TaxTMI 
TaxTMI 
TaxTMI 
2015 (10) TMI 2557
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....roduction of eligible artistic articles. 3. The AO observed that assessee is a manufacturer of wooden furniture. She filed her return of income on 30.09.2009 at NIL income. The case was scrutinized under section 143(3) of the IT Act. During the year under consideration the assessee was deriving income from export of wooden furniture in the name and style of M/s. Global Art Exports at Sitapura Industrial Area, Jaipur. In the Profit & Loss account, the net profit has been shown at Rs. 1,85,48,714/- on total turnover of Rs. 15,07,34,997/-. After reducing donation and rental income etc., profit has been shown at Rs. 1,92,52,903/- and claimed exemption under section 10BA of the IT Act. The AO further observed that in A.Y. 2004-05, 2005-06, 06-07, 07-08 and 08-09 the deduction under section 10BA was disallowed on the ground that purchases were made for trading purposes on Form 17B of the Sales Tax Act/Rules, no artistic items are manufactured by the assessee and as per sub-section (2) of section 10BA, the assessee's activities were not manufacturing or production of eligible articles or things. During the year also, there is no change in the manufacturing activity of the assessee. There....
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.... 4. Being aggrieved, assessee filed appeal before ld. CIT (A), who had allowed the assessee's appeal by observing as under :- " 3.1. I have duly considered the submissions of the appellant. I find that the issue of allow ability of exemption U/s 10BA has been decided in the favour of the assessee by the order of Hon'ble Jaipur Tribunal (ITA No.1111, 1112 & 1113/JP/2010) dated 14.07.2011 for A.Y 2004-05, A.Y. 2005-06 and A. Y. 2006-07. The observations of the Hon'ble Tribunal in para 12 are reproduced as under: "We have heard rival submissions and considered them carefully. We have also perused various evidences filed before ld. CIT (A) in support of the case of the assessee and also the detailed written submissions placed on record along with the submission of ld. CIT DR. After considering the submission and perusing all other materials, we find that ld. CIT (A) was justified in holding that assessee is eligible for deduction claimed under section 10BA of the Act for all the three years. Facts and submissions have been discussed by ld. CIT (A) in detail. The objection of the Assessing Officer raised in his assessment order as well as in his remand report were also taken into con....
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....ires the use of wood as the main raw material." Since the business of the assessee is export of wooden handicraft items having artistic value with an antique look, raw materials such as wooden items, polish, stones, brass, iron, etc. are used for making it an artistic item. Since grooving, brass work, inlay work, metal work, carving, studding work, stone work and other related process cannot be carried out with the help of machines (since being a meticulous work) it involves thought, personal skills and constructive power to manufacture the product of artistic nature. The semi finished woken items and article and things purchased against Form 17B are further subjected to manufacturing process and converted into eligible handmade crafted artistic wooden articles and things. For example for manufacturing a table, only a top was purchased which too had a skeleton shape. Thereafter legs of the table were made by the assessee on which table top was fitted. All the carving work as desired by the customer was done by the assessee. Thereafter finishing of the table was done by the assessee. Similarly, in case of all items, the assessee had done major activity of manufacturing to bring the....
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....4,545/JP/Jd/2007 and 415/Jd/2008) that the Assessing Officer had inferred that the assessee simply carried out trading of manufactured items purchased locally and this finding was found to be perverse on facts. The Tribunal observed that various steps undertaken by the assessee on the semi-finished goods and other articles gave them a commercial look making the article completely distinct in character and making them marketable commodity. The Tribunal further observed that even though the original identity of the material did not loose its identity completely yet a different commercial commodity had been brought into existence by the assessee and that the end product so produced was different and distinct both in character and use as well. The Tribunal held that if change made in the article resulted in a new and different article then it would amount to manufacturing activity which would imply a change and transformation. It was held that in a case wherein assessee had undertaken a chain of activities to convert the locally purchased semi finished goods and other articles into marketable commodity altogether different both in character and use than what was purchased originally th....
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....cense sale as profit derived by an undertaking from the export out of India of eligible articles or things. 8. The AO observed that the assessee had credited Rs. 89,17,211/- as duty draw back. In the Profit & Loss account also income from sale of export license has been shown by Rs. 85,64,175/-. Both these incomes are business profit, however, it cannot be treated as income derived from undertaking from the export out of India. As per provisions of section 10BA, only profit and gains derived by an undertaking from the export out of India of eligible articles or things, shall be allowed as deduction from the total income of the assessee. Therefore, the AO gave show cause notice on this issue which was replied by the assessee. After considering the assessee's reply, the AO held that duty draw back and export license sale are export incentives, not income derived from the undertaking. The word 'derive' has been explained at length in the judgement of Apex court in the case of Liberty India, 317 ITR 208. The Hon'ble Supreme Court held that "DEPB/Duty draw back are export incentives which flow from the schemes framed by Central Government or from section 75 of the Customs Act, 1962, he....
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....on'ble Supreme Court in the case of Liberty India has held that deduction under section 80IB on account of DEPB/Duty Draw-back which are incentives in nature which flow from the schemes framed by Central Government or from section 75 of the customs Act, 1962, hence, incentive profits are not profits derived from the eligible business and, therefore, duty draw back receipts/DEPB benefits do not form part of net profit of the industrial undertaking for the purpose of section 80IA or 80IB. After considering the submissions, we noted that the assessee in his jodhpur unit has credited a sum of Rs. 10,07,995/- as draw back. Duty draw back and profit on transfer of DEPB are to considered as profit and gains of business or profession as per section 28 of the IT Act. The Hon'ble Court in case Liberty India Vs CIT (317 ITR218) had on occasion to consider as to whether the duty draw and profit from DEPB can be considered as profit derived from industrial undertaking for the purpose of section 80IB. The Hon'ble Apex Court held that such incentives cannot be considered as profit derived from the industrial undertaking. However, this belongs to the category of ancillary profits of the undertakin....
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....ing. However, in this case the Delhi Bench of the Tribunal has not considered sub section (4) of section 10A. We, therefore, hold that the computation of deduction under section 10A is to be drawn in accordance with section 10BA(4). The Credit of duty draw back or profit from DEPB is to be included in the total turnover for computing deduction under section 10BA as per section 10BA(4). The AO will re-compute the deduction under section 10BA on the duty draw back after including the same in the profit of the business and also including the same as part of the total turnover. Thus the computation will be done by the AO as per the finding recorded above." The ld. CIT (A) allowed the deduction under section 10BA at Rs. 1,72,40,782/- as against Rs. 1,92,52,908/- claimed by the appellant. Thus he allowed the appeal partly. 10. Now the revenue is in appeal before us. The ld. D/R supported the order of the AO and argued that Hon'ble Supreme Court in the case of Liberty India (supra) has considered the issue of Duty draw back/DEPB under section 80IA/80IB of the IT Act and held that receipts from Duty draw back and DEPB are not derived from industrial undertaking from the export out of Ind....
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....ncidence of customs duty on the import content of the export product by way of grant of duty credit. The DEPB benefit is freely transferable. Thus, Duty drawback/DEPB benefit received had to be credited against the cost of manufacture of goods/purchases debited to the Profit & Loss account. That, such credit was not an independent source of profit. In this connection reliance has been placed on Accounting Standard-2 issued by ICAI on "valuation of inventories" which indicates that while determining cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition should be considered and that trade discounts, rebates, duty drawback and such other similar items have to be deducted in determining the cost of purchase. As per AS-2, where excise duty paid was subsequently recoverable by way of drawback, the same would not form part of the manufacturing cost. The payment of excise duty/customs duty on inputs consumed in manufacture of goods by an industrial undertaking eligible for deduction under section 10BA, it was inextricably linked to the export operations of the eligible undertaking without which manufacturing operat....
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.... for deduction under section 80HHC as computed under clause (a) or clause (b) or clause (c) of sub section (3) or sub-section (3A), as the case may be, of that Section and subject to the conditions specified in that Section, thereby meaning that the deduction allowable would be only to the extent of deduction computed in accordance with the provisions of Section 80HHC. Thus, according to the Department, both "eligibility" as well as "deductibility" of the profit have got to be considered together for working out the deduction as mentioned in clause (iv) of Explanation to Section 115JB. We find no merit in this argument. If the dichotomy between "eligibility" of profit and "deductibility" of profit is not kept in mind then Section 115JB will cease to be a self-contained code. In Section 115JB, as in Section 115JA, it has been clearly stated that the relief will be computed under Section 80HHC(3)/(3A), subject to the conditions under sub-clauses (4) and (4A) of that section. The conditions are only that the relief should be certified by the Chartered Accountant, Such condition is not a qualifying condition but it is a compliance condition. Therefore, one cannot rely upon the last sen....
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....der dated 31/1/2013 wherein 15 appeals had been decided and Hon'ble Jodhpur ITAT has considered the issue of amount of duty drawback is related to manufacturing of handicrafts articles and on export sale. Hence the amount of duty draw back has been received by the assessee company completing the full conditions of provisions U/s 10BA wherein Hon'ble Supreme Court decision in the case of liberty India and Topman Exports (supra) have been considered. The Hon'ble ITAT held that Section 80HHC and Section 10BA are more nearer, therefore, any decision in which Section 80HHC is involved would also mutatis mutandis to the interpretation of Section 10BA. The Hon'ble Bench has held that DEPB is chargeable as income and clause (b) of Section 28 in the year in which the assessee applies for DEPB credit against the exports whereas the profit on transfer of DEPB by the assessee is chargeable as income under clause (d) of Section 28 of the Act in his hands in the year in which he makes the transfer. The Hon'ble Mumbai Bench in the case of Arts & Crafts Exports Vs. ITO 66 DTR 69 (ITAT Mumbai Bench) after considering the decision of Liberty India (Supra) had taken a clear cut decision in favour....