Duty drawback treated as reimbursement and excluded only to the net extent after offsetting corresponding duties; AO to verify.

Duty drawback is characterised as a reimbursement and for computing deduction-eligible business profits under the relevant enactment it must be excluded only to the extent of the net benefit after offsetting corresponding customs and excise duties paid; the matter is remitted to the Assessing Officer to verify whether duties paid exceed drawback receipts and to redetermine the deduction accordingly. Separately, the claim for deduction attributable to interest on KDRs was not pursued due to its small amount and that challenge is dismissed as not pressed.

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Issues: (i) Whether duty drawback receipts should be excluded from computation of profits eligible for deduction under Section 80-IC on a net basis after deducting corresponding customs and excise duties paid; (ii) Whether deduction under Section 80-IC is allowable in respect of interest received on KDRs (small amount).

Issue (i): Whether duty drawback receipts must be excluded on a net basis (duty drawback less corresponding customs and excise duties paid) for determining eligible profits for deduction under Section 80-IC.

Analysis: The record shows duty drawback credited to the profit and loss account and corresponding customs and excise duties debited to the profit and loss account. Authority and prior coordinate bench decision recognise duty drawback as being in the nature of reimbursement. Where the corresponding duty paid (debited) exceeds the duty drawback received (credited), the net effect is not a profit arising from duty drawback. The matter in a subsequent assessment year in the assessee's own case was remitted for verification and the AO applied the netting approach. The Tribunal directs that the AO verify whether the corresponding customs and excise duties paid exceed the duty drawback received and determine eligible deduction accordingly.

Conclusion: In favour of Assessee. Duty drawback receipts shall be considered for exclusion from eligible profits under Section 80-IC only to the extent of the net amount after accounting for corresponding customs and excise duties paid; matter remitted to the Assessing Officer for verification and fresh determination.

Issue (ii): Whether deduction under Section 80-IC is allowable in respect of interest received on KDRs amounting to a small sum.

Analysis: The amount involved is small and the assessee has chosen not to pursue protracted verification or litigation on this ground.

Conclusion: Against Assessee. The challenge to disallowance of deduction attributable to interest on KDRs is dismissed as not pressed for smallness of the amount.

Final Conclusion: The appeal is partly allowed by remitting the duty-drawback related issue to the Assessing Officer for factual verification and redetermination on net basis; the claim relating to interest on KDRs is refused as not pressed.

Ratio Decidendi: Duty drawback is a reimbursement and, for computing profits eligible for deduction under Section 80-IC, only the net benefit after offsetting corresponding customs and excise duties paid is required to be excluded from eligible business profits.

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