TaxTMI 
TaxTMI 
2009 (11) TMI 619
X X X X Extracts X X X X
X X X X Extracts X X X X
.... invalid and void ab initio and bad in law and are liable to be cancelled. 2. The appellant denies his liability to tax as determined and computed and the manner in which it has been so determined or computed. 3. The CIT(A) has erred on facts and in law in upholding the action of the learned AO in making the impugned addition of Rs. 2,65,19,672 on account of excise duty refund by treating it as a revenue receipt and income of the appellant and not allowing the claim of deduction under s. 80-IB of the IT Act on this. 4. That on the facts and in law the learned CIT(A) erred in upholding that the excise duty refund of Rs. 2,65,19,672 received by the assessee was not derived from the industrial undertaking and thus was not eligible for claim of deduction under s. 80-IB of the IT Act, 1961. It is prayed that the deduction under s. 80-IB may be allowed at Rs. 2,65,19,672 as claimed. 5. That on the facts and in law the learned CIT(A) erred in upholding that the interest subsidy of Rs. 2,10,695 received by the assessee was not derived from the industrial undertaking and thus was not eligible for claim of deduction under s. 80-IB of the IT Act, 1961. It is prayed that the deduct....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it as a revenue receipt and income of the appellant and not allowing the claim of deduction under s. 80-IB of the IT Act, on this. 4. That on facts and in law the AO has erred in levying interest under s. 234B of the IT Act. 5. The appellant craves leave to and permission to add, to alter or delete any of the grounds of appeal at any time upto the final decision of the appeal. 6. That the appellant craves and sanction to file additional evidence, if so required for proper prosecution of the case, based on facts and circumstances, which has not been or could not be adduced or filed before lower authorities either because proper and sufficient opportunity/time was not provided or because it was not solicited or its need was not provided or because it was not solicited or its need was appreciated." 3.1 The additional grounds raised in this appeal vide letter dt. 2nd July, 2009 are reproduced hereunder: "1. That on the facts and circumstances of the case and in law refund of excise duty amounting to Rs. 2,26,70,986 is a capital receipt not liable to tax under the provisions of the IT Act, 1961 ('the Act'). 2. That the CIT(A) erred on facts and in law in holding that e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ieved by the order of the learned CIT(A), the assessee filed the present appeal before us. 7. The assessee, vide letter dt. 29th June, 2009, raised the additional grounds of appeal, as reproduced above. In the additional grounds of appeal, the assessee contended that the excise duty refund amounting to Rs. 2,73,25,405, is a capital receipt, not liable to tax under the provisions of the Act. Similarly, it was also contended that interest subsidy of Rs. 2,10,695, is a capital receipt, not liable to tax under the provisions of the Act. On the admission of additional ground of appeal, it was submitted by the learned Authorised Representative for the assessee that the assessee-firm had set up an industrial undertaking, in Kathua, in the State of J&K. The Government of India announced 100 per cent excise duty exemption to an industrial undertaking set up in the State of J&K, for a period of 10 years, from the date of commencement of commercial production, with a view to encouraging industrial development, in the J&K State. It was contended in the written submission that such exemption was granted for the purpose of industrial development of the State, in terms of the Memorandum No. 1(....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Chemicals Ltd. vs. CIT (2008) 219 CTR (SC) 105 : (2008) 13 DTR (SC) 1 : (2008) 306 ITR 392 (SC) , contending that the ruling of the Hon'ble Supreme Court, in the case of Sahney Steel & Press Works Ltd., has been followed in the decision of Ponni Sugars & Chemicals Ltd. vs. CIT. In a nutshell, he stressed on the 'purpose test' for ascertaining the true nature of such receipts. The learned counsel also placed reliance, on the decision of CIT vs. Balarampur Chini Mills Ltd. (1999) 154 CTR (Cal) 323 : (1999) 238 ITR 445 (Cal). The learned counsel for the assessee also placed reliance, on the following decisions: (1) CIT vs. National Cooperative Consumers' Federation Ltd. (2002) 254 ITR 599 (Del); (2) CIT vs. Madurantakam Co-operative Sugar Mills Ltd. (2004) 186 CTR (Mad) 203 : (2003) 263 ITR 388 (Mad); (3) Vishnu Sugar Mills Ltd. vs. Dy. CIT (1998) 62 TTJ (Cal) 275; (4) Addl. CIT vs. Chodavaram Coop. Sugars Ltd. (2002) 77 TTJ (Visakha) 129 : (2003) 86 ITD 139 (Visakha); (5) Modi Industries Ltd. vs. ITO (2002) 120 Taxman 55 (Del); (6) Honda Siel Cars India Ltd. (ITA No. 5577/Del/2004) (Delhi Bench); (7) Dy. CIT vs. Reliance Industries Ltd. (2004) 82 TTJ (Mumbai)(SB)....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... overrule the view taken in the case of Addl. CIT vs. Gurjargravures (P) Ltd. It was contended by the learned Departmental Representative that the decision, in the case of Addl. CIT vs. Gurjargravures (P) Ltd. had not been overruled and still holds the field. The learned Departmental Representative, further, argued that as held, in the case of CIT vs. Ramakrishna Deo (1959) 35 ITR 312 (SC), the burden of showing that a particular income is exempt lies on the assessee and the appellant, in this case has failed to discharge the same before the ITO and the CIT(A). Consequently, the issue cannot be raised, before the Bench, at this stage. It was also submitted by the learned Departmental Representative that in case the additional grounds are admitted, the same should go back to the AO, for consideration on merits, as the issue was not raised before the CIT(A) and the AO. The learned Departmental Representative placed reliance on the following decisions: (i) Himachal Gramin Bank vs. Dy. CIT (2008) 219 CTR (HP) 670 : (2008) 9 DTR (HP) 141 : (2008) 305 ITR 163 (HP); (ii) Abhishek Industries Ltd. vs. CIT (2006) 206 CTR (P&H) 450 : (2007) 290 ITR 655 (P&H); (iii) Dr. (Miss) Chandra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e has relied upon eight cases and Board's circular, in construing such receipts as capital receipts. The learned Departmental Representative, discussed the said case laws and distinguished the same, as factually different and distinguishable. It was contended that such case laws support the contention of the Revenue and, hence, such incentives receipts are revenue in nature. 9.2 The learned Departmental Representative, discussed and deliberated the case laws extensively after referring to the facts of the case laws relied upon by the learned counsel for the assessee vis-a-vis case laws, in the present case and contended that none of the case law is applicable to the fact situation of the present case. It was also contended by the learned Departmental Representative, that the Board's Circular No. 142, dt. 1st Aug., 1974 quoted by the assessee, is confined to the scheme referred to therein and it cannot be said that it is applicable to all the future schemes introduced by the Government of India, as has been discussed and appreciated in number of case laws. It was, further, pointed out by the learned Departmental Representative, that the decisions, in the cases of CIT vs. Ponni Su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f additional ground of appeal. the learned counsel for the assessee placed reliance, on the decision of the Hon'ble Supreme Court, in the case of National Thermal Power Co. Ltd. vs. CIT, whereby in the context of powers of the Tribunal, in the matter of admission of the additional grounds of appeal, it was held that where the Tribunal is only required to consider the question of law, arising from the facts, which are on record, the question should be allowed to be raised, when it is necessary, to correctly assess the tax liability. 10.3 The learned counsel for the assessee, further, contended that the facts of the case are squarely covered by the decision of the Hon'ble Supreme Court, in the case of National Thermal Power Co. Ltd. vs. CIT. It was submitted by the learned counsel that in the application filed by the assessee, for admission of additional grounds, it has been clearly stated that the additional grounds are being raised, on being recently advised of the correct position of law. It was, further, argued by the learned counsel for the assessee that the issue of taxability of refund of excise duty is a fundamental issue, which goes to the roots of the matter and, hence, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(P&H) 286 : (2000) 243 ITR 493 (P&H); (iii) Steel Ingots (P) Ltd. vs. CIT (1996) 135 CTR (MP) 379; (iv) Rashi Leathers (P) Ltd. vs. CIT (1999) 152 CTR (Mad) 137 : (1999) 240 ITR 702 (Mad); (v) CIT vs. Ashok Leyland Ltd. (2002) 253 ITR 425 (Mad); (vi) CIT vs. A.M. Moosa, Bharath Sea Foods (2004) 191 CTR (Ker) 441; (vii) Zakir Hussain vs. CIT (2006) 202 CTR (Raj) 40; (viii) Dy. CIT vs. Turquoise Investment & Finance Ltd. (2006) 202 CTR (MP) 395 : (2008) 299 ITR 143 (MP); (ix) Abhishek Industries Ltd. vs. CIT; (x) Velji Tokarshi Vikmani vs. ITO (1999) 64 TTJ (Mumbai] 667 : (1999) 68 ITD 521 (Mumbai); (xi) Shri Rama Multi Tech Ltd. vs. Asstt. CIT (2005) 92 TTJ (Ahd) 568; (xii) Kanoi Industries (P) Ltd. vs. Dy. CIT (2006) 102 TTJ (Kol) 285 : (2007) 289 ITR 76 (Kol)(AT); (xiii) Jethalal K. Morbia vs. Asstt. CIT (2007) 109 TTJ (Mumbai) 1; (xiv) Ashwani Kumar vs. Asstt. CIT (2007) 110 TTJ (Asr) 890; (xv) CIT vs. Ruchira Papers Ltd. (2007) 110 TTJ (Chd) 995. 10.6 The learned counsel for the assessee, also contended that the reliance placed by the learned Departmental Representative, on the decision of Maruti Udyog Ltd. vs. ITAT, that in case the Hon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nch, Mumbai in the case of ICICI Bank Ltd. It was submitted by the learned counsel that the decision is not at all applicable to the facts of the present case, as the issue now being raised is purely a legal issue and had been considered and decided by the learned CIT(A). Further, it was pointed out that the facts and documents required for adjudicating the same are already available, on the record of the lower authorities. In view of this, consideration of the issue now being raised by the assessee is not, therefore, barred in law and, even otherwise, would not, in any manner, change the factual complexion of the matter. The learned counsel, further, placed reliance on the decision of the Tribunal, Delhi Bench, in the case of Slocum Investment (P) Ltd. vs. Dy. CIT (2006) 101 TTJ (Del) 558 : (2007) 106 ITD 1 (Del), highlighting the distinction between the right of the assessee and the Revenue to raise additional grounds. 11. We have carefully perused and considered the written submissions made in the course of present appellate proceedings and the case laws relied upon therein, facts of the case, paper books filed by the parties and also the relevant records. It is an undisputed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rely a legal issue which was considered and decided by the CIT(A), as rightly submitted by the assessee's counsel, Shri Ajay Vohra, in the impugned appellate order. It would be pertinent to reproduce the findings of the learned CIT(A), wherein he had clearly referred to and considered the decision of the Hon'ble Supreme Court, in the case of Sahney Steel & Press Works Ltd. and following the said decision gave categorical findings that the impugned central excise duty refund is a revenue receipt. The relevant part of the impugned appellate order of the CIT(A), is reproduced hereunder: "With regard to the submission of the appellant that the refund of Central excise duty is not an income, it would also be pertinent to refer to the judgment of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. vs. CIT (1997) 142 CTR (SC) 261 : (1997) 228 ITR 253 (SC), wherein it has been held that whenever a subsidy or assistance is given by the Government in order to carryon the business i.e., after the commencement of business, being operational aid, it is a revenue receipt. It is only when the incentive, aid or subsidy is given to set up the industry, then only it can be said t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....benefit was received in the course of carrying on the assessee's business. It was a benefit incidental to its business. The subsidy was not intended to be a contribution towards capital outlay of the industry. Therefore, it was held that the subsidy received by the assessee in that case could not be regarded as anything but a revenue receipt.' Thus, following the law laid down by the Hon'ble Supreme Court in the above-referred case, it has to be inferred that the refund of excise duty is a revenue receipt, as this incentive is given as an operational assistance by the Government, which is available only after the commencement of production in the course of carrying on the business." 11.1 A perusal of the above extracted relevant part of the impugned appellate order passed by the CIT(A) incorporating specific findings, reveals that the CIT(A) has considered the decision of the Hon'ble Supreme Court, in the case of Sahney Steel & Press Works Ltd., in the specific context of refund of central excise duty and adjudicated the issue by holding such receipt as revenue receipt. After extensively quoting the decision of the Hon'ble Supreme Court, in the case of Sahney Steel & Press Wo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... CTR (Del) 5 : (1992) 198 ITR 1 (Del), as "Under Art. 265 of the Constitution, the State is entitled to recover or realise only that tax which is imposed in accordance with law. It is the duty of the State to see that justice is done to the citizens. Therefore, shelter shouldn't ordinarily be taken behind procedural technicalities, with a view to defeating the claim of the assessee". It was, further, held by the Hon'ble Court as "that as an appellate authority and specifically in view of r. 11 of the ITAT Rules, 1963, the Tribunal had jurisdiction to allow such a ground to be raised. The question which was raised was a pure question of law and, normally, where no fresh evidence was required to be taken, there was no reason why the additional ground shouldn't be entertained-Jute Corporation of India Ltd. vs. CIT (1990) 88 CTR (SC) 66 : (1991) 187 ITR 688 (SC) applied." 11.3 It is pertinent to mention here that the additional grounds are origin to the facts already available on record, before both the AO and the CIT(A), in the form of various notifications and Government memorandum. Further, such additional grounds require no further enquiry, into the facts for adjudication thereo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ually different and distinguishable, as discussed, hereinunder: (i) In the case of Ponni Sugars & Chemicals Ltd. vs. CIT, the Hon'ble Supreme Court followed and applied the test laid down, in the case of Sahney Steel & Press Works Ltd. vs. CIT. The ratio laid down by the Hon'ble Supreme Court, in the case of Sahney Steel & Press Works Ltd. has been followed and reiterated by the Hon'ble apex Court, in the case of Ponni Sugars & Chemicals Ltd. and the same has not been diluted in any form and held that the incentive had to be used for repayment of loans taken by the assessee to set up new unit or for substantial expansion of existing unit, to be utilised for repayment of loan. Consequently, subsidy received by the assessee was not in the course of trade but was of capital nature. The Hon'ble Supreme Court examined the schemes in the case of Ponni Sugars & Chemicals Ltd. vs. CIT and culled out four factors, therefrom, which are reproduced hereunder: (i) Benefit of the incentive subsidy was available only to new units and to substantially expanded units not to supplement the trade receipts. (ii) The minimum investment specified was Rs. 4 crores for new units and Rs. 2 crores ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r Works Ltd. and held that the rubber replanting subsidy is not a revenue receipt The Hon'ble apex Court further held that in view of the concession by the Revenue, the replantation subsidy received by the planters from Rubber Board could not be treated as a revenue receipt and taxed as capital. It is added that in the case of Ruby Rubber Works Ltd., the subsidy had to be spent for the acquisition of asset by replanting rubber of high-yielding variety. Therefore, the Hon'ble Supreme Court, has approved the Full Bench decision of the Hon'ble Kerala High Court in the case of Ruby Rubber Works Ltd. as the subsidy was for replantation. (iv) CIT vs. Balarampur Chini Mills Ltd.: In this case, the Hon'ble Court, after referring to the case of Sahney Steel & Press Works Ltd., held that "Thus their Lordships made it clear that whether it is a revenue receipt or capital receipt, it is to be seen for which purpose it has been given to the assessee. If it is given for running the day to day business, that is a revenue receipt. If it is given to meet the capital cost of asset, then it is a capital receipt. The admitted fact in this case is that the incentive has been received by the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... plots that had been leased could be used only for the specified projects as envisaged in the application form. The scheme also provides that the allottee is required to give employment to at least 5 per cent of the total employment in the unit to those whose land has been acquired by Greater NOIDA. These facts put together shows that the incentive that has been given for the commencement of production is not an incentive in connection with the actual business activities of the assessee. The incentive is being given for early utilization and early execution of the specified projects as envisaged in the application form as also the Industrial Policy of 1998 of the State of UP. The fact that the allottee is required to give employment to at least 5 per cent of the total employed in the unit to those whose land has been acquired by Greater NOIDA gives further emphasis for the purpose of incentive. If the project envisaged starts production the commitment of the State for employment of the person, whose land has been acquired for the development of the industrial policy of the State get assisted. By this incentive the assessee does not get any specific benefit in its production or its ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e to run more profitably nor was it a helping hand during the early days to enable them to a competitive on a level with other established industries. The facts in the present case are entirely different as can be seen when compared with the case of Honda Siel Cars India Ltd.'s case. (vii) The learned counsel for the assessee referred to the decision of the Hon'ble Supreme Court, in the case of V.S.S.V. Meenakshi Achi, wherein it was held that the character of the subsidy in the hands of the recipient is to be determined having regard to purpose for which the subsidy is given. (viii) It was, further, pointed out by the learned counsel that the said principle has been reiterated by the Hon'ble Supreme Court, in the case of Sahney Steel & Press Works Ltd. vs. CIT. The relevant and operative part of the judgment of Hon'ble Supreme Court, in the case of Sahney Steel & Press Works Ltd. is reproduced hereunder: "If payments in the nature of subsidy from public funds are made to the assessee to assist him in carrying on his trade or business, they are trade receipts. The character of the subsidy in the hands of the recipient-whether revenue or capital-will have to be determine....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see in terms of the said Government order 'did not represent refund of sales-tax' but was a development subsidy in the nature of a capital receipt. The High Court held that the amount was assessable. On appeal to the Supreme Court by the assessee: Held, dismissing the appeal, that, under the notification in question the payments were made to assist the new industries at the commencement of business to carry on their business. The payments were nothing but supplementary trade receipts. It was true that the assessee could not use this money, for distribution as dividend to its shareholders. But the assessee was free to use the money in its business entirely as it liked and was not obliged to spend the money for a particular purpose. The subsidies had not been granted for production of, or bringing into existence any new asset. The subsidies were granted year after year, only after the setting up of the new industry and commencement of production. Such a subsidy could only be treated as assistance given for the purpose of carrying on of the business of the assessee. The subsidies were of revenue nature and would have to be taxed accordingly." 11.7 The assessee also placed relian....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 11.11 Precedent should be followed only so far as it marks the path of justice, but you must cut the dead wood and trim off the side branches else you will find yourself lost in thickets and branches. The path of justice must be clear of obstruction which could impede it. 11.12 The assessee has placed reliance, on the above decisions, without discussing, as to how, the factual situation of the present case fits in the fact-situation of the cases relied, upon. The observations of the Court must be read in the context in which they appear to have been stated. The fact situation of the present case clearly demonstrates that the case laws relied upon by the assessee, to support its contention are factually different and distinguishable, rather these case laws support the contentions raised by the Revenue that such incentives are in the nature of revenue receipts. In the present case, the impugned excise refund and interest subsidy have not been given to establish industrial unit, as the industry had already been established, as is evident from the submission of the assessee itself. The excise refund and interest subsidy are not tied to any specific purpose for acquisition of as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in nature. We are of the considered opinion that the case laws relied upon by the assessee are founded on materially different and distinguishable facts vis-a-vis the fact situation of the present case. In view of this, such case laws are factually different and distinguishable. It is, further, mentioned that the case laws relied upon by the learned Departmental Representative are relevant and applicable to the fact situation of the present case. 11.15 The learned counsel for the assessee, further, placed reliance on Board's Circular No. 142, dt. 1st Aug., 1974. The relevant circular is reproduced as under: "34. Taxability of subsidy-Revenue receipt or capital receipt-10 per cent Central Outright Grant of Subsidy Scheme, 1971. 1. The Board had occasion to consider whether the amount of subsidy received under 10 per cent Central Outright Grant of Subsidy Scheme for industrial units to be set up in certain selected backward districts/areas would constitute revenue receipt or capital receipt in the hands of the recipient for the purpose of income-tax. 2. I am directed to say that the payment of subsidy under the scheme is primarily given for helping the growth of industrie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rought in as an enabling provision to allow payment of incentive to the manufacturer-assessee and not to exempt the excisable goods from the payment of duty per se. (c) The para '2' of the Circular No. 682 further substantiates the inference that payment made by the assessee to the Government is in lieu of discharge of his statutory liability towards duty. The relevant part of para 2 is reproduced as under: "2. The above two notifications for the State of J&K exempt that portion of the excise duty, which is paid by the manufacturers in cash. For this purpose, a suitable mechanism has been incorporated in the notifications. The manufacturer is first required to pay the excise duty and thereafter, whatever is paid in cash is to be refunded" (a) The conclusion referred to above are further supported by the language of para 4 of the said Circular 682, which is reproduced as under: "4. The notifications provide for expeditious refund of duty paid in cash. It is for this reason that a provision has been made for allowing refund even on provisional basis by the 15th of the next month, in case there is likely to be a delay in verification of the refund claims. Any excess or sho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on'ble Supreme Court: (1) Chief CIT vs. Kesaria Tea Co. Ltd. (2002) 173 CTR (SC) 394 : (2002) 254 ITR 434 (SC); (2) Polyflex (India) (P) Ltd. vs. CIT (2002) 177 CTR (SC) 93 : (2002) 257 ITR 343 (SC); (3) CIT vs. Thirumalaiswamy Naidu & Sons (1998) 146 CTR (SC) 529 : (1998) 230 ITR 534 (SC). 11.19 It was vehemently contended by the learned Departmental Representative, that the assessee consistently claimed central excise refund is part of the profits of its undertaking and consequently sought deduction under s. 80-IB of the Act. It is incumbent upon the assessee who is claiming the said receipts as capital in nature and, consequently, exempt from tax, to discharge the onus that lies upon the assessee, to prove the same, as held by the Hon'ble Supreme Court, in the case of CIT vs. Ramakrishna Deo. The learned Departmental Representative also referred to audit report, in Form 10CCB (Cols. 21 and 22), filed by the Revenue, to support his contention wherein profits and gains derived by the undertaking/enterprise from eligible business is indicated at Rs. 2,64,44,406 and in the next column deduction under s. 80-IB is claimed at 100 per cent of Rs. 2,64,44,406. In Form No. 3CB....
X X X X Extracts X X X X
X X X X Extracts X X X X
....luded for the purpose of working out the deduction under s. 80-IB of the IT Act, 1961. 5. Being exempt from excise duty, the object of the excise duty refund scheme is to reimburse manufacturer for excise duty paid on the removal of goods produced/manufactured by the assessee. Excise duties raised the cost of production in industries and thereby affect the competitiveness of industry. Therefore, industries in the backward States like J&K need to be assisted by neutralizing the escalation in their costs, attributable to such excise duties. Excise duty refund is, therefore, intended to reduce the cost of production. Hence, excise duty is an integral part of the pricing of the goods and therefore, excise duty has to be treated as derived from the industrial undertaking. The excise duty is inextricably linked with the production cost of the goods manufactured by the assessee and so the excise duty was a trading receipt of the industrial undertaking having direct nexus with the activity of such industrial undertaking and, therefore, it forms part of the income derived from such industrial undertaking." 11.21 The learned Departmental Representative, further, submitted that inclusio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... This deviation can be seen in the case of The Gurdaspur Co-op. Sugar Mills vs. Dy. CIT where by the orders of the Government, the amounts of loan were changed to grant-in-aid and the Hon'ble Bench held the same as revenue in nature. Kindly refer to the decision of this Hon'ble Tribunal in the case in ITA No. 344/Asr/2008 and SA No. 11/Asr/2008 decided on 31st Dec., 2008 [reported at (2009) 122 TTJ (Asr) 528 : (2009) 19 DTR (Asr)(Trib) 209-Ed.]. A copy of this decision is already handed over at the time of hearing." 11.23 The learned Departmental Representative, further, submitted that besides the notifications, the assessee has not given any additional evidence, to prove that the incentives, in the form of refund of central excise duty available under the said notification is of capital in nature. It is a fact that it has gone to add the profits of the undertaking. In case of it being capital in nature, it would have increased the reserves of the undertaking. Some of the receipts which were treated as of capital in nature by the assessee has been crediting to the "Reserves and surplus", in Sch. 2 forming part of the balance sheet as on 31st March, 2005. The receipt of refund of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n this notification shall apply only to the following kind of units, namely,- (a) new industrial units, which have commenced their commercial production on or after 14th day of June, 2002; (b) industrial units existing before 14th day of June, 2002 but which have undertaken substantial expansion by way of increasing installed capacity by not less than 25 per cent on or after 14th day of June, 2002. 12.1 Based on such notifications and memorandum the package of facilities and incentives were given to the new industrial undertaking and other industrial undertaking, who undertook substantial expansion, as contemplated in the said scheme, which commenced production, on or after 14th June, 2002. The incentives, in the form of excise duty refund and interest subsidy are allowed for a period of 10 years, from the date of commencement of the commercial production. The package of incentives provided under the scheme has been reproduced above. A critical analysis, examination and appreciation of the notifications, memorandum and circulars pertaining to the said scheme, formulated for the State of J&K, by the Central Government reveals that such incentives were not available unless a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....commencement of commercial production by the industrial unit which had already set up by the appellant. 12.4 The learned counsel for the assessee contended that the impugned incentives are capital in nature, as they have been granted for industrial development of the State of J&K. It was contended that new initiatives would provide the required incentives and enabling environment for industrial development, improve availability of capital and increase market access to provide a fillip to the private industries in the State. The learned counsel for the assessee placed reliance on the 'purpose test' for determining the true nature of the incentives granted to the assessee. Both the learned counsel for the assessee and the learned Departmental Representative placed reliance, on the various decisions, to support their respective contentions which have carefully been earlier perused and considered by us. 12.5 The assessee submitted before the learned CIT(A), that the central excise duty is an indirect form of taxation, which is to be borne by the manufacturer as duty on goods manufactured. However, the same becomes payable at the time of removal of goods from the factory. The cent....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of industries in the State. This contention was not upheld by Hon'ble Supreme Court because no financial assistance was granted to the assessee for setting up of the industry. It was only when the assessee had set up its industry and commenced production that various incentives were given for the limited period of five years. It appears that the endeavour of the State was to provide the newly set up industries a helping hand for 5 years to enable them to be viable and competitive. Sales-tax refund and the relief on account of water rate, land revenue as well as electricity charges were all intended to enable the assessee to run the business more profitably. 12.7.1 Mr. Ganesh, appearing on behalf of the assessee, has contended that the incentive scheme was for setting up new industrial undertakings in the State and also for the purpose of stimulating substantial expansion of the industries. The primary object was rapid industrialisation of the State. This object was sought to be achieved by the various incentives. It was, further, contended that the subsidy given by the State was upto 10 per cent of the capital investment in the undertakings. Since the subsidy was calculated on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eme Court, discussed the decision of the Supreme Court, in the case of V.S.S.V. Meenakshi Achi vs. CIT. The decision of Full Bench of the Hon'ble Kerala High Court, in the case of CIT vs. Ruby Rubber Works Ltd. was also examined and discussed, with a view to ascertaining the specific purpose for which the subsidy was granted. Similarly, the case of the Hon'ble Bombay High Court, in the case of Sadichha Chitra vs. CIT and decision of Hon'ble Andhra Pradesh High Court, in the case of CIT vs. Chitra Kalpa (1989) 177 ITR 540 (AP), adjudicated the issue following the 'purpose test', in the context of relevant scheme. The Hon'ble Supreme Court also discussed and referred to the case of Hon'ble Calcutta High Court, in the case of Kesoram Industries & Cotton Mills Ltd. vs. CIT (1991) 191 ITR 518 (Cal). 12.9 Therefore, having regard to the discussions of cases decided by the Indian Courts and foreign cases, the Hon'ble Supreme Court laid down the 'purpose test', for the purpose of ascertaining true nature of incentives or subsidy i.e. whether capital or revenue in nature. The issue in question was decided in favour of the Revenue in that case. In subsequent decisions, the fundamental pri....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee for purchasing capital asset or for purchase of machinery or for setting up industrial unit, as the same had already set up, as discussed earlier. 12.13 We are of the considered opinion that the fact situation of the present case, is covered by the ratio of the decision of the Hon'ble Supreme Court laid down, in the case of Sahney Steel & Press Works Ltd. The purpose laid down in this decision is squarely applicable to the facts of the present case and, consequently, such receipts are revenue in nature. Hence, the findings of the learned CIT(A), founded on the said decision of the Hon'ble Supreme Court, as reproduced above, cannot be assailed. 12.14 Further, it is apt to highlight that the issue of taxing subsidies has been engaging the attention of Courts for the past many years. Subsidy is a grant by the Government, to the promoters of any enterprise, in which the Government desires to participate or which is considered a proper subject for Government aid. Such purpose is likely to be of benefit to the public. Subsidy given to a company for running its business is considered taxable. Grant from the Government after completion of, say, a film is revenue receipt. Su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e contended that price related mechanism led to the presumption that the subsidies were revenue in nature. The sugar company argued that the object of the scheme must be examined. The incentive was utilised for repayment of Loans to set up new units or the substantial expansion of existing units. It is the object for which the assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which subsidy is given is irrelevant. 12.19 The Supreme Court considered its earlier ruling in the case of Sahney Steel & Press Works Ltd. vs. CIT and distinguished that case, on the ground that Sahney Steel was free to use the money in its business entirely as it liked. It was not obliged to spend the money for a particular purpose. In the case of Ponni Sugars & Chemicals Ltd., there was an obligation on the part of the company to utilise the subsidy only for repayment of term loans undertaken by the company for setting up new units/expansion of existing business. Keeping in mind the object behind the payment of subsidy, the Supreme Court took the view that the subsidy payment received by Ponni Sugars under the scheme formulated by Central Governmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pholding that the interest subsidy of Rs. 2,10,695 received by the assessee was not 'derived from' an industrial undertaking and, hence" not eligible for deduction under s. 80-IB of the Act. Both these grounds of appeal pertains to the eligibility of the receipts for deduction under s. 80-IB of the Act. Hence, the same are being considered and adjudicated together. 13.1 The AO, after placing reliance on the following decisions, in the impugned assessment order and also discussing the scheme relevant to the State of J&K, disallowed the deduction under s. 80-IB of the Act, in respect of impugned receipts of excise duty refund and interest subsidy: (i) CIT vs. Sterling Foods (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC); (ii) CIT vs. Cambay Electric Supply Industrial Co, Ltd. 1978 CTR (SC) 50 : (1978) 113 ITR 84 (SC); (iii) CIT vs. Pandian Chemicals Ltd. (1998) 147 CTR (Mad) 5 : (1998) 233 ITR 497 (Mad); (iv) CIT vs. Andaman Timber Industries Ltd. (2000) 158 CTR (Cal) 458 : (2000) 242 ITR 204 (Cal); (v) Tribunal Amritsar Bench's decision in the case of Jai Saraswati Flour Mills, asst. yr. 2001-02. (vi) Chowringhee Sales Bureau (P) Ltd. vs. CIT 1973 CTR (SC) 44....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Schedule Eighth (which also covers the State of J&K) for 100 per cent deduction for the first five years and 25 per cent (30 per cent in case the industrial unit is a company) for the next five years. There is no denying to the fact that excise duty refunds received/receivable are an incentive given by the Government as provided in the notification issued by the Government of India e.g. No. 1(3)/2000-NER, Government of India, Ministry of Commerce and Industries (Department of Industrial Policy and Promotion) dt. 14th June, 2002. Thus, in the State of J&K, certain fiscal incentives are available to the industrial units which have been newly set up or which have been substantially expanded after 14th June, 2002. These incentives have been provided to allow the industries in J&K to become competitive with those outside the State. These incentives are in the form of- (a) Refund of that part of excise duty which is paid in cash, and (b) Deduction of profits 'derived from' a new industrial undertaking from gross total income for a specified period. The excise duty is collected by the manufacturer from its customers and the same is being paid to the Central Excise Department.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as separate income in respect of which no deduction is available. Hence, the said excise duty refund has been added back in the assessment of the appellant. For correct appreciation of facts in respect of the material issue/ground of taxability of excise duty refund, it is considered necessary to go into the objectives of the scheme of granting financial incentives to the industries in the J&K by examining the relevant notifications on the issue as well as taking into account to relevant case laws/decisions and the AO's stand vis-a-vis the contentions of the appellant in this regard. As per s. 80-IB of the Act, which was brought in by the Finance Act, 1999 w.e.f. 1st April, 2000, it is provided that where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-ss. (3) to (11), (11A) and (11B), then the assessee shall be allowed deduction from such profits and gains of an amount equal to such percentage and for such number of years as specified in the section in computing the total income of the assessee. Sec. 80-IB(4) of the IT Act, 1961, covers the industrial undertakings established in backward states specified i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red to refund the same to his customers from whom the same was collected. Thus, the manufacturer gets an additional financial advantage equivalent to the refund of excise duty as compared to his counterpart running exactly the same industrial undertaking in a non-notified area. To confer this additional financial advantage on the manufacturer in a notified area, the following procedure is adopted: (i) The manufacturer at the time of selling the goods to his customers collects central excise duty at the prescribed rates from the customers. (ii) The central excise duty so collected from the customers during a particular month is aggregated. (iii) Thereafter, any amount of central excise duty already paid at the time of purchase of raw material by the manufacturer (Cenvat) is adjusted (reduced) from the central excise duty so collected from the customers. (iv) The remaining amount of central excise duty so collected is paid to the Central Government by a due date of the next month and a statement thereof is required to be submitted to the Central Excise Department. (v) Lastly, the amount of central excise duty paid to Central Government is refunded back to the manufactu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... an intermediary for and on behalf of the Government and passes it on to the Government. It is when the said excise duty is refunded by the Government in the form of an incentive in relaxation of relevant provision of the Central Excise Act, 1944, then it results in (unjust) enrichment and adds to the profit of the industrial undertaking. Thus, it is factually incorrect to infer or claim that the receipt of refund of excise duty by the manufacturer does not have impact on the profit of the said industrial undertaking. To clarify the issue further, it is also pertinent to elaborate the concept of 'unjust enrichment'. Central excise duty like any other indirect tax is collected by the manufacturer from his customers for an on behalf of the Government and is paid to the Government. Thus, the manufacturer is merely an intermediary. Sometimes, excess amount of excise duty is collected from the customers by the manufacturer and paid to the Central Excise Department. It may be for various reasons e.g. ambiguity regarding the category or class of the goods, ambiguity over rates of duty, duty paid under protest and duty paid under provisional assessment etc. Later on, when it is establis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se paid by the manufacturer, if he had not passed on the incidence of such duty to any other person; (e) the duty of excise borne by the buyer, if he had not passed on the incidence of such duty to any other person; (f) .......... Thus, a manufacturer would not be able to claim and retain refund of central excise duty unless bar imposed under s. 11B of the Central Excise Act, 1944, is removed by the Government. This is what exactly has been done by the Government in respect of the eligible manufacturers of J&K. It would be evident on perusal of the provisions of ss. 11B and 11D of Central Excise Duty Act, 1944 and r. 7(6) of Central Excise Rules, 2002 that a manufacturer would no be able to claim the refund of excise duty unless it is proved by him that the said refund has actually been passed on to the customer from whom the excise duty was collected. However, to give an incentive to the eligible industrial undertaking in the State of J&K the above referred provisions have been relaxed by way of Notification Nos. 56 and 57 of 2002 and Circular No. 682/73/2002-CX dt. 19th Dec., 2002. This circular has been issued by the Central Board of Excise and Customs to clarify tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....been granted absolutely, the manufacturer of such excisable goods shall not pay the duty of excise on such goods.' The appellant or any manufacturer claiming excise duty exemption under Notifications 56 and 57 of 2002 both dt. 14th Nov., 2002 is required to determine his liability to pay Central excise duty and thereafter to pay the same to the Government by the given date and thereafter subject to certain conditions to be fulfilled by the manufacturer, the manufacturer becomes eligible to claim refund of that part of excise duty, which was paid in cash. Had there been absolute exemption from payment of whole of the excise duty, there would have been no need for the appellant to pay the same at the prescribed rates and by the given date as per the provisions of Central Excise Act. Although the Notifications 56 and 57/2002/CE dt. 14th Nov., 2002 speak of exemption to the manufacturers from the excise duty, which may be interpreted to suggest as if absolute exemption has been granted from whole of the excise duty to the industrial units but in reality it is not so. There is no exemption until the liability to pay excise duty is determined by the manufacturer and paid to the Gov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y towards central excise duty. The relevant part of para '2' is reproduced below: '2. The above two notifications; for the State of J&K exempt that portion of the excise duty, which is paid by the manufacturer in cash. For this purpose, a suitable mechanism has been incorporated in the notifications. The manufacturer is first required to pay the excise duty and thereafter, whatever is paid in cash is to be refunded...........' (iv) The conclusions referred above are further supported by the language of para 4 of Circular No. 682. '4. The notifications provide for expeditious refund of duty paid in cash. It is for this reason that a provision has been made for allowing refund even on provisional basis by the 15th of the next month, in case there is likely to be delay in verification of the refund claims. Any excess or shortfall in case of refund allowed on provisional basis may be adjusted in subsequent refund claims. Considering the fact that verification of refund claims basically involved checking of duty paid in cash, in most of cases, it should be possible to allow refund by the 15th of the subsequent month. Therefore, it would be obvious that the assessee is under ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he AO has also been quoted and relied upon by the learned Departmental Representative in the course of present appellate proceedings. Hence, the same are not reproduced. 13.5 (a) The CIT(A), placed reliance on two categories of decisions. The first category pertains to his finding, based on such decisions wherein impugned receipts were held as revenue in nature. These decisions are as under: (i) Chowringhee Sales Bureau (P) Ltd. vs. CIT; (ii) Sinclair Murray & Co. (P) Ltd. vs. CIT; (iii) Moti Lal Ambaidas vs. CIT; (iv) Wolkem (P) Ltd. vs. CIT; (v) CIT vs. Bharat Iron & Steel Industries; (vi) CIT vs. Markanda Vanaspati Mills Ltd. (ITA No. 51 of 1990 dt. 30 Oct., 2006) (vii) Sahney Steel Press Works Ltd. vs. CIT; (viii) Chief CIT vs. Kesaria Tea Co. Ltd.; (ix) Poly flex India {P} Ltd. vs. CIT; (x) CIT vs. Thirumalaswamy Naidu and Sons; (b) In the second category of the case laws, the learned CIT(A), referred to, appreciated and relied upon the decisions wherein the expression 'derived from' and appearing in s. 80-IB of the Act, has been judicially defined and interpreted. These decisions are listed as under: (i) Cambay Electric Supply Industrial....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fund of the duty to the manufacturers. (iv) The other observations of the CIT(A) on p. 11 of the order that excise duty paid is debited to the manufacturing/trading account is, it is further submitted, factually incorrect. The CIT(A) failed to appreciate that excise duty paid and refunded by the Central Excise Department is not debited by the appellant to the manufacturing/trading account but is debited to a separate excise duty receivable account. An affidavit in support of this contention of the appellant is also being filed separately, in terms of the r. 10 of the IT (ITAT) Rules, 1963. (v) As regards the observations of the CIT(A) on pp. 15 to 17 of the order that various Courts have repeatedly held that the amount received as excise duty is part of trading receipts and therefore, the contention of the assessee that refund of excise duty is not income is not correct, the same, it is respectfully submitted untenable under law for reasons elaborated as under: (vi) The CIT(A) it is respectfully submitted has missed the import and substance of appellant's contention. It was contended on behalf of the appellant that if the refund of excise duty is to be regarded as a tradin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Court and the same is also not applicable, to the facts of the present case, in view of the following reasons: "(a) The decision in Liberty India, as noted hereinabove, was rendered in the context of eligibility of duty draw back whereas the issue in the present case is the eligibility of the excise duty recovered as part of the turnover. (b) It will be kindly appreciated that duty drawback is in the nature of refund of duty given under the import export policy in respect of goods exported by any person. The duty drawback is, therefore, directly related to export, whereas refund of excise duty is the refund of duty paid by the assessee, in the first instance, at the time of clearance of manufactured goods. Recovery of the excise duty, as explained aforesaid, clearly has a first degree and inextricable nexus with the activities of manufacture/production of goods from the eligible undertaking and has to be treated as income 'derived from' the eligible undertaking. (c) The Supreme Court held that the receipts by way of duty drawback and the sale of DEPB license may constitute profits and gains of the business, but cannot be construed as profits and gains 'derived from' t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he eligible unit, such refund is income 'derived from' the eligible undertaking, entitled for deduction under s. 80-IB of the Act." 14.4 The learned counsel, for the assessee, further, argued that liberal and favourable construction of the provisions may be made. In case of some doubt, having regard to the decision of Hon'ble Delhi High Court, in the case of Dharam Pal Prem Chand Ltd. the following decisions may be considered: (i) Manish Maheshwari vs. Asstt. CIT (2007) 208 CTR (SC) 97 : (2007) 289 ITR 341 (SC); (ii) Asstt. CIT vs. Thanthi Trust (2001) 165 CTR (SC) 681 : (2001) 247 ITR 785 (SC); (iii) CIT vs. Orissa Cement Ltd. (2002) 173 CTR (Del) 317 : (2002) 254 ITR 24 (Del); (iv) Dr. Prannoy Roy vs. CIT (2002) 172 CTR (Del) 465 : (2002) 254 ITR 755 (Del); (v) Birla Cement Works vs. CBDT (2001) 166 CTR (SC) 291 : (2001) 248 ITR 216 (SC); (vi) CIT vs. Karamchand Premchand Ltd. (1960) 40 ITR 106 (SC); (vii) C.A. Abraham vs. ITO (1961) 41 ITR 425 (SC). 14.5 It was, further, contended by the learned counsel that interpretations favourable to the assessee be considered. He placed reliance on the following decisions: (i) P.R. Prabhakar vs. CIT (2006) 204 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble Court in their decision at para 4.10: '4.10 The other contention of the learned counsel for the Revenue that the assessee by virtue of Notification No. 48 of 1999 would claim double benefit by having passed on the duty paid to its customers then recovering it in the form of sale price, even while claiming deduction under s. 80-IB of the Act is also misconceived and deserves to be rejected at the very threshold. The reason being, firstly, no such case has been set up by the Revenue before any of the authorities below. This Court cannot be called upon for the first time to appreciate submissions which have no factual foundation. Secondly, what is important to note is that the assessee as mentioned hereinabove is in the business of manufacturing chewing tobacco and kiwam. These goods by themselves are not inputs for any other goods and hence, the apprehension of the Revenue that the assessee would claim a benefit of Notification No. 48 of 1999 has no substance.' Finally, Hon'ble Court has clearly observed in para 5 of their decision that factual aspects are required to be kept in mind and thus made their observations as under: '5. Having considered the decisions cited by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iced in the case of Dharam Pal Prem Chand Ltd. There is therefore correct presentation of facts for proper appreciation of the case. (ii) on the language used in the s. 80-IB in contradistinction to other sections: On this issue, Hon'ble Supreme Court very recently in their decision dt. 31st Aug., 2009 in the case of Liberty India vs. CIT (2009) 225 CTR (SC) 233 : (2009) 28 DTR (SC) 73 : 2009 TIOL-100-IT-SC has clearly held that all these sections have a common scheme. Having heard the counsels of both the parties the Bench has observed that: 1. The 1961 Act broadly provides for two types elf tax incentives investment linked incentives and profit linked incentives. Chapter VI-A which provides for incentives in the form of tax deductions essentially belong to the category of 'profit linked incentives'. Therefore, when s. 80-IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. What attracts the incentives under s. 80-IA/80-IB is the generation of profits (operational profits). 2. It is for this reason that Parliament has confined deduction to profits derived from eligible businesses mentioned in....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 75 of the Customs Act, 1962, hence, incentives profits are not profits derived from the eligible business under s. 80-IB. They belong to the category of ancillary profits of such undertakings. 7. The remission of duty is on account of the statutory/policy provisions in the Customs Act/scheme(s) framed by the Government of India. In fact, the submission of Shri Gourab Banerji, learned Addl. Solicitor General on behalf of the Revenue is reproduced in para 10 of the decision as under: '10. In reply, Shri Gourab Banerji, learned Addl. Solicitor General, submitted that, for application of the words 'derived from' there must be a direct nexus between the profit and the industrial undertaking. According to the learned senior counsel, merely because under the scheme to encourage exports a certain amount was repaid as 'duty drawback', it cannot be regarded as profit 'derived from' the industrial undertaking. It may constitute profit from business under s. 28, but it cannot be construed as profits 'derived from' the industrial undertaking, for its immediate and proximate source was not the industrial undertaking but the scheme for 'duty drawback'. According to the learned counsel,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (Del) 133 : (2008) 16 DTR (Del) 130 would no longer cover this issue." 15.1 It was contended by the learned Departmental Representative that the contention of the assessee that irrespective of the receipts, from the customers, he is required to make payment of the excise duty, lacks in merit. It was argued that when the assessee makes payment and includes the excise duty element in the sale price, he is raising two debtors, in its accounts, one the Central Excise Department and the, other one, the concerned customer. From the customer, he is recovering the sale price which includes the excise duty element included therein and from the Central Excise Department, he would recover the duty paid by him and respective entries would be passed in its accounts. Any unpaid sale price is recoverable by him under the law and, therefore, it makes no difference whether he pays first to the Central Excise Department and recovers later on the sale price from his customers which includes the element of excise duty paid by him. 15.2 It was argued by the learned Departmental Representative that the contention of the learned counsel for the assessee, on the claim that excise duty element from ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and CIT vs. Naga Hills Tea Co. Ltd. 1973 CTR (SC) 329 : (1973) 89 ITR 236 (SC). We have considered the submission. We have also carefully considered the decisions of the Supreme Court. We, however, find it difficult to accept this submission, as in our opinion, the observations of the Supreme Court in those decisions have been stretched too far. The Supreme Court in CIT vs. Vegetable Products Ltd., merely observed: 'If we find that language to be ambiguous or capable of more meanings than one, then we have to adopt that interpretation which favours the assessee, more particularly so because the provision relates to imposition of penalty.' Similarly, in CIT vs. Naga Hills Tea Co. Ltd. 1973 CTR (SC) 329 : (1973) 89 ITR 236 (SC), at p. 240, the Supreme Court had observed as follows: 'If a provision of a taxing statute can be reasonably interpreted in two ways, that interpretation which is favourable to the assessee, has got to be accepted; This is a well-accepted view of law." 15.4 The learned Departmental Representative also referred to decision of the Hon'ble Supreme Court in the case of Escorts Ltd. & Anr. vs. Union of India (1992) 108 CTR (SC) 275 : (1993) 199 ITR 43 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le Delhi High Court, in the said case held that as noted by the Division Bench that in the case of CIT vs. Eltek SGS (P) Ltd. (2008) 215 CTR (Del) 279 : (2008) 3 DTR (Del) 241 : (2008) 169 Taxman 283 (Del), the language of s. 80-IB is materially different from those obtaining, in the cases cited by the counsel for the Revenue, in Sterling Foods, Cambay Electric Supply, J.B. Exports, Vishwanathan & Co. as well as Ritesh Industries. 16.2 A careful perusal and consideration of the decision of the Hon'ble Delhi High Court, in the case of Dharam Pal Prem Chand Ltd. reveals that correct factual aspects were not brought before the authorities below upto the stage of the Tribunal, as rightly contended by the learned Departmental Representative as is evident from the judicial notice taken by the Hon'ble High Court, in their decision at para 4.10, which is reproduced hereunder: "4.10 The other contention of the learned counsel for the Revenue that the assessee by virtue of Notification No. 48 of 1999 would claim double benefit by having passed on the duty paid to its customers then recovering it in the form of sale price, even while claiming deduction under s. 80-IB of the Act is also ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd of excise duty and industrial activity. As a matter of fact, in the questions proposed by the Revenue, there is no specific question, that this finding of the authorities below is perverse. There is of course a very broad based and general question that the order passed by the Tribunal is perverse in law and on facts. According to us, such a question is vague. A perusal of the grounds of appeal would substantiate this aspect of the matter. There is no ground taken by the Revenue whereby the substantial findings of fact have been challenged by the Revenue as being perverse." 16.4 In this case relied upon by the assessee, the learned CIT(A), returned a finding of fact that the assessee-company at the relevant point of time, had a unit at Agartala, which was exempted from payment of excise duty under the notifications referred to hereinabove, and had debited the P&L a/c and merely on receipt of the refund of excise duty credited the amount to the profit and loss of the Agartala unit. The CIT(A), thus, came to the conclusion that the net effect was nil. In other words, the CIT(A), found that if the assessee had maintained separate excise account then the excise duty would have to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of excise duty refund adds to the profit of the manufacturer and the direct source of this profit is not the industrial undertaking but the scheme of the Central Government. The submission that the manufacturer debits the excise duty to the P&L a/c, when it is paid to the Government and credits the P&L a/c, when the refund of the excise duty is received, thus, having no impact on the net profit of the manufacturer is factually incorrect. The fact is that when the excise duty is collected by the manufacturer from the customers as indirect tax, either as embedded in the sale price or reflected separately in the invoice, the same is credited to the manufacturing/trading account and when the same is paid, it is debited to the same account. Till this stage, there is no effect on the profit of the industrial undertaking since central excise duty does not have an element of profit by the manufacturer as it collects it as an intermediary for and on behalf of the Government and passes it on to the Government. It is when the said excise duty is refunded by the Government in the form of an incentive in relaxation of relevant provision of the Central Excise Act, 1944, then it results in (unjus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....utmost respect that the decision of the Hon'ble Delhi High Court, in the case of Dharam Pal Prem Chand Ltd., is distinguishable on facts, as the findings recorded by the CIT(A), in this case were not agitated by the Revenue and this factum had been observed by the Hon'ble Judges, in that case very clearly, as contended by the learned Departmental Representative. Rather the Hon'ble Judges refused to entertain the arguments, in this regard, as can be seen from their comments in para 4.8 onwards of the decision. In view of this, in the decision of Dharam Pal Prem Chand Ltd., only two steps have been stated in matter of excise duty refund i.e., payment of excise duty and refund of the same, by the Department. These facts are distinguishable from the present case. In the present case, it is an admitted fact that the excise duty has been collected by the assessee, from the customers, which has been paid, to the Central Excise Department. Further, the refund has been obtained, in respect of the duty paid in cash, subject to certain adjustments, in P&L a/c. Therefore, three steps are involved in the transactions and not two, as was recorded by the CIT(A) in the case of Dharam Pal Prem Chan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....efers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. What attracts the incentives under s. 80-IA/80-IB is the generation of profits (operational profits). For example, an assessee company located in Mumbai may have a business of building housing projects or a ship in Nava Sheva. Ownership of a ship per se will not attract s. 80-IB(6). It is the profits arising from the business of a ship which attracts sub-s. (6). In other words, deduction under sub-s. (6) at the specified rate has linkage to the profits derived from the shipping operations. This is what we mean in drawing the distinction between profit linked tax incentives and investment linked tax incentives. It is for this reason that Parliament has confined deduction to profits derived from eligible businesses mentioned in sub-ss. (3) to (11A) (as they stood at the relevant time). One more aspect needs to be highlighted. Each of the eligible business in sub-ss. (3) to (11A) constitutes a stand-alone item in the matter of computation of profits. That is the reason why the concept of 'segment reporting' stands introduced in the Indian Accounting Standards (IAS) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce of income of the assessee. Therefore, the devices adopted to reduce or inflate the profits of eligible business has got to be rejected in view of the overriding provisions of sub-s. (5) of s. 80-IA, which are also required to be read into s. 80-IB. We may reiterate that ss. 80-I, 80-IA and 80-IB have a common scheme and if so read it is clear that the said sections provide for incentives in the form of deduction(s), which are linked to profits and not to investment. On analysis of ss. 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-s. (2), would be entitled to deduction under sub-s. (1) only to the extent of profits derived from such industrial undertaking after specified dates. Hence, apart from eligibility, sub-s. (1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words 'derived from industrial undertaking' as against 'profits attributable to industrial undertaking'. 16. DEPB is an incentive. It is given under Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEPB is to neutralize the incidence of cu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of inventories. Inventories are assets held for sale in the course of business; in the production for such sale or in form of materials or supplies to be consumed in the production. 21. 'Inventory' should be valued at the lower of cost and net realizable value (NRV). The cost of 'inventory' should comprise all costs of purchase, costs of conversion and other costs including costs incurred in bringing the 'inventory' to their present location and condition. 22. The cost of purchase includes duties and taxes (other than those subsequently recoverable by the enterprise from taxing authorities), freight inwards and other expenditure directly attributable to the acquisition. Hence, trade discounts, rebate, duty drawback and such similar terms are deducted in determining the costs of purchase. Therefore, duty drawback, rebate etc. should not be treated as adjustment (credited) to cost of purchase or manufacture of goods. They should be treated as separate items of revenue or income and accounted for accordingly. Therefore, for the purposes of AS-2, Cenvat credits should not be included in the cost of purchase of inventories. Even ICAI has issued Guidance Note on Accounting Treatme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nbsp; 1,300 -------------------------------------------------------- Note: In above example, Department is allowing deduction on profit of Rs. 100 under s. 80-IB of the 1961 Act. 24. In the circumstances, we hold that duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of s. 80-I/80-IA/80-IB of the 1961 Act. 25. The appeals are, accordingly, dismissed with no order as to costs." 17.5 The crucial test for entitlement of deduction under s. 80-IB of the Act, is that the profits and gains must 'sprout from the industrial undertaking itself'. The expression 'derived from' has been judicially defined in plethora of decisions by the Hon'ble apex Court and several High Courts and it has been consistently clearly held that all incidental and miscellaneous incomes which don't conform to "the test of direct nexus" between the profit and the industrial undertaking are ineligible for deduction under s. 80-IB of the Act. The expression "derived from" appears in various statutory provisions contained under Chap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....served that the form of tax deductions under that chapter essentially belonged to the category of profit linked incentives. Accordingly, the Hon'ble Supreme Court held that the incentives under ss. 80-IA and 80-IB of the Act, must be from the generation of profits (operation of profits 'derived from the industrial undertaking). In para 14 of the said decision, the Hon'ble Supreme Court analysed the provisions of Chapter VI-A of the Act and found that s. 80-IA/80-IB are the code by themselves, as they contain both substantive as well as procedural provisions. It was, further, held that the words "derived from" as appearing under s. 80-IB of the Act, are narrower in connotation as compared to the words "attributable to". By using the expression "derived from", Parliament intended to cover sources not beyond the first degree nexus or source. The impugned receipts, in the present case, did not represent the nexus or the source belonging to the said first degree. The source of excise duty and interest subsidy is not industrial undertaking, but the scheme of the Central Government. The Hon'ble apex Court further proceeded to hold that ss. 80-I, 80-IA and 80-IB of the Act represent common....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ollowed the decision of the Hon'ble Supreme Court, in the case of Liberty India and decided the issue against the assessee and in favour of the Revenue, holding that such receipts are not eligible for deduction under s. 80-IB of the Act. The relevant and operative part of the findings of the Hon'ble Himachal Pradesh High Court in the case of CIT vs. Kiran Enterprises, is reproduced hereunder: "After the aforesaid detailed analysis, the apex Court held that the duty drawbacks could not be deemed to be profits derived from business. It is apparent that the apex Court held that it is only the profits generated i.e. operational profits which are entitled to the benefit under s. 80-IA. In Sterling Food the apex Court has also laid down a test as to what is the source of income. In the present case, the source of income transport subsidy is not the business of the assessee but the scheme framed by the Central Government. Applying the test laid down in Liberty India's case and Sterling Food's case it is apparent that the transport subsidy received by the assessee is not a profit derived from business since it is not an operational profit. The source of the subsidy is not the busines....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the case of Liberty India. Consequently, we are of the considered opinion that the impugned receipts, in the form of excise duty refund and interest subsidy are not eligible for deduction under s. 80-IB of the Act, within the contemplation of the decision of the Hon'ble Supreme Court, in the case of Liberty India. 19. As regards ground No. 6, the learned counsel for the assessee contended that the CIT(A) erred in upholding the levy of interest of Rs. 31,05,347 under s. 234B of the IT Act, 1961. However, in the course of present appellant proceedings, it was contended that the issue raised in this ground is consequential in nature. 19.1 Having heard both the parties and considering the rival submissions, we are of the opinion that this ground of appeal is mandatory (sic) and consequential in nature and, hence, needs no adjudication. 20. Ground Nos. 1, 2, 7 and 8 are general in nature, hence, we do not consider it essential to adjudicate the same. 21. As the issues involved, in the cases of M/s Pee Ell Allocs Unit-II, Jammu (IT Appeal No. 209/Asr/2009), and M/s Revenbhen Healthcare (P) Ltd., Jammu (ITA No. 305/Asr/2009), for the asst. yr. 2005-06, are similar to the i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s made before the authorities below. He prayed for upholding the order of the CIT(A). 23. We have heard both the parties, considered the rival submissions and carefully gone through the order of the CIT(A). The findings given by the learned CIT(A) are reproduced hereunder: "In this respect. I find merit in the submissions of the Authorised Representative of the appellant in view of the following: (a) Out of the total excise duty received of Rs. 37,65,184, the appellant company has passed on an amount of Rs. 8,14,374 to the following parties/customers by way of credit notes: (i) Macmillan Pharmaceutical Ltd. Rs. 1,19,573 (ii) Navachem Health Care (P) Ltd. Rs. 2,25,956 (iii) Revenbhel Pharmaceutical (P) Ltd. Rs. 4,68,845 ------------ &....