2013 (4) TMI 661 - AT - Income Tax

Export incentives Duty Drawback/DEPB u/s 80lB - denial of claim placing reliance on Liberty India vs. CIT 2006 (9) TMI 487 - PUNJAB & HARYANA HIGH COURT - Held that - The judgment of Liberty India has been upheld by the Hon ble Supreme Court (2009 (8) TMI 63 - SUPREME COURT) considering the ratio of its own judgment in the case of Sterling Foods (1999 (4) TMI 1 - SUPREME Court), Ritesh Inds. Ltd. (2004 (9) TMI 36 - DELHI High Court) and CIT vs Lakhwinder Singh (2007 (7) TMI 302 - PUNJAB AND HARYANA HIGH COURT) to held that section 80-IB provides for allowing a deduction in respect of profits and gains derived from the eligible business. Import of the words derived from is narrower as compared to that of the words attributable . Thus DEPB/Duty Drawback benefits did not form part of net profit of eligible industrial undertaking for the purposes of section 80-I/80-IA/80-IB - in favour of the revenue. Whether disclosures of income can be said to be derived from business for the purposes of computation of deduction u/s 80-IB - assessee voluntarily surrendered additional income of Rs.15 lakh for taxation on account of difference in stock, cash and unexplained investment in factory building - Held that - Amount of surrender was due to valuation difference as accepted by AO and it was specifically stated that this was not unexplained investment u/s 69. A bare perusal of the assessment order shows that it was on estimate basis on GP rate of earlier years. It is nothing but business profit, hence it was derived from business and deduction u/s 80-IB should be granted on the same. In favour of assessee. Additions made u/s 69 related to the difference in cash and undisclosed income - Held that - The assessee has not explained as to how these unexplained items have a nexus with the business of the assessee. As the assessee has not discharged the burden of proof that these items were received from business, the assessee is not eligible for deduction u/s 80-IB. In favour of the revenue.

Summary

Issues:
1. Denial of claim for export incentives Duty Drawback/DEPB under section 80IB.
2. Addition of surrendered income for taxation.
3. Eligibility for deduction under section 80IB based on surrendered income items.

Analysis:
Issue 1: Denial of claim for export incentives Duty Drawback/DEPB under section 80IB:
The appellant contested the denial of the claim for export incentives Duty Drawback/DEPB under section 80IB by the Commissioner of Income Tax(A). The appellant argued that these incentives were directly related to the business and should be considered for deduction. However, the Tribunal referred to the judgments of various high courts and the Supreme Court, particularly the case of Liberty India, which clarified that such benefits did not form part of the net profit of the industrial undertaking for the purpose of section 80IB. Consequently, the Tribunal dismissed the grounds raised by the appellant in this regard.

Issue 2: Addition of surrendered income for taxation:
The appellant voluntarily surrendered additional income of Rs. 15 lakh during a survey conducted under the Income Tax Act. The Assessing Officer added this amount to the income of the assessee, considering it as income from other sources. The Tribunal noted that the surrendered amount was related to differences in stock valuation, cash, and unexplained investment in the factory building. The Tribunal examined whether these disclosures could be considered as derived from the business for the purpose of deduction under section 80IB. Relying on various judgments, the Tribunal concluded that the difference in stock valuation was business profit and eligible for deduction under section 80IB. However, the Tribunal upheld the addition of the undisclosed cash and investment amounts, as the appellant failed to establish a nexus with the business.

Issue 3: Eligibility for deduction under section 80IB based on surrendered income items:
The Tribunal partially allowed the appeal concerning the surrendered income items. It directed that the appellant was entitled to a deduction under section 80IB for the amount of difference in stock valuation surrendered during the survey. The Tribunal upheld the denial of deduction for the undisclosed cash and investment amounts, as they lacked a clear connection to the business. The Tribunal's decision provided a nuanced analysis of each surrendered income item and its eligibility for deduction under section 80IB.

In conclusion, the Tribunal's judgment addressed the issues of denial of export incentives claim, addition of surrendered income, and eligibility for deduction under section 80IB in a comprehensive manner, relying on legal precedents and factual considerations to arrive at a reasoned decision.