Home Case Index All Cases Income Tax Income Tax + HC Income Tax - 2016 (3) TMI HC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (3) TMI 753 - HC - Income TaxDeduction u/Sec. 80-IB - DEPB/duty draw back benefits - Held that - On perusal of Sec. 80-IB, in our view, it postulates that the deduction u/Sec. 80-IB is available to the eligible industrial undertaking where the gross total income of the eligible assessee includes any profits and gains derived from any eligible business referred to in the section (emphasis supplied). What has to be seen is derived from and not attributable to . The expression derived from is restrictive as against attributable to , which is wider. There should be immediate nexus and not distant nexus. In our view DEPB/duty draw back benefits do not form part of net profit of undertaking as they are not derived from the eligible business but are incentives under a particular scheme. - Decided against assessee Trading addition - AO applied a certain percentage while making trading addition rejecting books of accounts u/Sec. 145(3) and applied the GP Rate of 20% on the total turnover as disclosed by the assessee. The CIT(A) on a further appeal by the assessee applied a GP Rate of 15% - Held that - Tribunal, taking into consideration the judgment rendered by this Court in the case of CIT Vs. Gotan Lime Khaniz Udyog (2001 (7) TMI 19 - RAJASTHAN High Court ) has held that the books of accounts have been maintained in proper manner and deleted the addition and in our view, we find no perversity in the order of the Tribunal in deleting the tradition addition as even otherwise it is a finding of fact based on the material on record and there can be no hard and fast rule of increasing the GP Rate over the years. - Decided in favour of the assessee. Disallowance of duty draw back consultancy charges - While the AO held that it is capital expenditure in nature and it has enduring effect, however, both i.e. the CIT(A) as well as the Tribunal came to the conclusion that it is revenue in nature - Held that - The finding of the Tribunal that it is not in the nature of enduring effect, is just and proper, the finding of fact recorded by both the appellate authorities is that the consultancy charges have to be paid on account of duty draw back received by the assessee which is to the extent of 1% or 1.5% and this has been paid on year to year basis. When this is a finding of fact recorded by the appellate authorities that these are the consultancy charges on account of receipt of duty draw back and is being paid on annual basis, in our view, it is certainly not in the nature of capital expenditure and has rightly been held to be expenditure, revenue in nature and thus allowable. Thus, both the questions are answered against the revenue and in favour of the assessee.
Issues Involved:
1. Deduction under Section 80-IB of the Income Tax Act. 2. Rejection of books of accounts and estimation of Gross Profit (GP) rate. 3. Deduction under Section 80-HHC of the Income Tax Act for interest income. 4. Classification of duty drawback consultancy charges as revenue or capital expenditure. Detailed Analysis: 1. Deduction under Section 80-IB of the Income Tax Act: The primary issue was whether the export incentives, such as duty drawback, can be considered as profits derived from the industrial undertaking for the purpose of Section 80-IB deductions. The court held that "DEPB/duty drawback benefits do not form part of net profit of undertaking as they are not derived from the eligible business but are incentives under a particular scheme." The court relied on the Supreme Court's decisions in CIT Vs. Sterling Foods and Liberty India Vs. CIT, which clarified that such incentives do not have a direct nexus with the industrial undertaking's profits and are thus not eligible for Section 80-IB deductions. Consequently, the question was answered in favor of the Revenue and against the assessee. 2. Rejection of Books of Accounts and Estimation of GP Rate: For the case of M/s. Garment Crafts, the issue was whether the Tribunal acted illegally in reversing the CIT(A) and AO's order for rejecting the books of accounts and estimating the GP rate. The Tribunal found that the assessee had a substantial increase in turnover and provided sufficient material to justify lower profitability from sales to a particular concern, "Her Style," which accounted for 50% of the turnover. The court upheld the Tribunal's decision, stating that the order was just and proper, and the question was answered against the Revenue and in favor of the assessee. 3. Deduction under Section 80-HHC of the Income Tax Act for Interest Income: In the cases involving M/s. ABC Exports, the issue was whether interest income should be included in the 'profit of the business' for Section 80-HHC deductions. The AO and CIT(A) had rejected the claim, considering the interest as income from other sources. The Tribunal had allowed the claim, but the High Court, referencing the Larger Bench decision in Reliance Trading Corporation Vs. ITO and other relevant judgments, concluded that interest income does not qualify for Section 80-HHC deductions as it does not have a direct nexus with export income. The question was answered in favor of the Revenue and against the assessee. 4. Classification of Duty Drawback Consultancy Charges as Revenue or Capital Expenditure: In the case of M/s. Gulshan Fashions Pvt. Ltd., the issue was whether the duty drawback consultancy charges should be treated as revenue or capital expenditure. The AO had classified it as capital expenditure, but both the CIT(A) and Tribunal concluded it was revenue in nature since it was paid annually and related to duty drawback receipts. The High Court upheld this view, stating that the consultancy charges were not of enduring nature and should be treated as revenue expenditure. The question was answered against the Revenue and in favor of the assessee. Summary of Judgments: 1. Section 80-IB Deduction: The court ruled against the assessee, stating that export incentives like duty drawback are not derived from industrial undertakings and thus not eligible for Section 80-IB deductions. 2. Rejection of Books and GP Rate: The court upheld the Tribunal's decision to reject the trading addition, supporting the assessee's claim that the lower profitability from a specific customer justified the lower GP rate. 3. Section 80-HHC Deduction for Interest Income: The court ruled that interest income does not qualify for Section 80-HHC deductions, siding with the Revenue. 4. Duty Drawback Consultancy Charges: The court held that these charges are revenue expenditure, not capital, thus siding with the assessee. Conclusion: The court provided a detailed analysis of each issue, ultimately siding with the Revenue on the primary issue of Section 80-IB deductions and interest income under Section 80-HHC, while siding with the assessee on the issues of GP rate estimation and classification of consultancy charges.
|