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TMI Blog2010 (12) TMI 885X X X X Extracts X X X X X X X X Extracts X X X X ..... RDER N.K. Saini: The appeal by the department and the Cross Objection by the assessee are directed against the order dated 24.7.2009 of the ld. CIT(A)-I, Lucknow. First we will deal with the Cross Objection No.86(Luc.)/2009. C.O. No. 86(Luc.)/2009 2. The following grounds have been raised in this Cross Objection: "1. Because the CIT(A) has erred on facts and in law In holding that the proceedings u/s.147 have been validly initiated. 2. Because there being no reasons germane to the issue, nor having any nexus, nor there being any valid assumption of jurisdiction, the CIT(A) has erroneously held that the reassessment proceedings have been validly initiated. 3. Because the entire reassessment being without jurisdiction is bad in law and be quashed." 3. From the above grounds it would be clear that the only grievance of the assessee relates to the proceedings under Section 147 of the I.T. Act, which have been held by the ld. CIT(A) to have been initiated validly. 4. The facts of the case, in brief, are that the assessee was engaged in the business of tanning of raw hides, export of tanned hides, manufacturing and export of shoe upper. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e validity for issue of notice u./s 148 has been challenged. In this regard, it has been submitted that the assessee has correctly computed income of its unit at Jajmau and Banthar for which separate accounts have been maintained. It has been submitted that the deduction u/s 80IB has been rightly claimed by including the amount of duty draw back in Banthar Unit relying on the decision of Hon'ble Gujrat High Court in the case of CIT vs. India Gelatine Chemicals Ltd., 275 ITR 284. Further it has also been submitted that the salary of the working partners of Rs.69,96,939/- is debited against the profit of Jajmau Unit as per mutual consent of the partner and as per the provisions contained in the partnership deed, therefore, it should be allowed. Regarding interest of Rs.4,37,551 on unsecured loans debited in Jajmau unit only, it has been submitted that no adverse view should be taken as one unit could advance money to other unit." 4.2 The AO disposed of the objection of the assessee in the following manner: "Reference is invited to the detailed reasons recorded and duly communicated to you. The reliance on the ratio of decisions given by the Hon'ble Supreme Court and Hon'ble H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner and came to the conclusion that the income had escaped assessment, any debate and evaluation of the reasons/sufficiency of reasons was not called for at that stage. The ld. CIT(A) accordingly held that the objections of the assessee on initiation of proceedings were misplaced, which were duly addressed by the AO also. He, therefore, was of the view that the issue was exhausted and was without merit. 7. Now the assessee has filed the Cross Objection. 8. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the deduction under Section 80IB was claimed on the basis of audit report duly prepared by the Auditors as prescribed as per Section 80IB. Thus, as far as the assessee was concerned, complete details/information with respect to claim of deduction under Section 80IB was provided alongwith the return of income and the AO nowhere mentioned in the entire reasons recorded that the assessee had not furnished complete details or the report prepared by the auditors was untrue, false, incomplete or incorrect. It was submitted that there was no escapement of income nor failure on the part of the assessee to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Supreme Court in the case of CIT vs. Kelvinator India Ltd., 320 ITR 561(SC). It was contended that merely because a judgment has been rendered, the same cannot be good for re-opening assessment under section 147 of the Act. Reliance was placed on the judgment of the Hon'ble Madras High Court in the case of CIT vs. Baer Shoes (India) (P.) Ltd. (2010) 6 Taxmann. com.113 (Madras). It was stated that when the assessment for assessment year 2004-05 was under process, what was need or necessity of completing the assessment of assessment year 2005-06 first under Section 143(1) and thereafter to re-open the same under Section 147 of the I.T. Act and that when the assessment for assessment year 2004-05 was pending assessment under Section 143(3), the assessment for assessment year 2005-06 should also ought to have been taken up for scrutiny and assessment under Section 143(3) instead of reopening assessment under section 147 of the I.T. Act. It was also stated that assessment for assessment year 2004-05 has been completed on 30.11.2006 and action under Section 147 has been taken for the assessment year 2005- 06 on 28.3.2007 i.e. after a lapse of four months. It was submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as profits derived from the industrial undertaking and therefore, deduction under section 80IB was not admissible on such export incentive.The AO issued the notice under section1 148 of the I.T. Act for re-opening the assessment under Section 147 of the I.T. Act on the basis of the judgments of the various Hon'ble High Courts, so it cannot be said that there was a change of opinion. In this regard, the Hon'ble Punjab and Haryana High Court in the case of Punjab State Co-operative Agricultural Development Bank Ltd. vs. CIT and another,305 ITR 156 (P andH) held as under (Head Note): "The assessee was engaged in the business of banking. It was being allowed exemption for about 40 years. For the assessment year 1999-2000, the assessee filed its return under section 139(1) of the Income tax Act, 1961, claiming that its entire income was exempt under section 80P(2)(a)(i) of the Act. The return was accepted under section 143(1) of the Act and refund was also issued. Thereafter, a notice was issued for reopening the assessment. It was mentioned that during the course of assessment proceedings for the assessment year 2002-03, it came to light that the claim of the assessee for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the findings of the ld. CIT(A) on this issue. Accordingly we do not see any merit in this Cross Objection of the assessee. 11. Now we will deal with the appeal of the Department in ITA No.545(Luc.)/2009. 12. The following grounds have been raised in this appeal: "1. On facts and in circumstances of the case the learned Commissioner of Income Tax (Appeals)-I, Kanpur has erred in law and on facts in deleting the addition of Rs.1,70,72,190/- made by the Assessing Officer out of deduction under section 80IB on duty drawback claimed by the assessee. 2. That in his order Ld. Commissioner of Incometax (Appeals)-I, Kanpur has not considered the judgment of Hon'ble Supreme Court in Liberty India vs. CIT in SLP No.5827/07 wherein Hon'ble Supreme Court has held that DEPB and Duty Drawback are merely linked to incentives and not to the profits of the industrial undertaking. 3. That the order of the Ld. Commissioner of Income Tax (Appeals)-I, Kanpur being erroneous in law and on facts be vacated and the order dated 20.12.2007 passed u/s.147/143(3) of the I.T. Act 1961 by the Assessing Officer be restored. 4. That the appellant craves leave to modify any of the grounds of ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear departure in the language used in s. 80-IB of the Act and it is this choice of words that makes all the difference that we are concerned with. We are of the opinion that it is not necessary for us to go as far as the Gujarat High Court has done in coming to the conclusion that duty drawback is profit or gain derived from an industrial undertaking. It is sufficient if we stick to the language used in s. 80-IB of the Act and come to the conclusion that duty drawback is profit or gain derived from the business of an industrial undertaking. The language used in s. 80-IB of the Act is not as broad as the expression "attributable to" referred to by the Supreme Court in Sterling Foods (Supra) and Cambay Electric (supra) nor is it as narrow as the expression "derived from ". The expression "derived from the business of an industrial undertaking" is somewhere in between. Consequently, we are of the view that the source of the duty drawback is the business of the industrial undertaking which is to manufacture and export goods out of raw material that is imported and on which customs duty is paid. The entitlement for duty drawback arises from s.75(1) of the Customs Act, 1962 read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason discussed above and AO is directed to allow deduction u/s 80-IB of the I.T. Act." 16. Now, the Department is in appeal. 17. The ld. CIT(DR), at the very outset, stated that this issue has now been settled by the judgment of the Hon'ble Supreme Court in the case of Liberty India vs. CIT, (2009) 317 ITR 218(SC). 18. In his rival submissions, the ld. Counsel for the assessee although supported the order of the ld. CIT(A), however, could not controvert the aforesaid contention of the ld. CIT(DR). 19. After considering the submissions of both the parties and the material on record, it is noticed that the controversy under consideration has now been settled by the Hon'ble Apex Court in the case of Liberty India (supra), wherein it has been held as under: "Sections 80-I, 80-IA and 80-IB provide for incentives in the form of deductions which are linked to profits and not investment. On analysis of sections 80-IA and 80-IB it becomes clear that any industrial undertaking which becomes eligible on satisfying sub-section (2) would be entitled to deduction under sub-section (1) only to the extent of profits derived from such indus-trial undertaking after the specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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