2011 (4) TMI 649 - HC - Income Tax

Deduction u/s 80-IB - DEPB/duty drawback - Held that profits derived by way of such incentives do not fall within the expression profits derived from industrial undertaking in s. 80-IB - Thus the question has to be answered in favour of the revenue and against the assessee - The appeals are allowed.

Summary

Issues:
1. Interpretation of Section 80-I of the Income Tax Act, 1961 regarding deduction for duty draw back.

Analysis:
The judgment dealt with the interpretation of Section 80-I of the Income Tax Act, 1961 concerning the deduction for duty draw back. The appellant, a revenue authority, challenged the order of the Income Tax Appellate Tribunal regarding the deduction claimed by the assessee under Section 80-I for export incentives received. The key question was whether the withdrawal of deduction under Section 80-I with reference to duty draw back receipts was justified under Section 154 of the Act.

The assessee initially claimed the deduction under Section 80-I for export incentives, including duty draw back. The Assessing Officer initiated proceedings under Section 154 to rectify the order, denying the deduction for duty draw back. The CIT(A) upheld the assessee's plea, which was further affirmed by the Tribunal. The Tribunal opined that the issue was debatable and not a clear mistake apparent from the record, citing precedents that the Assessing Officer's power under Section 154 cannot be exercised on debatable legal issues.

The revenue contended that duty draw back, being an export incentive, did not qualify as income derived from the industrial undertaking under Section 80-I, as per the Supreme Court judgments in Sterling Foods Ltd. and subsequent cases. The revenue argued that duty draw back was not covered under the scope of deduction permissible under Section 80-I, which was linked to profits derived from the industrial undertaking.

The Court analyzed the nature of duty draw back and DEPB incentives, concluding that they were ancillary profits from schemes framed by the Central Government, distinct from profits derived from the eligible business under Section 80-I. The Court disagreed with the CIT(A) and Tribunal's interpretation, holding that duty draw back did not fall within the purview of profits derived from the industrial undertaking under Section 80-I.

In light of the above analysis, the Court ruled in favor of the revenue, allowing the appeals and overturning the decisions of the CIT(A) and Tribunal. The judgment clarified the distinction between export incentives and duty draw back in the context of Section 80-I deductions, emphasizing the specific criteria for qualifying profits under the provision.