2009 (11) TMI 62 - HC - Income Tax

Export Incentives Deduction u/s 80IB - In the present case, the assessee is engaged in the business of manufacturing of guar gum. For the assessment year 2006-07, the assessee filed its returns declaring an income of Rs. 28,25,476/-. The return was processed under section 143 (1) of the Act and a refund of Rs. 24,80,660/- was granted vide order dated 14.9.2007. Thereafter, the case was taken up for scrutiny and processed under section 143 (3) of the Act. Vide order dated 28.3.2008, the Assessing Authority disallowed the claim made by the assessee under section 80-IB of the Act, which was claimed by the assessee being the profits derived from industrial undertaking Unit II - . According to the Assessing Authority, the said profit includes export incentives of Rs. 3,08,40,231/- including DEPB profits CIT(A) allowed the deduction ITAT denied the deduction held that - Duty Draw Back and DEPB are incentives, which flow from the schemes framed by the Central Govt. or under Section 75 of the Customs Act, 1962 and these incentive profits do not fall within expression profits derived from industrial undertaking in Section 80-IB of the Act benefit not to be allowed decided in favor of revenue.

Summary

Issues:
1. Entitlement for deduction claimed u/s 80-IB of the Income Tax Act.
2. Justification for ignoring previous judgments in similar cases.

Analysis:
1. The case involved the appellant-assessee engaged in manufacturing guar gum, claiming a deduction under section 80-IB of the Income Tax Act for profits derived from industrial undertaking Unit II, including export incentives of Rs. 3,08,40,231/-, including DEPB profits. The Assessing Authority disallowed this claim, leading to an appeal before the Commissioner of Income Tax (Appeals) who allowed the claim based on a judgment of the Delhi High Court. However, the ITAT set aside the CIT (A) order, citing the decision of the jurisdictional High Court in the case of Liberty India, which held that export incentives like DEPB do not constitute profits derived from industrial undertaking eligible for deduction under section 80-IB. The ITAT reversed the CIT (A) findings and restored the Assessing Authority's order, emphasizing the precedence of the jurisdictional High Court's decision.

2. The appellant raised substantial questions of law regarding the entitlement to the deduction claimed and the justification for ignoring the judgment of the Hon'ble Delhi High Court in a similar case. During the hearing, it was revealed that the decision in M/s Liberty India v. CIT, Karnal, relied upon by the ITAT, had been affirmed by the Hon'ble Supreme Court. The Supreme Court concluded that Duty Draw Back and DEPB are incentives not falling within the expression "profits derived from industrial undertaking in Section 80-IB of the Act." Consequently, these incentive profits do not form part of the net profits of the industrial undertaking for the purposes of section 80-IB. Based on these decisions, the Court found no substantial question of law arising from the ITAT's order and dismissed the appeal.

This detailed analysis of the judgment highlights the issues of deduction entitlement under section 80-IB and the relevance of previous judgments in determining the eligibility of export incentives for such deductions.