and the treatment of DEPB receipts under Section 28(iiib) must be applied, and the Assessing Officer must examine the factual value of the incentives actually passed on to the supporting manufacturer. The matter was therefore remitted for fresh consideration in light of the Supreme Court ruling in Topman Exports.

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Issues: Whether a supporting manufacturer was entitled to deduction under Section 80HHC on DEPB and duty drawback benefits disclaimed in its favour, and whether the matter required factual examination as to the value of the incentives received.

Analysis: The assessee, as a supporting manufacturer, claimed inclusion of DEPB and duty drawback amounts in the profits for deduction under Section 80HHC. The Revenue contended that such benefits were not part of the sale consideration and that the claim could not be allowed without determining the value actually transferred to the assessee. The Court noted that the earlier rejection proceeded on the footing that the incentives were not part of sale consideration, but the legal position explained in Topman Exports required application of the treatment of DEPB receipts under Section 28(iiib) and the computation formula under Section 80HHC. On that footing, the Court held that the claim could not be rejected outright and that the factual aspect of the value of incentives passed on to the supporting manufacturer had to be examined by the Assessing Officer.

Conclusion: The issue was answered in favour of the assessee to the extent that the claim could not be rejected summarily, and the matter was remitted to the Assessing Officer for fresh consideration in the light of the Supreme Court ruling.

Ratio Decidendi: A claim for deduction relating to DEPB and duty drawback in the hands of a supporting manufacturer cannot be disallowed without determining the value of the benefit actually received and applying the governing computation principles under Section 80HHC and Section 28(iiib) of the Income-tax Act, 1961.

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