2019 (10) TMI 470 - AT - Income Tax

Deduction u/s 80IB - denial under the head Duty Drawback, VKGUY and FPS Premium , being amount received from Central Government and chargeable to tax under the head Profit and gains of business or profession under section 28 (iiib)/(iiid) of Income tax Act - HELD THAT - As decided in own case 2017 (3) TMI 482 - ITAT JAIPUR DEPB is an incentive. It is given under Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEPB is to neutralize the incidence of customs duty payment on the import content of export product. This neutralization is provided for by credit to customs duty against export product. Hon'ble Supreme Court has held that the duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of Sections 80I/80IA/80IB of the Act. - Decided against assessee Denying deduction u/s 80IB - business profit, noticed in form of discrepancy in quantity/valuation of business stock in survey, derived by the assessee from eligible business and disclosed under other head of income at the insistence of Survey Team - HELD THAT - Under the double entry system of accounting, where any unaccounted stock is brought in the books of accounts, the stock account is increased by value of unaccounted stock and corresponding entry is passed whereby investment in such unaccounted stock is credited to the profit/loss account. In the instant case, it is not clear how the assessee has passed the double entry in its books of accounts and how the same has been considered for claiming deduction under section 80IB of the Act in absence of working of deduction under section 80IB of the Act on record. Further, we find that there is no specific finding recorded by the CIT(A) in this regard though the assessee has raised this ground before the CIT(A). We are accordingly constrained to set-aside the matter to the file of the CIT(A) to examine the same afresh after providing reasonable opportunity to the assessee. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Denial of deduction under section 80IB of Income Tax Act for Duty Drawback, VKGUY, and FPS Premium.
2. Denial of deduction under section 80IB for surrendered income due to discrepancies in stock valuation.

Issue 1: Denial of deduction under section 80IB for Duty Drawback, VKGUY, and FPS Premium:
The appeal was filed against the order of ld. CIT(A)-3, Jaipur denying deduction under section 80IB of Income Tax Act for Duty Drawback, VKGUY, and FPS Premium. The Co-ordinate Bench had previously decided against the assessee, highlighting that cash assistance received for exports and profits from schemes like DEPB do not qualify for deduction under section 80IB. The Hon'ble Supreme Court's ruling in the case of Liberty India vs. CIT clarified that DEPB benefits do not form part of the net profits eligible for deduction. The Tribunal upheld the decision of the ld CIT(A) based on this precedent. Despite further appeals to the Rajasthan High Court and the Supreme Court, the denial of deduction was confirmed, leading to the dismissal of the appeal.

Issue 2: Denial of deduction under section 80IB for surrendered income due to discrepancies in stock valuation:
Regarding the second ground of appeal, the assessee claimed deduction under section 80IB for surrendered income of ?42,52,425 due to discrepancies in stock valuation found during a survey. The Assessing Officer and ld. CIT(A) denied the deduction, asserting that the surrendered income did not qualify as "profit derived from" the industrial undertaking. The assessee argued that the surrendered amount was part of the net profit and should be eligible for deduction under section 80IB. The Tribunal noted that the surrendered amount was reflected separately in the profit and loss account and could impact the closing stock value. However, due to lack of clarity on the accounting treatment and absence of specific findings by ld CIT(A), the matter was remanded back for re-examination. The appeal was partly allowed for statistical purposes.

In conclusion, the judgment addressed the denial of deductions under section 80IB for various income sources and discrepancies in stock valuation, emphasizing legal precedents and accounting principles to determine the eligibility for deductions. The Tribunal's decision highlighted the importance of proper documentation and accounting treatment in claiming deductions under the Income Tax Act.