IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "G" NEW DELHI
BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER
AND
SHRI C.M. GARG : JUDICIAL MEMBER
ITA No. 807/Del/2013
Asstt. Yr: 2008-09
Sharda Exports, Vs. DCIT Circle, Hardwar.
Plot no. 11, Sector-4,
Integrated Industrial Area, Sidkul
Ranipur, Hardwar.
PAN: AAYFS 1694 N
( Appellant ) ( Respondent )
Appellant by : Shri O.P. Sapra Adv.
Respondent by : Shri Ramesh Chandra CIT DR
Date of hearing : 14-07-2014
Date of order : 07-08-2014.
ORDER
This appeal, by the assessee, is directed against the order dated 15-1-
2013 passed by the ld. CIT(A)-II, Dehradun, in appeal no. 37/HRD/2010-11,
relating to A.Y. 2008-09.
2. Brief facts of the case are that the assessee, a partnership firm, filed its
return of income declaring total income at `nil'. The assessee in the relevant
assessment year was manufacturing carpets and claimed deduction of Rs.
51,27,47,399/- u/s 80IC. The AO noticed that this sum included an amount
of Rs. 13,98,31,925/- as duty draw back towards export incentives. The AO
examined the allowability of deduction u/s 80IC of export incentive with
reference to various decisions including the decision of Hon'ble Supreme
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Sharda Exports Vs. DCIT
Court in the case of Liberty India Vs. CIT 317 ITR 218 and concluded that
in view of this decision, the assessee was not entitled for deduction u/s 80IC
on export incentive. The AO, inter alia, pointed out that source of investment
is not the eligible business of the undertaking but the scheme of Government
of India. He observed that export incentives can, at the most, be held to be
attributable to eligible business as there is commercial connection between
them but could not be said to be profits "derived from" eligible undertaking/
enterprise, as required by sec. 80IC.
2.1. In appeal, the ld. CIT(A) confirmed the AO's action. Being aggrieved,
with the order of ld. CIT(A), the assessee is in appeal and has taken
following grounds of appeal:
"1. That the Authority below were wholly unjustified both on
law and facts of the case in disallowance the deduction as
claimed by the appellant under section 80-IC of the Income-tax
Act, 1961 on the Duty Draw back of Rs. 13,98,31,925/-.
Various observation made by the Authorities below in their
respective orders are incorrect and untenable.
2.That without prejudice to the grounds no. 1 above, the
authorities below had wrongly taken the figure of Duty
drawback at Rs. 13,98,31,925/- as against the correct figure of
Duty Draw back actually received at Rs. 7,29,34,000/-.
The Authorities below had either ignored or had not
appreciated the submissions made by the appellant on the
above issue.
3. That the interest has charged under section 234B and
234C being wholly illegal deserve to be deleted at any rate
without prejudice the interest has charged was very excessive."
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Sharda Exports Vs. DCIT
3. Ld. Counsel for the assessee submitted that ld. CIT(A) vide para 3 of
his appellate order has held that the issue is covered by the appellate order
for A.Y. 2009-10 in assessee's own case ( appeal no. 207/CIT(A)- II/2011-
12 order dated 01-06-2012) and then after recording the following figures,
has held that entire duty draw back is liable to be taxed during this year:
Duty draw back received Rs. 7,29,34,000/-
Duty draw back receivable Rs. 6,68,97,925/-
Rs. 13,98,31,925
3.1. Ld. Counsel further submitted that in coming to his conclusion ld.
CIT(A) relied on the decisions in the cases of :
- Liberty India Vs. CIT 317 ITR 218 (SC);
- CIT Vs. Raja Bahadur Kamakshya Narayan Singh 16 ITR 375 (PC);
- Mrs. Bacha F. Guzdar Vs. CIT 27 ITR 1 (SC);
- Sterling Foods 237 ITR 53 (SC)
- Pandian Chemicals Ltd. 262 ITR 278.
3.2. Ld. Counsel for the assessee pointed out that in any view of the
matter, the amount of duty draw back received only could be considered for
disallowing deduction u/s 80IC and not the entire amount.
3.3. Ld. Counsel submitted that on disallowance of deduction u/s 80IC on
the amount of duty draw back, in AY 2009-10, the assessee's appeal is
pending before Hon'ble Uttrakhand High Court. He submitted that the
decision of Hon'ble Supreme Court in the case of Liberty India (supra), is
not applicable to the facts of assessee's case because the decision in the case
of Liberty India (supra) was rendered with reference to Sections 80I, 80IA
and 80IB and not with reference to section 80IC. Further, the decision in the
case of Liberty India relates to A.Y. 2001-02 whereas the provisions of
section 80IC were inserted by Finance Act 2003 w.e.f. 1-4-2004 and,
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Sharda Exports Vs. DCIT
therefore, the Hon'ble Supreme Court had no occasion to consider section
80IC. Further, the marginal note to sections 80IA, 80IB etc. talks about
deduction in respect of profits and gains from certain industrial undertakings
or enterprises, while marginal note to section 80IC reads "special provision
in respect of certain undertakings or enterprises in certain special category
States". He relied on the decision of Hon'ble Supreme Court in the case of
K.P. Varghese Vs. ITO 131 ITR 597 to submit that "the marginal note to a
section cannot be referred to for the purpose of construing the section but it
can certainly be relied upon as indicating the drift of the section or to show
what the section is dealing with. It cannot control the interpretation of the
words of a section particularly when the language of the section is clear and
unambiguous but, being part of the statute, it prima facie furnishes some
clue as to the meaning and purpose of the section". Therefore, section 80IC
stands on altogether different footing as compared to section 80IV.
3.4. Ld. Counsel in brief has given the following distinguishing features
between section 80IC and 80IB:
Heading Section 80IC Section 80IB
[Special provisions in respect of certain Deduction in respect of profits and gains
undertaking or enterprises in certain from certain industrial undertakings other
special category states than infrastructure development
undertakings.
Where the gross total income of an (1) Where the gross total income of an
assessee includes any profits and gains assessee includes any profits and gains
derived by an undertaking or an derived from any business referred to in
SS(1)
enterprise from any business referred to sub-sections (3) to (11) and (11A) (such
in sub-section (2), there shall, in business being hereinafter referred to as
accordance with and subject to the the eligible business), there shall, in
provisions of this section, be allowed, in accordance with and subject to the
computing the total income of the provisions of this section, be allowed, in
assessee, a deduction from such profits computing the total income of the
and gains, as specified in sub-section (3). assessee, a deduction from such profits
and gains of an amount equal to such
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Sharda Exports Vs. DCIT
percentage and for such number of
(3) The deduction referred to in sub- assessment years as specified in this
SS(3) section (1) shall be in the case of any section.
undertaking or enterprise referred to in
sub-clauses (i) and (iii) of clause (a) or (3) The amount of deduction in the case of
sub-clauses (i) and (iii) of clause (b), of an industrial undertaking shall be twenty
sub-section (2), one hundred per cent of five per cent (or thirty per cent where the
such profits and gains for ten assessment assessee is a company) of the profits and
years commencing with the initial gains derived from such industrial
assessment year; in the case of any undertaking for a period of ten
undertaking or enterprise referred to in consecutive assessment years ( or twelve
sub-clause (ii) of clause (a) or sub-clause consecutive assessment years where the
(ii) of clause (b), of sub-section (2), one assessee is a co-operative society)
hundred percent of such profits and gains beginning with the initial assessment year
for five assessment years commencing subject to the fulfillment of the following
with the initial assessment year and conditions, namely:-
thereafter, twenty five per cent (or thirty
per cent where the assessee is a company)
of the profits and gains.
3.5. Ld. Counsel further submitted that duty draw back is nothing but the
return of duties like sales-tax and excise paid at the time of buying of raw
material but was refundable to the assessee if good were exported. The
submission is that since in the year of purchase the profits got reduced
because of payment of duties like sales-tax and excise, therefore, when the
same is refunded to assessee in the form of duty draw back then it cannot be
considered de hors the assessee's business. The refund has been received
only in the form of business profits.
3.6. He further pointed out that u/s 28(iiic), duty draw back receipts were
to be treated as business income and they have been assessed to tax
accordingly. Therefore, deduction u/s 80IC should have been allowed on the
duty draw back.
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Sharda Exports Vs. DCIT
3.7. Ld. Counsel further pointed out that in A.Y. 2005-06 deduction u/s
80IC had been allowed on duty draw back also, as is evident from the copy
of assessment order placed at pages 45 to 48 of the PB. Similarly, for A.Y.
2006-07( assessment order available at pages 49-51 of the PB), the
deductions have been allowed on duty draw back also. For A.Y. 2007-08
(Assessment order available at page 52 of the PB), 80IC deduction has been
allowed.
4. Ld. CIT(DR) submitted that the issue is squarely covered by the
Tribunal's own decision dated 14-6-2013 in assessee's own case for A.Y.
2009-10. Ld. CIT(DR) also relied on the decision of ITAT in the case of
ITO Vs. Ultimate Maker Ltd. (2556/D/2005 dated 26-10-2007).
4.1. As far as assessee's claim regarding exclusion of duty draw back
receivable is concerned, ld. CIT(DR) submitted that the same cannot be
accepted because assessee was maintaining accounts on mercantile basis.
Ld. CIT(DR) further pointed out that before the CIT(A)/AO there was no
assertion that claim of 80IC on DEPB has to be seen only in respect of
actually received amount whereas in the present appeal the assessee has
advanced this argument which is totally new. He pointed out that this new
plea cannot be raised in view of the decision in the case of Chevalier I
Iyyappan AIR 1966 SC 1017.
4.2. Ld. CIT(DR) further pointed out that present appeal is for A.Y. 2008-
09 which was pending when the appeal for A.Y. 2009-10 was decided
though assessee wrongly stated in its synopsis that the appeal was pending
before the ld. CIT(A).
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Sharda Exports Vs. DCIT
5. We have considered rival submissions and have perused the record of
the case. We find that the issue is covered by the order of the ITAT in
assessee's own case for A.Y. 2009-10, against which appeal is also pending
before Hon'ble Uttrakhand High Court. Therefore, we respectfully follow
the decision of the ITAT in assessee's own case for A.Y. 2009-10, wherein
it has been held as under:-
"In computation for deduction under sec. 80IC, assessee has
included a sum of Rs. 12.90 crores which represents the EPB
receipts. The learned counsel for the assessee has placed on
record a note as to how deduction on EPB receipts under sec.
80IC are admissible. However, we find that this issue is
squarely covered against the assessee by the decision of
Hon'ble Supreme Court in the case of Liberty India vs. CIT
reported in 317 ITR 218. Hon'ble Court has held that DEPB
receipts are not derived from an industrial undertaking rather
their genesis is from the beneficiary scheme formulated under
Central Excise Act etc. They are the ancillary profit. The
learned counsel for the assessee submitted that the Hon'ble
Supreme Court has not taken into consideration the amendment
in sec. 28 which ha been given effect from Ist of April 1998.
This amendment suggests that on sale of DEPB receipts, if the
is any profit, then it will be a revenue receipts. We find that this
amendment was brought by Act of 2005, w.e.f. 01-04-1998. The
decisions of the Hon'ble Supreme Court is dated 31-09-2009.
Thus, the decision of Hon'ble Supreme Court is subsequent to
the amendment, hence, the decision cannot be distinguished on
this argument. In view of the above discussion, we direct the
Assessing officer to allow the deduction under sec. 80IC of the
Act a per law excluded on the DEPB receipts."
5.1. As far as the assessee's plea regarding taking of figure of duty draw
back of Rs. 13,98,31,925/- is concerned, we do not find any substance in the
said plea because in para 4.1 ld. CIT(A) has clearly observed that the
assessee had received Rs. 7,29,34,000/- and the balance sum was shown as
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Sharda Exports Vs. DCIT
outstanding and the assessee was maintaining accounts on mercantile basis.
Further, assessee himself has included this amount in the net profit and
claimed deduction u/s 80IC. Therefore, the entire amount had to be
considered and has rightly been considered by ld. CIT(A).
6. In the result, assessee's appeal is dismissed.
Order pronounced in open court on 07-08-2014.
Sd/- Sd/-
( C.M. GARG ) ( S.V. MEHROTRA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 07-08-2014.
MP
Copy to :
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR
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