2015 (1) TMI 512 - AT - Income Tax

Duty drawback included in eligible profits for Section 10B deduction. Revenue's appeal dismissed.

ITO Ward-23(2), New Delhi Versus Smt. Shashi Sadh

The Tribunal upheld the CIT(A)'s decision that duty drawback is includible in eligible profits for Section 10B deduction. The appeal of the Revenue was ... Exemption u/s 10B - Duty drawback - whether CIT(A) has erred in allowing the duty drawback to be included as part of eligible profit derived from export oriented unit u/s 10B of the Income Tax Act? - Held that:- CIT(A) was right in holding that section 10B(4) of the Act is a complete code which provides a formula/mechanism for computing the profits of the business eligible for deduction u/s 10B of the Act and in view of the decision of Special Bench in the case of Maral Overseas Ltd.,(2012 (4) TMI 345 - ITAT INDORE ) the present assessee was rightly held to be eligible for the claim of deduction on the export incentive received by it as per provision of section 10B (1) r.w.s. 10B(4) of the Act. AO was not justified in disallowing the claim of the assessee on the basis of decision of Hon’ble Apex Court in the case of Liberty India (2009 (8) TMI 63 - SUPREME COURT) since provisions of section 10B are different from the provisions of section 80lA wherein no formula has been laid down for computing the eligible business profit Thus we are inclined to hold that the ld. CIT(A) was right and quite justified in granting relief for the assessee - Decided against revenue. Issues Involved:1. Eligibility of duty drawback as part of eligible profit derived from export-oriented unit under Section 10B of the Income Tax Act.Issue-wise Detailed Analysis:1. Eligibility of duty drawback as part of eligible profit derived from export-oriented unit under Section 10B of the Income Tax Act:The core issue in this appeal is whether duty drawback can be included as part of eligible profit derived from an export-oriented unit under Section 10B of the Income Tax Act. The facts of the case reveal that the assessee filed a return of income for the Assessment Year (A.Y.) 2009-10, initially disclosing a total income of Rs. 2,92,453 and claiming a deduction under Section 10B of Rs. 28,75,193. This return was later revised, disclosing an income of Rs. 35,650 and claiming a deduction under Section 10B at Rs. 31,94,659. The Assessing Officer (AO) observed that the net profit included a duty drawback of Rs. 21,62,369 and disallowed this portion for the deduction under Section 10B, relying on the Supreme Court's judgment in Liberty India Vs. CIT (317 ITR 218).The assessee contended that Section 10B's computation of deduction is based on export turnover and does not exclude duty drawback, which is paid by the Government of India. The AO, however, maintained the disallowance, leading to the assessee's appeal before the CIT(A), who allowed the appeal by following the decision of the ITAT Special Bench in Maral Overseas Ltd. vs. ACIT.The Revenue, aggrieved by the CIT(A)'s order, filed the present appeal. The Departmental Representative argued that the CIT(A) erroneously followed the Special Bench's decision, which cannot extend beyond the specific case it was constituted for. The assessee's counsel countered that the Special Bench's decision should be followed for consistency unless there is a contrary judgment from the Supreme Court or High Court.Upon reviewing submissions and relevant materials, it was noted that the ITAT 'G' Bench in Sanjay Aggarwal vs. DCIT had dismissed similar arguments from the Department, emphasizing the need for consistency in Tribunal decisions. The Tribunal observed that the Special Bench's decision in Maral Overseas Ltd. is binding unless overturned by a higher court.The Tribunal also referred to the Delhi High Court's decision in CIT vs. Hritnik Export (P) Ltd., which upheld the Special Bench's view that Section 10B(4) provides a specific formula for computing eligible profits, including business income derived from exports. The High Court noted that duty drawback is deemed business income under Section 28(iiic) and should be included in the profits for Section 10B deduction.The Tribunal concluded that the AO misinterpreted the Liberty India judgment, which dealt with Section 80IA, not Section 10B, which has a distinct formula for computing eligible profits. The CIT(A)'s reliance on the Special Bench decision was deemed correct, as it aligns with the Delhi High Court's interpretation.In summary, the Tribunal upheld the CIT(A)'s order, confirming that duty drawback should be included in the eligible profits for Section 10B deduction. The appeal of the Revenue was dismissed, reinforcing the binding nature of the Special Bench's decision and the Delhi High Court's ruling on this issue.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming that duty drawback is part of the eligible profit for deduction under Section 10B, as supported by the Special Bench's decision and upheld by the Delhi High Court. The CIT(A)'s order was found to be justified and in accordance with the legal framework and judicial precedents.