2010 (1) TMI 38 - HC - Income Tax

Deduction u/s 80IB export incentives tribunal allowed the claim of deduction u/s 80IB in respect of incentives received of Rs.1.17 crores (consisting of Duty Drawback of Rs.81.51 lacs Export Entitlement of Rs.8.29 lacs Rs.14.76 lacs being DEPB licence and Exchange rate difference of Rs.13.22 lac) held that - following the judgment of the Supreme Court in Liberty India (2009 -TMI - 34471 - SUPREME COURT) we set aside the judgment of the tribunal in so far as the tribunal has allowed the claim of deduction under Section 80IB in respect of (1) duty draw back; (2) export entitlement; and (3) DEPB license. The judgment of the tribunal is affirmed in so far as the claim of deduction under the head of exchange rate difference is concerned

Summary

Issues:
1. Appeal by the revenue regarding deduction under Section 80IB for specific incentives.
2. Allowance of deduction for Duty Drawback, Export Entitlement, DEPB license, and Exchange Rate difference.
3. Interpretation of exchange rate fluctuation in relation to Section 80IB.

Analysis:
1. The appeal concerns the Income Tax Appellate Tribunal's judgment on the deduction under Section 80IB for the assessment years 2002-2003 and 2003-2004, specifically focusing on the assessment year 2002-2003.
2. The main issue revolves around whether the tribunal erred in allowing a claim of deduction under Section 80IB for certain incentives like Duty Drawback, Export Entitlement, DEPB license, and Exchange Rate difference. The Supreme Court's decision in Liberty India V/s. CIT is crucial in this context.
3. The tribunal's decision to allow the deduction for Duty Drawback, Export Entitlement, and DEPB license is not sustainable based on the legal precedent set by the Supreme Court. Hence, this part of the judgment needs to be set aside.
4. However, regarding the exchange rate fluctuation, the assessee argued that it should be considered as part of the sale proceeds eligible for deduction under Section 80IB. The fluctuation in exchange rates directly impacts the rupee equivalent of the goods exported, even though the value of the goods remains constant.
5. The court, after considering the arguments from both sides, concluded that the exchange rate fluctuation is directly linked to the sale transaction involving the export of goods from the industrial undertaking. This fluctuation arises due to the difference in the rate of exchange between the export date and the receipt date, without any change in the sale price.
6. The judgment affirms that the exchange rate difference should be allowed under Section 80IB, aligning with a previous decision by a Division Bench of the same court. Consequently, the tribunal's decision on exchange rate fluctuation is upheld, while the allowance of deduction for Duty Drawback, Export Entitlement, and DEPB license is set aside, following the Supreme Court's ruling in Liberty India.

This detailed analysis covers the issues raised in the judgment comprehensively, outlining the legal interpretations and conclusions reached by the court.