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2009 (9) TMI 616 - AT - Income TaxAmount of DEPB/duty drawback credited to P&L a/c - assessees claimed exemption under s. 10BA of IT Act on the amount of increased profits by the amount received on account of DEPB/duty drawback credited to the P&L a/c treating the same to be profits and gains derived by an industrial undertaking from the export out of India of eligible articles or things - AO denied exemption under s. 10BA of IT Act on the ground that the benefits constitute export incentives and that they did not represent profits derived from industrial undertaking of export - duty drawback DEPB benefits rebates etc. cannot be credited against the cost of manufacture of goods debited in the P&L a/c for purposes of ss. 80-IA/80-IB - amount of DEPB benefits/duty drawback receipts do not form profits and gains derived by an industrial undertaking from the export out of India of eligible articles or things and as such the same shall not be allowed to be deducted from the total income of the assessee for the purposes of s. 10BA of IT Act Excess of Insurance charges - CIT(A) treated the excess of receipt of insurance charges as profits and gains derived by an industrial undertaking from the export - charges as such are not on account of export of goods outside India but are the reimbursement of expenses incurred within India - same do not partake the receipt of sale of eligible articles or things as are described under s. 10BA and as such exemption under s. 10BA of IT Act cannot be granted in the light of ratio laid down by Hon ble apex Court in Liberty India vs. CIT (2009 -TMI - 34471 - SUPREME COURT )- decision of CIT(A) set aside. Addition made for want of availability of quantitative details - no justification in the action of assessing authority in making addition as such without bringing any valid or independent material on record to suggest income not recorded in the books of account. Dis-allowance of Rs. 2, 74, 642 made on account of personal and other expenses - the expenses having been laid for the business purpose of the assessee disallowance so deleted calls for no interference. Addition of Rs. 20, 85, 813 in terms of provisions of s. 2(22)(e) - Deemed dividend - In this case the authorities below did not examine the fact as to whether the appellant is a shareholder of the two companies namely M/s V.J. Home Studio (P) Ltd. and M/s Via Jodhpur Art (P) Ltd. and as to how the judgment rendered in the case of Hotel Hilltop (2008 - TMI - 33813 - RAJASTHAN HIGH COURT) would be applicable. The applicability or non-applicability of provisions of s. 2(22)(e) of IT Act has also not been examined with reference to relevant provisions of law as such before holding that the AO is not justified in treating the amount as deemed dividend
Issues Involved:
1. Whether DEPB/duty drawback amounts credited to the P&L account are profits derived from the export of eligible articles under Section 10BA of the IT Act. 2. Whether credits in the insurance account/rebate and discount account qualify for deduction under Section 10BA. 3. Validity of trading additions due to lack of quantitative details. 4. Disallowance of personal and other expenses. 5. Treatment of loans received as deemed dividend under Section 2(22)(e) of the IT Act. Detailed Analysis: 1. DEPB/Duty Drawback as Profits Derived from Export: The primary issue was whether DEPB/duty drawback amounts credited to the P&L account qualify as profits derived from the export of eligible articles under Section 10BA of the IT Act. The assessees claimed exemption under Section 10BA on these amounts, treating them as profits derived from export activities. The Assessing Officer (AO) denied this exemption, arguing that these benefits are export incentives and not profits derived from the industrial undertaking's export activities. The CIT(A) relied on the judgment in CIT vs. Sharda Gum & Chemicals and the insertion of clauses (iiia), (iiib), and (iiic) in Section 28 of the IT Act, considering duty drawback as part of business income, thus allowing the deduction under Section 10BA. However, the Tribunal noted the Supreme Court's decision in Liberty India vs. CIT, which clarified that DEPB/duty drawback benefits do not form part of the net profits of eligible industrial undertakings for the purpose of Sections 80-I/80-IA/80-IB of the IT Act. The Tribunal concluded that these incentives are ancillary profits and not derived directly from the export of eligible articles, thus not qualifying for deduction under Section 10BA. 2. Credits in Insurance Account/Rebate and Discount Account: The issue here was whether credits in the insurance account/rebate and discount account qualify for deduction under Section 10BA. The assessees argued that these credits arose from the export of eligible articles, thus qualifying for the deduction. The Tribunal found no justification in the CIT(A)'s decision to treat these credits as profits derived from export activities. It held that these amounts were reimbursements of expenses incurred within India and not directly related to the export of eligible articles, thus not qualifying for deduction under Section 10BA, in line with the Supreme Court's decision in Liberty India vs. CIT. 3. Trading Additions Due to Lack of Quantitative Details: The Revenue challenged the deletion of trading additions made due to the lack of quantitative details. The AO had made these additions without bringing any valid or independent material to suggest unrecorded income. The Tribunal upheld the CIT(A)'s decision, finding no merit in the Revenue's argument. It noted that similar issues had been addressed in previous cases, such as ITO vs. Bothra International, where the Tribunal had concluded that in the absence of any material suggesting suppression of income, the books of account could not be rejected solely based on the decline in GP rate or lack of stock records. 4. Disallowance of Personal and Other Expenses: The AO had disallowed certain personal and other expenses, which the CIT(A) later deleted, arguing that these expenses were incurred for business purposes. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere, as the expenses were indeed laid out for business purposes. 5. Treatment of Loans as Deemed Dividend: The Revenue challenged the deletion of an addition made under Section 2(22)(e) of the IT Act, where loans received by the assessee company were treated as deemed dividend. The CIT(A) had deleted this addition, following the Rajasthan High Court's judgment in CIT vs. Hotel Hilltop, which held that deemed dividend becomes income in the hands of the shareholder, not the payee. However, the Tribunal noted that the authorities had not examined whether the appellant was a shareholder of the loan-giving companies and remitted the matter back to the AO for fresh adjudication. Conclusion: - The Tribunal held that DEPB/duty drawback benefits do not qualify as profits derived from the export of eligible articles under Section 10BA. - Credits in the insurance account/rebate and discount account do not qualify for deduction under Section 10BA. - The Tribunal upheld the deletion of trading additions due to lack of quantitative details. - The disallowance of personal and other expenses was not justified. - The matter of loans treated as deemed dividend was remitted back to the AO for fresh adjudication. Result: - Appeals in ITA Nos. 276 and 33 were allowed. - Appeals in ITA Nos. 291, 215, 216, 544, 210, and 203 were partly allowed.
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