Tribunal allows DEPB benefits as business profits for Section 80IB(11A) deduction

The Tribunal allowed the assessee's appeals for all assessment years, holding that DEPB benefits should be included as business profits for deduction under Section 80IB(11A). The Tribunal also allowed the deduction for benefits received under the Vishesh Krishi and Gram Udyog Yojana (VKGUY) based on the Bombay High Court decision in Pioneer Foods & Agro Industries. All appeals of the assessee were partly allowed, with the decision pronounced on 14/10/2020.

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Issues Involved:
1. Validity of the CIT(A)'s order.
2. Influence of AO's decision on CIT(A).
3. Legality of additional depreciation disallowance.
4. Bias of CIT(A) towards AO's decision.
5. Disallowance of DEPB license premium for profit calculation under Section 80IB(11A).
6. Legality of disallowance of deduction under Section 80IB(11A).
7. Applicability of subsequent Supreme Court decisions.

Issue-wise Detailed Analysis:

1. Validity of the CIT(A)'s Order:
The assessee contended that the order passed by the CIT(A) was unjustified, arbitrary, contrary to the facts, and bad in law. However, this ground was not pressed during the hearing and was dismissed as not pressed.

2. Influence of AO's Decision on CIT(A):
The assessee argued that the CIT(A) was influenced by the decision of the AO without considering the merits, facts, and circumstances of the case. This ground was also not pressed and was dismissed as not pressed.

3. Legality of Additional Depreciation Disallowance:
The assessee claimed that the additional depreciation disallowed by the AO and confirmed by the CIT(A) was illegal, as it was based on irrelevant case laws. This ground was not pressed and was dismissed as not pressed.

4. Bias of CIT(A) Towards AO's Decision:
The assessee alleged that the CIT(A) was biased towards the AO's decision and ignored the submissions that the assessee was engaged in production activities and was entitled to additional depreciation. This ground was not pressed and was dismissed as not pressed.

5. Disallowance of DEPB License Premium for Profit Calculation Under Section 80IB(11A):
The main issue revolved around the disallowance of the DEPB license premium for calculating profit under Section 80IB(11A). The AO observed that DEPB, available as an export incentive, could not be considered profits derived from an industrial undertaking. The AO relied on the Supreme Court decisions in Liberty India vs. CIT and CIT vs. Sterling Foods, which were upheld by the CIT(A).

6. Legality of Disallowance of Deduction Under Section 80IB(11A):
The assessee argued that the DEPB benefits should be included in the business income for deduction under Section 80IB(11A). The assessee cited amendments to Section 28 and various judicial precedents, including the Supreme Court decision in Topman Export, which supported the inclusion of DEPB benefits as business profits. The Tribunal noted that the legislative intent behind the amendments to Section 28 was to include DEPB benefits as business profits. The Tribunal also referred to the Supreme Court decision in Meghalaya Steels Ltd., which clarified that subsidies related to the business should be included under "profits and gains of business or profession."

7. Applicability of Subsequent Supreme Court Decisions:
The Tribunal observed that the subsequent Supreme Court decision in Meghalaya Steels Ltd. overruled the earlier decisions in Liberty India and Sterling Foods. The Tribunal concluded that DEPB benefits should be included as business profits for deduction under Section 80IB(11A). The Tribunal also noted that the Gujarat High Court decision in Banpal Oil Chem (P) Ltd. was not applicable in light of the Supreme Court's decision in Meghalaya Steels Ltd.

Conclusion:
The Tribunal allowed the assessee's appeals for all assessment years, holding that DEPB benefits should be included as business profits for deduction under Section 80IB(11A). The Tribunal also allowed the deduction for benefits received under the Vishesh Krishi and Gram Udyog Yojana (VKGUY) based on the Bombay High Court decision in Pioneer Foods & Agro Industries.

Order:
All appeals of the assessee were partly allowed. The decision was pronounced on 14/10/2020.

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