TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 1752
X X X X Extracts X X X X
X X X X Extracts X X X X
....der CASS and accordingly statutory notices u/s. 143(2) and 142(1) were issued to the assessee calling for the information. The assessee's representative filed its reply on line through e-filing portal. The Ld. Assessing Officer [hereinafter in short "Ld. AO"] on examination of the information furnished by the assessee noticed that assessee claimed deduction under section 80IB(11A) of the Act amounting to Rs. 64,96,87,896/- on the net profits derived from J. Thimmapuram Unit. The Ld.AO noticed that assessee has included other revenue in the form of duty draw back amounting to Rs. 10,59,37,013/- and sale of licenses amounting to Rs. 28,16,55,312/- aggregating to Rs. 38,75,92,325/-. Accordingly, the Ld.AO issued show-cause notice proposing to reduce the receipts on account of duty draw back and sale of licenses from the net profits of the undertaking. In response, assessee filed its submissions and requested to drop the proposal of addition of receipts. After considering the submissions of the assessee, Ld. AO by relying on the decision laid down by the Hon'ble Supreme court in the case of Liberty India v. CIT (SC) 317 ITR 218 disallowed Merchandise Exports from India Scheme (MEIS) of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the Income Computation and Disclosure Standards (ICDS) with respect to inventories, it states that purchase price includes duties and taxes and other expenditure directly attributable to the acquisition of material and this is applicable from the A.Y.2016-17 and hence the benefit derived from the exports such as DEPB goes to reduce the cost of the purchase and hence it has been disclosed in the credit side of the Profit & Loss Account for the purpose of claiming deduction u/s. 80IB of the Act. Further he also submitted that the decision of the Hon'ble Supreme Court in the case of Saraf Exports v. CIT [453 ITR 625] has mainly relied on the judgment of the Hon'ble Supreme Court in the case of Liberty India v. CIT [317 ITR 218] and is distinguishable for the reasons, where the judgment is based on the Accounting Standards-2 and not as per ICDS-2 and hence cannot be applied to the assessee's case. In his written submissions he placed reliance on the following decisions:- i. Saraf Seasoning Udyog v. ITA No. [2009] 317 ITR 202 (Raj). ii. CIT v. Eltek SGS private Limited [2008] 300ITR 6 (Del.). iii. CIT v. India Gelatine and Chemical Limited[2005] 275 ITR 284 (Guj). 7. Ld.AR also....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee. Further, from the submissions of the Ld.AR it is noticed that the assessee has sold the licenses, which is a tradable product, and has characterised as "other income" in the profit and loss account. From these facts, it is observed that the assessee has not utilised the licenses for the purpose of neutralising the customs duty while making imports which goes to the root of the matter of reducing the cost of production. In these circumstances, it cannot be said that the sale of licenses disclosed under "other income" reduces the cost of production. Subsequently, the Hon'ble Supreme Court in the case of Saraf Exports v. CIT (supra) distinguished the decision of the Hon'ble Supreme Court in the case of CIT v. Meghalaya Steel Ltd., (supra) where the incentives mainly arise due to direct subsidies and not export incentives. Further the Hon'ble Supreme Court in Para No. 7 and 8 held as under: - "7. While considering the aforesaid issue/question, relevant portion of Section 28 and Section 80- IB are required to be referred to, which are as under:- "28. Profits and gains of business or profession.-The following income shall be chargeable to income tax under the head "Profits....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India: Provided that the condition in this clause shall, in relation to a small-scale industrial undertaking or an industrial undertaking referred to in sub-section (4) shall apply as if the words 'not being any article or thing specified in the list in the Eleventh Schedule' had been omitted. Explanation 1.-For the purposes of clause (ii), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely:- (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the da....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the profits and gains derived from such industrial undertaking: Provided that the total period of deduction does not exceed ten consecutive asssessment years (or twelve consecutive assessment years where the assessee is a cooperative society) subject to fulfilment of the condition that it begins to manufacture or produce articles or things or to operate its cold storage plant or plants during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2004: Provided further that in the case of such industries in the North-Eastern Region, as may be notified by the Central Government, the amount of deduction shall be hundred per cent of profits and gains for a period of ten assessment years, and the total period of deduction shall in such a case not exceed ten assessment years: Provided also that no deduction under this sub-section shall be allowed for the assessment year beginning on the 1st day of April, 2004 or any subsequent year to any undertaking or enterprise referred to in sub-section (2) of Section 80-IC. Provided also that in the case of an industrial undertaking in the State of Jammu and Kashmir, the provisions of the first proviso shal....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of March, 2004. XXXXXXXX" 7.1 Thus, as per Sections 28(iiid) and (iiie) any profit on the transfer of the Duty Drawback and on transfer of DEPB Schemes, etc., shall be chargeable to income tax under the head "Profits and gains of business or profession". It appears that earlier, there used to be a dispute regarding the receipt by way of incentives from the Government being in the nature of cash assistance, duty drawback, profits on transfer of DEPB Scheme, etc., i.e., as to whether these receipts were capital receipt or revenue receipt and would thus, be taxable. However, thereafter, and in order to put an end to the dispute, the legislature by way of inserting clauses 28 (iiia), (iiib), (iiic), (iiid) and (iiie) has made the said incentives taxable under the head of "profits and gains of business and profession". 7.2 Section 80-IB provides for deductions in respect of profits and gains from certain industrial undertakings. Therefore, as such for claiming deductions under Section 80-IB, it must be on the "profits and gains derived from industrial undertakings" mentioned in Section 80-IB. An identical question came to be considered by this Court and, more particularly, with re....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... On the other hand, according to the Department, DEPB credit/duty drawback receipt do not come within the first degree source as the said incentives flow from the incentive schemes enacted by the Government of India or from Section 75 of the Customs Act, 1962. Hence, according to the Department, in the present cases, the first degree source is the incentive scheme/provisions of the Customs Act. In this connection, the Department places heavy reliance on the judgment of this Court in Sterling Foods [(1999) 4 SCC 98 : (1999) 237 ITR 579]. 31. Therefore, in the present cases, in which we are required to examine the eligible business of an industrial undertaking, we need to trace the source of the profits to manufacture. (See CIT v. Kirloskar Oil Engines Ltd. [(1986) 157 ITR 762 (Bom)]) 32. Continuing our analysis of Sections 80-IA/80-IB it may be mentioned that sub-section (13) of Section 80-IB provides for applicability of the provisions of sub-section (5) and subsections (7) to (12) of Section 80- IA, so far as may be, applicable to the eligible business under Section 80-IB. Therefore, at the outset, we stated that one needs to read Sections 80-I, 80-IA and 80-IB as having a co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....80-IB. They belong to the category of ancillary profits of such undertakings. XXXXXXXX 38. Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944 empower the Government of India to provide for repayment of customs and excise duty paid by an assessee. The refund is of the 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. The Rules do not envisage a refund of an amount arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cum- manufacturer. Subsection (2) of Section 75 of the Customs Act requires the amount of drawback to be determined on a consideration of all the circumstances prevalent in a particular trade and also based on the facts situation relevant in respect of each of various classes of goods imported. Basically, the source of duty drawback receipt lies in Section 75 of the Customs Act and Section 37 of the Central Excise Act. 39. Analysing the concept of remission of duty drawback and DEPB, we are satisfied that the remission of duty is on account of the statutory/policy provisions in the Customs A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lied upon the decision of this Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [(1978) 2 SCC 644 : 1978 SCC (Tax) 119 : (1978) 113 ITR 84]. It was there held that the expression "attributable to" was wider in import than the expression "derived from". The expression of wider import, namely, "attributable to", was used when the legislature intended to cover receipts from sources other than the actual conduct of the business. The Division Bench of the High Court observed that to obtain the benefit of Section 80-HH the assessee had to establish that the profits and gains were derived from its industrial undertaking and it was just not sufficient that a commercial connection was established between the profits earned and the industrial undertaking. The industrial undertaking itself had to be the source of the profit. The business of the industrial undertaking had directly to yield that profit. The industrial undertaking had to be the direct source of that profit and not the means to earn any other profit. Reference was also made to the meaning of the word "source", and it was held that the import entitlements that the assessee had earned were awarded by the Central Governmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....did take note of the decision in the case of Liberty India (supra), however, this Court specifically observed that the case of Liberty India (supra) was concerned with an export incentive, which is very far removed from reimbursement of an element of cost. While dealing with the decision in the case of Liberty India (supra), this Court distinguished Duty Entitlement Pass Book and Duty Drawback Schemes and specifically observed that the DPEB / Duty Drawback Scheme is not related to the business of an industrial undertaking for manufacturing or selling its products and the DEPB entitlement arises only when the undertaking goes on to export the said product, that is, after it manufactures or produces the same. In paragraph 20, in the case of Meghalaya Steels Limited (supra), while distinguishing the profit derived from DEPB / Duty Drawback, it is observed and held as under:- "20. Liberty India [Liberty India v. CIT, (2009) 9 SCC 328] being the fourth judgment in this line also does not help the Revenue. What this Court was concerned with was an export incentive, which is very far removed from reimbursement of an element of cost. A DEPB drawback scheme is not related to the business ....