2010 (12) TMI 885 - AT - Income Tax

Reassessment - Deduction u/s 80IB - The net profit of Banther Unit is declared at Rs.20,75,158/- which includes the amount of duty draw back of Rs.25,43,130 - held that -In the present case also the notice under section 148 for making the re-assessment under section 147 of the Act was not based merely on change of opinion but also on the judgments of the Hon ble Madras and Hon ble Delhi High Courts, therefore, the re-opening under section 148 of the Act was valid. Claim of duty drawback as deduction u/s 80IB - in the case of Liberty India v. CIT 2009 -TMI - 34471 - SUPREME COURT the Supreme Court considered the scheme of the duty drawback and held that the duty drawback received from the Central Government under the scheme does not fall within the purview of income derived from the business of the industrial undertaking so as to entitle the assessee to deduction under section 80-IB of the Act - Decided against the assessee

Summary

Issues Involved:
1. Validity of proceedings under Section 147 of the I.T. Act.
2. Deduction under Section 80IB on duty drawback.

Issue-wise Detailed Analysis:

1. Validity of Proceedings under Section 147 of the I.T. Act:

The primary grievance of the assessee was that the proceedings under Section 147 were not validly initiated. The facts revealed that the AO issued a notice under Section 148 after forming a belief that income amounting to Rs. 1,70,72,190 had escaped assessment due to an erroneous claim of deduction under Section 80IB. The reasons recorded by the AO included references to several judicial decisions that disallowed such deductions on duty drawback. The assessee objected, arguing that the deduction was claimed based on an audit report and that there was no failure on its part to disclose material facts. The CIT(A) upheld the AO's decision, stating that the AO had valid reasons to believe that income had escaped assessment, and the sufficiency of these reasons was not subject to examination at this stage. The Tribunal agreed, noting that the AO's action was not merely based on a change of opinion but on judicial precedents, thus validating the reopening of the assessment under Section 147.

2. Deduction under Section 80IB on Duty Drawback:

The Department's appeal challenged the CIT(A)'s decision to allow the deduction under Section 80IB on duty drawback. The AO had disallowed this deduction based on judicial decisions from the Madras and Delhi High Courts, which held that duty drawback could not be treated as profits derived from an industrial undertaking. The CIT(A), however, allowed the deduction, relying on the Delhi High Court's decision in CIT vs. Eltek SGS (P.) Ltd., which interpreted Section 80IB more broadly. The Tribunal, however, noted that the issue had been settled by the Supreme Court in Liberty India vs. CIT, which held that DEPB and duty drawback are incentives and not profits derived from an industrial undertaking. Consequently, the Tribunal set aside the CIT(A)'s order and upheld the AO's disallowance of the deduction under Section 80IB on duty drawback.

Conclusion:

The Tribunal dismissed the assessee's Cross Objection, validating the proceedings under Section 147. It allowed the Department's appeal, disallowing the deduction under Section 80IB on duty drawback based on the Supreme Court's ruling in Liberty India vs. CIT. The order pronounced in the open court confirmed the AO's view and supported the Department's stance on both issues.