2014 (1) TMI 1596 - HC - Income Tax

Validity of Tribunal s order - Held that - In view of the law laid down in Liberty India Vs. CIT 2009 (8) TMI 63 - SUPREME COURT - The Tribunal has passed the order in total defiance of law - DEPB/Duty drawback are incentives which flow from the Schemes framed by Central Government or from Section 75 of the Customs Act, 1962, hence, incentives profits are not profits derived from the eligible business under Section 80IB - They belong to the category of ancillary profits of such undertakings - Decided in favour of Revenue.

Summary

Issues:
1. Justification of ITAT in setting aside the issue and remitting it to CIT (A) for adjudication de novo.
2. Justification of ITAT in not following a binding precedent applicable to the case.

Issue 1: Justification of ITAT in setting aside the issue and remitting it to CIT (A) for adjudication de novo:

The primary issue before the Tribunal was whether the Commissioner (Appeals) was correct in denying a deduction under Section 80 IB of the Income Tax Act 1961 concerning a duty drawback. The Assessing Officer disallowed the deduction, stating that the duty drawback did not qualify as profit derived from the industrial undertaking. The CIT (A) upheld this decision. The appellant contended that the Tribunal's judgment contradicted the law established by the Supreme Court in Liberty India Vs. CIT [317 ITR 218 (SC)]. The Supreme Court in Liberty India case held that duty drawbacks and DEPB are incentives that do not fall under profits derived from the eligible business under Section 80-IB as they are ancillary profits. Despite this binding judgment, the Tribunal remitted the matter to the CIT (A) for fresh adjudication, citing the need for all relevant facts to be considered by the higher forum.

Issue 2: Justification of ITAT in not following a binding precedent applicable to the case:

The Tribunal's decision to remit the matter to the CIT (A) was deemed by the High Court as a breach of judicial discipline and a failure to adhere to the binding precedent set by the Supreme Court. The High Court emphasized that under Article 141 of the Constitution, the law declared by the Supreme Court is binding on all courts in India. The Tribunal's observation that duty drawbacks may not be considered incidental or independent benefits in certain situations contradicted the Supreme Court's clear directive. The High Court held that the Tribunal's action of remitting the issue for fresh adjudication despite the established precedent amounted to a violation of judicial discipline. The High Court rejected the argument that the remand to CIT (A) was merely for factual findings, noting that substantial issues already decided by the Supreme Court in Liberty India case were involved.

In conclusion, the High Court found merit in the Revenue's contention that the Tribunal's decision constituted a failure to follow the binding precedent, leading to a clear violation of judicial discipline. The High Court answered the substantial questions of law in the negative and in favor of the Revenue, thereby disposing of the Income Tax Appeals without costs.