2014 (12) TMI 220 - AT - Income Tax

Benefit of deduction u/s 80IB Excise duty refund directly related to manufacture of goods or not Held that - AO has denied 80IB deduction on excise duty refund for the sole reason that it cannot be treated as income derived from eligible business of the undertaking - assessee has paid the excise duty on the goods manufactured and sold and as such it forms part of the sale price of assessee - payment of central excise duty is integrally connected with the manufacturing and sale of goods produced by assessee - as per the industrial policy resolution declared for the state of J&K and consequent to Central Excise Department Notification, assessee became eligible for refund of excise duty paid after set off of CENVAT credit - in sum and substance, it is only a refund of an amount already paid by assessee and reduced from the sale price while computing the profit - therefore, when assessee gets refund of an expenditure already incurred the same has to be deemed to be the profits and gains of business or profession carried on by assessee in terms of section 41(1)(a) of the Act after excise duty refund received by assessee has to be treated as part of the business profit, hence, eligible for deduction u/s 80IB - assessee will be eligible to claim deduction u/s 80IB on the income accruing from refund of excise duty. Issue covered by the decision of SC in M/s Liberty India Versus Commissioner of Income Tax 2009 (8) TMI 63 - SUPREME COURT or not Held that - The facts are clearly distinguishable and do not apply to the facts of the present case - In case of Liberty India, the hon ble Supreme Court was considering the profits derived from sale/transfer of DEPB/Duty Draw Back Benefits - DEPB/Duty Draw Back Benefits, is given under a scheme framed under the Customs Act and it is transferable, in other words, it is a marketable commodity - Excise duty refund by assessee in the present case is neither a marketable commodity nor transferable - It is only a refund of expenditure already incurred by assessee, hence the decision will not apply the order of the CIT(A) is upheld Decided against revenue. Taxability of excise duty refund Capital receipt or not Held that - Assessee has not only treated excise duty refund as a revenue receipt in its books of account but has also shown it as income in the return of income filed for the AYs - This issue was never raised by assessee at the assessment stage - Though, before the FAA assessee raised this issue by way of an additional ground, but, the CIT(A) neither examined nor considered the issue by making a detailed analysis - Since for arriving at proper conclusion as to whether excise duty refund is in the nature of capital or revenue, factual aspects relating to industrial policy resolution and notification granting incentives have to be looked into, which has not been done either by AO or by CIT(A), we are not inclined to enter into this issue at this stage - the order of CIT(A) allowing assessee s claim of deduction u/s 80I is upheld, thus, the issue becomes academic Decided against revenue. Validity of proceedings u/s 154 Held that - Exercise of jurisdiction u/s 154 of the Act for withdrawing benefit u/s 80IB in respect of excise duty refund is not valid as it is a debatable issue, though, considering the fact that CIT(A) s order granting benefit u/s 80IB to assessee is upheld the issue becomes academic Decided against assessee.

Summary

Issues Involved:
1. Eligibility of excise duty refund for deduction under Section 80IB.
2. Nature of excise duty refund as capital or revenue receipt.
3. Validity of proceedings initiated under Section 154 of the Act.

Issue-wise Detailed Analysis:

1. Eligibility of Excise Duty Refund for Deduction under Section 80IB:

The department contended that the excise duty refund should not be eligible for deduction under Section 80IB, citing the Supreme Court's decision in Liberty India Ltd., which held that such refunds are not attributable to profits derived from eligible business. The assessee, engaged in manufacturing pesticides and fertilizers, had set up a unit in Jammu and Kashmir and claimed excise duty refund under the industrial policy and central excise notification. The Assessing Officer (AO) disallowed the deduction, but the CIT(A) allowed it, stating that the excise duty refund is directly related to the manufacture of goods and hence qualifies for the deduction.

The Tribunal upheld the CIT(A)'s decision, noting that the excise duty paid formed part of the sale price and was integrally connected with the manufacturing and sale of goods. The refund was a reimbursement of an expenditure already incurred, thus forming part of business profits under Section 41(1)(a). The Tribunal distinguished the case from Liberty India, where the benefits were marketable commodities, unlike the excise duty refund in this case.

2. Nature of Excise Duty Refund as Capital or Revenue Receipt:

The assessee argued that the excise duty refund, being an incentive under the industrial policy, should be treated as a capital receipt and not taxable. This issue was raised as an additional ground before the CIT(A), but it was not adjudicated. The Tribunal noted that the assessee had treated the refund as revenue in its books and returns. Since the CIT(A) did not examine the issue in detail, the Tribunal declined to address it at this stage, considering it of academic interest due to the confirmation of the deduction under Section 80IB.

3. Validity of Proceedings Initiated under Section 154 of the Act:

For the assessment year 2008-09, the assessee challenged the rectification proceedings under Section 154, arguing that the AO had already examined and allowed the deduction under Section 80IB, making it a debatable issue not subject to rectification. The Tribunal acknowledged that Section 154 cannot be invoked for debatable issues but deemed the issue academic since the deduction under Section 80IB was upheld.

Conclusion:

The Tribunal dismissed the department's appeals and the assessee's cross-objections, affirming the CIT(A)'s decision to allow the deduction under Section 80IB on the excise duty refund and finding the other issues raised to be of academic interest. The judgment emphasized the direct link between the excise duty refund and the manufacturing activity, distinguishing it from marketable benefits considered in Liberty India.