2022 (6) TMI 350 - AT - Income Tax

Tribunal allows appeal, finding Section 263 order invalid, grants deductions under Section 80IB(11A)

Nekkanti Sea Foods Limited Versus Principal Commissioner of Income Tax, Visakhapatnam.

The Tribunal allowed the appeal, holding that the Principal Commissioner of Income Tax's order under Section 263 was not valid. The assessee was entitled ... Deduction u/s 80IB(11A) - Pr. CIT referred to the decision of the Hon’ble Supreme Court in the case of Liberty India [2009 (8) TMI 63 - SUPREME COURT] and directed the AO to exclude the export incentives for the purpose of computation of deduction U/s. 80IB(11A) - HELD THAT:- As the export incentives cannot be considered as profits derived from industrial activities for the purpose of claiming deduction U/s. 80IB(11A) of the Act, the reliance placed by the Ld. AR in the decision in the case of Meghalaya Steels Ltd [2016 (3) TMI 375 - SUPREME COURT] have merits in the case. Thus we hold that the export entitlements (MEIS) and the duty drawback of promotion scheme is an income asssessable under the head “profits or gains from business or profession” as per clause (iiib) and (iiid) to section 28 of the IT Act, 1961. In view of the above, the Ground raised by the assessee is allowed. Issues involved:1. Condonation of delay in filing the appeal.2. Validity of the Principal Commissioner of Income Tax's (Pr. CIT) order under Section 263 of the Income Tax Act.3. Entitlement of the assessee to claim deduction under Section 80IB(11A) of the Income Tax Act.4. Applicability of the Supreme Court's decision in Liberty India vs. CIT and Meghalaya Steels Ltd vs. CIT.Issue-wise detailed analysis:1. Condonation of delay in filing the appeal:The assessee filed the appeal with a delay of 111 days. The delay was condoned based on the Supreme Court's decision in SMW(A) No.3 of 2020, which excluded the period between 15/3/2020 and 28/02/2022 from the limitation period due to the COVID-19 pandemic.2. Validity of the Principal Commissioner of Income Tax's (Pr. CIT) order under Section 263 of the Income Tax Act:The Pr. CIT invoked Section 263, claiming the assessment order was erroneous and prejudicial to the Revenue's interest. The Pr. CIT directed the AO to disallow certain deductions claimed under Section 80IB(11A), citing that the income from duty drawback and sale of licenses did not derive from the business of the industrial undertaking. The Tribunal found that the AO had already examined the books of accounts and that the Pr. CIT's order was based on a mere change of opinion, which is not permissible under Section 263.3. Entitlement of the assessee to claim deduction under Section 80IB(11A) of the Income Tax Act:The assessee claimed deductions under Section 80IB(11A) for income derived from the export of frozen shrimp and other sea foods. The Pr. CIT argued that the duty drawback and sale of licenses should not be included in the deduction. However, the Tribunal noted that these incentives are directly linked to the assessee's export activities and should be considered as part of the business profits.4. Applicability of the Supreme Court's decision in Liberty India vs. CIT and Meghalaya Steels Ltd vs. CIT:The Pr. CIT relied on the Liberty India decision, which excluded duty drawback and similar incentives from business profits for deduction purposes. However, the assessee argued that the Meghalaya Steels Ltd decision, which came later, overruled Liberty India. The Tribunal agreed with the assessee, stating that the Meghalaya Steels Ltd decision clarified that such incentives should be included under 'profits and gains of business or profession' as per Section 28(iiib) and (iiid) of the Income Tax Act.Conclusion:The Tribunal allowed the appeal, holding that the Pr. CIT's order under Section 263 was not valid, and the assessee was entitled to claim deductions under Section 80IB(11A) for the duty drawback and sale of licenses. The Tribunal relied on the Supreme Court's decision in Meghalaya Steels Ltd, which overruled the earlier Liberty India decision.