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2022 (7) TMI 1134
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.... to tax, should be directed to be excluded from the taxable income of the appellant. " The brief facts giving rise to the above additional ground of appeal is as under: In order to promote the exports, development of certain industries, employment generation, etc., the Government under the Foreign Trade Policy, provides subsidies and incentives to industries on the basis of different parameters set out in the respective schemes declared. The purpose of subsidy/ incentive schemes varies from development of backward areas to development of a lagging industry or to provide support to existing industries in difficult times of their operations, Whenever a scheme is declared, the purpose of the subsidy/incentive is set out in clear terms in rhc scheme itself. The Government of India in its Foreign Trade Policy 2004 started Special Focus Initiatives with an object to continuously increase out percentage share of global trade and expanding employment opportunities especially in rural and semi-urban areas. Under the mother policy of Special Focus Initiative certain special focus initiatives for market diversification, technological up gradations, support to status....
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....ed from the objects and reasons behind introduction of the Policy. If the purpose of the incentive was to enable the assessee to run the business more profitably, then, the receipt is on revenue account. If the object of the assistance was to enable the assesses to set up a new unit or to .expand the existing units, then the receipt was on the capital account. In the present case, the incentive in the form of Focus License was granted primarily for the "purpose' of to promoting export of products which have high export intensity/ employment potential, so as to offset infrastructural inefficiencies and other associated costs involved in marketing of these products and hence constituted capital receipt not liable to tax under normal provisions of the Act. In the following decisions, the Tribunal has been pleased to hold incentive received under FPS to be in the nature of a capital receipt not liable to tax: * PCT vs. Nitin Spinners Ltd: 1TA 31/2019 (Raj.) * CIT vs. Sham Lai Bansal: 200 Taxman 14 (P&H) * Suvidha Spiners Pvt Ltd vs. DCIT: 1TA Nos.65 and 66/Jodh/2018 (Jodhpur Trib.) * Eastman Exports Global Clothing Pvt Ltd vs. JCIT:....
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....ct of that item. We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier. 6. In the case of Jute Corporation of India Ltd. v. C.I.T. . this Court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessm....
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....tion received on sale of Focus Scrip/ License was towards reimbursement of cost of manufacture or sale of products/ goods forming part of profit and gains derived from the business of eligible undertaking and therefore, admissible for deduction under section 80IC of the Act. 2. That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in denying deduction under section 80-IC of the Act on the amount of duty drawback of Rs. 1,52,07,079 holding that the same is not derived from the industrial undertaking. 3. That the CIT(A) erred on facts and in law in not admitting and disregarding the additional evidence placed on record substantiating the contentions raised by the appellant. 4. That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in denying deduction under section 80-IC of the Act on interest on KDR amounting to Rs.6,58,683. 5. That the CIT(A) erred on facts and in law in erred on facts and in law in confirming imposition of interest under sections 234B and 234C of the Act." 6. The appellant is a partnership firm engaged in the business of manufacturing and export of hom....
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....focus initiatives for market diversification, technological upgradation, support to status holders were identified for which specific schemes like Focus Market Scheme (FMS), Focus Product Scheme (FPS), Technological Upgradation Fund Scheme (TUFS), Status Holders Incentive Scheme (SHIS) were started. 12. In Foreign Trade Policy 2006, under the Special Focus Initiatives, Focus Product Scheme (FPS) was introduced with an objective to incentivize export of such products which have high employment intensity in rural and semi-urban areas, so as to offset the inherent infrastructure inefficiencies and other associated costs involved in marketing of these products. The scheme was launched in 2006 and subsequently, several amendments were made to the scheme by adding more products eligible for export incentives under the scheme and giving different rate of duty credit scrip concessions. 13. Focus Product Scheme (FPS) was first introduced with the objective to incentivize export of such products which have high export intensity/ employment potential, so as to offset infrastructure inefficiencies and other associated costs involved in marketing of these products. The scheme was launched....
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....of the Assessing Officer. 18. Before us, the ld. AR at the outset submitted that no surplus/ profit accrued to the appellant as a result of receipt of the duty drawback since the said amount was received merely as reimbursement of duty paid as part of purchase price of various materials procured for manufacturing purposes. The submissions of the ld. AR are as under: "Reference was made to the decision of Hon'ble Supreme Court in the case of Liberty India (supra). In para 17 of the judgment, their Lordships recognized that section 75 of the Customs Act, 1962 and section 37 of the Central Excise Act, 1944, empower Government of India to provide for repayment of customs and excise duty paid by an assessee. The Court also recognized that duty drawback is fundamentally in the nature of refund of average amount of duty paid on materials of any particular class or description of goods used in the manufacture of export goods of specified class, though such refund is not arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cummanufacturer. Therefore, the Court concluded, "profits derived by wav of such incentives do not fall within ....
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.... that duty drawback and other similar incentives are required to be separately disclosed on the credit side of the Profit & Loss Account. That, however, does not change the fundamental character of the said amount, being in the nature of refund of duty element embedded in the cost of material purchased for manufacture of goods." 19. Heard the arguments of both the parties and perused the material available on record. 20. We have gone through the judgment of Hon'ble Supreme Court in the case of CIT Vs. Meghalaya Steel Ltd. which dealt with transport subsidy, interest subsidy, power subsidy, insurance subsidy and treating them as profits derived from business. The difference between "profit attributable to" and "profits derived from" a business are examined in detail. It said , 21. A series of decisions have made a distinction between "profit attributable to" and "profit derived from" a business. 22. In Cambay Electric Supply Industrial Co. Ltd. v CIT [1978] 113 ITR 84 (SC), the Court held that since an expression of wider import had been used, namely "attributable to" instead of "derived from", the legislature intended to cover receipts from sources other than the actual....
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....king had directly to yield that profit. The Hon'ble Court in conclusion held as under: "We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Govt. whereunder the export entitlements become available. There must be for the application of the words "derived from", a direct nexus between the profits and gains and the industrial undertaking. In the instant case the nexus is not direct but only incidental. The industrial undertaking exports processed sea food. By reason of such export, the Export Promotion Scheme applies. Thereunder, the assessee is entitled to import entitlements, which it can sell. The sale consideration therefrom cannot, in our view, be held to constitute a profit and gain derived from the assessees' industrial undertaking." (Para 13) 26. In Pandian Chemicals Ltd. vs. CIT [2003] 262 ITR 278/129 Taxman 539 (SC), the Hon'ble Court dealt with the claim for a deduction under Section 80HH of the Act. The question before the Court was as to whether interest earned o....
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....nd special additional duty payable on such deemed imports. 36. Therefore, in our view, DEPB/Duty Drawback are incentives which flow from the Schemes framed by Central Government or from S. 75 of the Customs Act, 1962, hence, incentives profits are not profits derived from the eligible business under Section 80-IB. They belong to the category of ancillary profits of such Undertakings." 28. The Hon'ble Court has held that there should be a direct nexus between such profits and gains and the industrial undertaking or business. Such nexus cannot be only incidental. In the instant case by reason of an export promotion scheme, an assessee was entitled to import entitlements which it could thereafter sell. Hence, the same could not be said to be directly from profits and gains by the industrial undertaking but only attributable to such industrial undertaking inasmuch as such import entitlements did not relate to manufacture or sale of the products of the undertaking, but related only to an event which was post-manufacture namely, export. 29. The judgment of Hon'ble Supreme Court in the case of Liberty India v. Commissioner of Income Tax, reported in (2009) 317 ITR 218 (SC) ....