TaxTMI 
TaxTMI 
2025 (2) TMI 1423
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....e craves to add or delete any ground of appeal at the time of hearing." 3. The brief facts are that the assessee is engaged in export business and has an unit at SEZ, Moradabad, UP, from where handicrafts are exported under the name and style of "Shaila Exports". The only issue in this case is that during the year under appeal the assessee has claimed to have received export incentives by way of duty drawback amounting to Rs. 9.95 crores, which has been clubbed with the total turnover for the purpose of claiming deduction under the provisions of section 10AA of the Act 61, which has been disallowed by the AO due to the reasons that Duty Draw Back receipts (in short DDB ) cannot be considered as eligible for benefit u/s 10AA, as they do not form part of profits and gains derived from export, of such articles or things or from services, and for arriving at the above conclusion the AO relied on the decision of the Hon'ble Apex court in the case of Liberty India vs CIT (317 ITR 218), where the Hon'ble court while analysing the provisions of section 80IB of the Act 61, the relevant portion has held as follows: "The next question is - what is duty drawback? Section 75 of the ....
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....rescribed conditionalitie's, claim of deduction under this section can be made depending upon the quantum of profits derived from export of articles or things or services. It is calculated as: Profit of the Business of the undertaking x Export Turnover of the undertaking (divided by) Total turnover of the business carried on by the undertaking 5. Here, the export turnover means the consideration in respect of export by the undertaking of articles or things or services received in, or brought into India by the assessee but does not include freight, telecommunication charges, insurance attributable to the delivery of the articles or things or computer software outside India and expenses, if any, incurred in foreign exchange in providing the technical services outside India. 6. It also merits consideration that despite the presence of section 10AA in chapter-III of the Act, the phraseology used is "deduction", very much like chapter-VI-A instead of "exclusion" from the gross total income. Chapter-Ill of the Act, earlier, contained various sections which excluded certain types of incomes while computing the total income, whereas Chapter-VIA contains most of the sec....
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....al importer-cum -manufacturer. Sub-section (2) of section 75 of Customs Act requires the amount of draw back 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 draw back receipt lies in section 75 of Customs Act and section 37 of the Central Excise Act." "18. Analyzing the concept of remission of duty draw back and DEPB, we are satisfied that 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 the circumstances, we hold that profits derived by way of such incentives do not fall within the expression "profits derived from industrial undertaking" in section 80IB." 8. ln view of the aforesaid categorical finding of the Hon'ble Supreme Court in respect of the receipt by way of DDB, this Appellate Authority does not get persuaded by the referred /cited decision of the Hon'ble Tribunal at Jodhpur in the case of Makers Mart (Supra) to hold that the decision rendered in the case of Liberty India does not ap....
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....king, where as in case of the assessee relating to section 10AA, the method of computation of exemption has been clearly defined in sub section (7) of Section 10AA and the deduction will be computed as under, which needs to be adopted: Profit of the business of undertaking (divided by Total Turnover) X Export Turnover 6.1 The assessee submitted a paper book containing various decisions he relied upon for arguments along with written submission (relevant portion reproduced): "Since the starting point of computation of exemption u/s 10AA is profits of business, what is to be seen is as to whether the duty drawback is business income or not. For this purpose attention is drawn to section 28(iiic) of the Income Tax Act which clearly provides that duty drawback is to be treated as business income. Once duty drawback is to be included in business income, the next step is to apply the ratio of export turnover to total turnover and to compute the income exempt u/s 10AA. The assessee was thus entitled to exemption u/s 10AA in respect of duty drawback as claimed in the return of income. The assessing officer as well as the Id. CIT(A) were of the view that the be....
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....early establishes the nexus between the purchase price and duty drawback. In view of the decision of Supreme Court in the case of Keshavji Ravji & Co vs. CIT reported at 183 ITR 1 the duty drawback should be reduced from the value of purchases as a result of which the profits earned from exports will only be in respect of value of sales credited to the Manufacturing & Trading account. The concept of netting of interest was also approved by the Supreme Court in the case of M/s ACG Associated Capsules Pvt. Ltd vs. CIT reported at 343 ITR 89 while dealing with the deduction u/s 80HHC. The ratio of the above decisions is squarely applicable to the present case also. If duty drawback is adjusted towards purchase value, no disallowance would be called. Importantly the duty drawback has not been assessed as income from other sources by the assessing officer as would be evident from the assessment order itself. The assessing officer having accepted the duty drawback income as business income could not have excluded the same from the computation of exemption u/s 10AA in view of the specific formula provided in sub section (7) of section 10AA." 7. Before concluding his submission....
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....assessee. The decision of ITAT Special Bench in the case of Maral Overseas Ltd reported at 136 ITD 177 (Special Bench) (Indore) was relied upon [para no. 10 at page no. 53] wherein it had been held that the provision of section 10B were different from section 80IA wherein no formula had been laid down for computing the eligible business profits and that the assessee was eligible for benefit u/s 10A in respect of export incentives. Section 10A(4) which is pari materia to section 10AA(7). The decision of Supreme Court in the case of Liberty India was also taken note, it is respectfully submitted that the decision of Special Bench in binding on all Benches of ITAT. d) Maral Overseas Ltd vs. Addl. CIT reported at 70 DTR 170 (Special Bench) (Indore): While dealing with section 10B it was held that export incentives are derived from the undertaking and are eligible for deduction u/s 10B. Section 10B(4) stipulates formula by apportioning profits of the business of the undertaking in the ratio of turnover to the total turnover. Once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking and be eligible ....
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....sales is enclosed at page no. 116 to 120. A much liberal interpretation has been given by various judicial authorities while dealing with a case which is a 100 %EOU. Certain decisions in this regard are discussed below: h) Rivera Home Furnishing vs. Addl. CIT reported at 65 Taxmann.com 287 [Delhi High Court]: This was a case where the assessee was a 100 Export Oriented Undertaking. It was held that the amount received from the customer for cancelling export order as well as interest received from bank on FDR's kept under lien with the bank for facilitating letter of credit were eligible for deduction u/s 10B. The decision of Supreme Court in the case of Liberty India was taken note of and the decision of ITAT Bench in the case of Maral Overseas (supra) which referred to by the Delhi High Court in the case of Hritnik Exports (supra) wherein it was held that section 10A/ 10B are a complete code by themselves was approved. i) CIT vs. Hewlett Packard Global Soft Ltd reported at 87 Taxmann.com 182 [Karnataka High Court] [Full Bench]: It was held that all profits and gains of 100 % EOU including incidental income by way of interest on bank deposits or staff loans wo....
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....ub section (7) of Section 10AA, where the profits derived from export of the undertaking has to be worked out in proportion with export turnover which bears to the total turnover of the undertaking, and since it is already decided by the Hon'ble Apex court, that duty drawback are simply incentives flowing from various schemes of the Government or from the provisions of the Customs Act, 62, the only logical conclusion in the instant case would be, that the same cannot be considered as a part of export turnover, for working out the "profits derived from export", because these are independent source of income without any direct nexus ( beyond the first degree ) and if the said incentives received/receivable, cannot be considered as ("profits derived from industrial undertaking " for the purpose of Section 80IB), then logically, the said incentives by way of DDB cannot be considered as profits derived from exports either, u/s 10AA, because both are claims of deductions, and as such he prays for sustaining the order of the Ld. CIT(A). 10. We have heard the rival submission and considered the materials on record and the contents of the paper book and the decisions relied upon by both ....
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....rofits and gains derived from industrial undertakings" mentioned in Section 80IB. An identical question came to be considered by this Court and, more particularly, with respect to the profit from DEPB and Duty Drawback Schemes, in the case of Liberty India (supra). 7.3 After taking into consideration the DEPB and Duty Drawback Schemes, ultimately, it is observed and held in the case of Liberty India (supra) that DEPB / Duty Drawback Schemes are incentives which flow from the schemes framed by the Central Government or from Section 75 of the Customs Act, 1962 and, hence, incentive profits are not profits derived from the eligible business under Section 80IB. It is observed that they belong to the category of ancillary profits of such undertakings. 7.4 Similar view was also expressed with respect to the Duty Drawback. Thereafter, in paragraph 43 of the above decision, it is observed and held that duty drawback, DEPB benefits, rebates, etc. cannot be credited against the cost of manufacture of goods debited in the profit and loss account for purposes of Sections 80IA/80IB as such remissions (credits) would constitute an independent source of income beyond the first d....