2023 (10) TMI 687 - AT - Income Tax

Deduction u/s 80IC - new industrial undertaking not formed - Claim denied as assessee was using the tool of forming a new firm in the same name at the same premises beyond the time limit permissible as per the law - AO alleged that the assessee went on changing the firm structure only to claim deduction u/s 80IC and the assessee could not have had a turnover of Rs. 75 Cr. at the beginning of the business and the entire new business is the changed form of the old business - HELD THAT - The old Firm was dissolved vide deed of dissolution dated and effective from 01.04.2009, as per the copy of dissolution deed. The assessee firm came into existence on 01.01.2009 which is evident from the copy of deed of partnership dtd. 01.01.2009 as per records which the A.O. wrongly noted in the assessment order as 01.04.2009. The said partnership deed has also been got registered with the Registrar of Firms vide certificate in Form-A dated 12.04.10. In this registration certificate, the date of joining has been specified as 01.01.2009 . It shows that during the period 01.01.09 till 31.03.09, the old as well as the appellant firm, simultaneously existed. This construction of the dates persuaded him to reach to a diabolic conclusion that the old firm got closed and immediately new firm got started. It is a fact on record that 1 st export dispatch has taken on 05.05.2009. The old machinery has not been used as indicated by the invoices of the new machinery which was purchased from the third party. The evidences proves that it is a case where new plant machinery has been acquired which was not previously used. Hence, the conditions for the eligibility of claim u/s 80IC in the case of a new industrial undertaking stands satisfied. Decided in favour of assessee. 80-IC on Duty Draw Back - As per the A.O., these incentives may be attributable to the business activity, but they are not the profits derived by an industrial undertaking from an eligible business therefore no deduction u/s 80IC was allowable on duty drawback - HELD THAT - In view of the decision in the case of Meghalaya Steel 2016 (3) TMI 375 - SUPREME COURT where the transport and interest subsidies were held to be eligible for deduction as they were held to have been derived from the business of the undertaking and thus an argument was made that the said decision has widened the scope of deduction. The case of Meghalaya Steels Limited dealt with transport subsidy, interest subsidy and power subsidy and the Hon ble Apex Court 2009 (8) TMI 63 - SUPREME COURT held that since these subsidies directly affect the cost of manufacturing, they have a direct nexus with the profits and gains of the undertaking and since these subsidies have a direct nexus, they can be said to be derived from the industrial undertaking. While dealing with the decision in the case of Liberty India 2009 (8) TMI 63 - SUPREME COURT distinguished Duty Entitlement Pass Book and Duty Drawback Schemes and specifically observed that the DPEB/Duty Drawback Scheme is not related to the business of an industrial undertaking for manufacturing or selling its products and the DEPB entitlement arises only when the undertaking goes on to export the said product. The same view has been reiterated in the case of Saraf Exports Vs CIT. Hence, respectfully following the judgment of Hon ble Supreme Court in various cases as mentioned above, we hereby affirm the decision of the ld. CIT(A). As the assessee has opted for VSV for the years before us. In the result, the appeals of the assessee are dismissed.

Summary

Issues Involved:
1. Allowability of Deduction under Section 80IC of the Income Tax Act, 1961.
2. Deduction under Section 80IC on Duty Drawback.

Issue 1: Allowability of Deduction under Section 80IC of the Income Tax Act, 1961

The primary issue was whether the assessee's claim for deduction under Section 80IC was valid, considering the restructuring of the firm. The AO argued that the restructuring was a ploy to circumvent the limitations of Section 80IC, pointing out several factors indicating continuity between the old and new firms, such as the same business name, family members as partners, same business premises, nature of business, and same bank accounts, sellers, purchasers, job workers, and commission agents. The AO held that the new firm was merely a continuation of the old firm, thus disallowing the deduction.

The CIT(A) deleted the addition made by the AO, and the Revenue appealed. The Tribunal found that the new firm had acquired new plant and machinery, and the business was conducted legally by family members as partners. The Tribunal noted that the old and new firms had different bank accounts, and the name similarity was not determinative. The turnover achieved was attributed to the business acumen and existing contacts of the partners. The Tribunal upheld the CIT(A)'s decision, allowing the deduction under Section 80IC.

Issue 2: Deduction under Section 80IC on Duty Drawback

The AO disallowed the deduction under Section 80IC on duty drawback, stating that these incentives were not derived from the industrial undertaking's business but were attributable to government export policies. The CIT(A) upheld this view, relying on the ITAT's decision in a previous case, which was in line with the Supreme Court's decision in Liberty India Vs. CIT, where it was held that DEPB receipts are not derived from the industrial undertaking.

The Tribunal affirmed the CIT(A)'s decision, referencing the Supreme Court's recent judgment in Saraf Exports Vs. CIT, which reiterated that duty drawback schemes are not related to the business of an industrial undertaking for manufacturing or selling its products and are only applicable upon exporting the product.

Conclusion:

The Tribunal dismissed the appeals of both the Revenue and the assessee. The Tribunal upheld the CIT(A)'s decisions on both issues, allowing the deduction under Section 80IC for the new firm but disallowing the deduction on duty drawback. The order was pronounced in the open court on 12/05/2023.