2008 (11) TMI 231 - HC - Income Tax

Refund of excise duty deduction u/s 80IB held that - The finding of the authorities below is that the refund of excise duty is pivoted on the manufacturing activity carried on by the assessee. Once such a finding of fact has been returned we need not go further and examine the immediate and proximate source of refund of excise duty. In other words, as to whether there was direct nexus between the refund of excise duty and industrial activity. As a matter of fact, in the questions proposed by the Revenue, there is no specific question, that this finding of the authorities below is perverse. - There is no ground taken by the Revenue whereby the substantial findings of fact have been challenged by the Revenue as being perverse. - test of proximity, i.e., direct nexus with the industrial activity is not necessary while claiming deduction under section 80-IB of the Act. Deduction allowed u/s 80IB decision in the matter of Eltek SGS (2008 -TMI - 3086 - DELHI HIGH COURT) followed

Issues Involved:
1. Deletion of an addition of Rs. 2,12,12,644 on account of sale of silver outside the books of account.
2. Allowance of deduction under section 80-IB in respect of a sum of Rs. 2,61,92,386 received by the assessee towards refund of excise duty.

Detailed Analysis:

First Issue:
The Tribunal relied on its previous order for the assessment year 1997-98 in the assessee's case, where it allowed the appeal of the assessee. The High Court had already decided this issue against the Revenue in a previous case (CIT v. Dharam Pal Prem Chand Ltd.), making it no longer res integra. Consequently, the first issue was decided against the Revenue and in favor of the assessee.

Second Issue:
The assessee, engaged in manufacturing flavoured chewing tobacco and kiwam, had units in Himachal Pradesh and Agartala. The Agartala unit was exempt from excise duty under three notifications issued by the Ministry of Finance. The procedure required the assessee to pay excise duty upon clearance and claim a refund the following month. The assessee included the excise duty refund in its income for deduction under section 80-IB.

The Assessing Officer disallowed the deduction, arguing that the refund was not "income derived" from the industrial undertaking. The Commissioner of Income-tax (Appeals) found that the excise duty was paid during manufacturing, creating a direct nexus between the business activity and the refund. The net effect of the entries in the profit and loss account was "nil," justifying the inclusion of the refund in the income of the Agartala unit for deduction under section 80-IB.

The Tribunal agreed with the Commissioner of Income-tax (Appeals), noting that the refund was the assessee's own money paid under the scheme and could not be excluded from the profits for computing total income under section 80-IB. The Tribunal dismissed the Revenue's appeal.

Court's Analysis:
The High Court examined the relevant notifications, which provided excise duty exemption for units located in specified areas or manufacturing specified goods. The exemption was directly related to the industrial activity, requiring the manufacturer to pay excise duty and claim a refund. The court found the Revenue's argument of no direct nexus between the refund and industrial activity untenable. The accounting methodology adopted by the assessee resulted in a "nil" effect on the profit and loss account, justifying the inclusion of the refund for deduction under section 80-IB.

The Revenue's contention of double benefit was rejected as it was not raised before the lower authorities and lacked factual foundation. The court distinguished the cited cases, noting that the facts and legal provisions in those cases differed from the present case. The court emphasized the factual finding of a direct nexus between the refund and manufacturing activity, making it unnecessary to further examine the immediate and proximate source of the refund.

Conclusion:
The High Court sustained the Tribunal's judgment, finding no substantial question of law. The appeal was dismissed, affirming the inclusion of the excise duty refund in the income for deduction under section 80-IB.

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