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TMI Blog2011 (11) TMI 511X X X X Extracts X X X X X X X X Extracts X X X X ..... - Decided in favor of assessee. - ITA No. 1020/Del/2011 - - - Dated:- 30-11-2011 - Rajpal Yadav, A.N. Pahuja, JJ. Piyush Kaushik, AR, for the Appellant Anusha Khurana, DR, for the Respondent ORDER A.N. Pahuja: This appeal filed on 24th February, 2011 by the assessee against an order dated 12th November, 2010 of the ld. CIT (Appeals)-Bareilly, raises the following grounds:- "1. That on the facts and circumstances of the case and in the law, the CIT (Appeals) has grossly erred in denying deduction under section 80-IB on Cenvat availed; 2. That on the facts and circumstances of the case and in the law, the CIT (Appeals) has grossly erred in not appreciating the clear fact that Cenvat does not arise out of any incentive scheme; Cenvat is not realized in cash and that the same arises only by way of book entry the net impact of which is NIL in the profit and loss account; 3. That on the facts and circumstances of the case and in the law, the CIT (Appeals) has grossly erred in not appreciating that the assessee's claim of deduction under section 80-IB on Cenvat availed is covered by the decision of Delhi High Court in the case of CIT vs. Dharam P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for deduction under section 80-IB of the Act on the ground that Cenvat is nothing, but like a scheme of duty drawback while following the decision of Hon'ble Supreme Court in the case of Liberty India, 317ITR 218 (SC). 3. On appeal, the ld. CIT(Appeals) while referring to the decision in Liberty India(supra) upheld the findings of the AO in the following terms:- "In this case the main issue before the Apex Court was regarding treatment of incentive received from the Government in the form of DEPB or duty drawback. This benefit increased the profit of the owner of the enterprise and not of the industrial undertaking. The focus in the said decision was to lay down the ratio that trade discounts, rebate, duty drawback, and such similar items are deducted in determining the costs of purchase. Therefore, they should not be treated as adjustment (credited) to cost of purchase or manufacture of goods. They should be treated as separate items of revenue or income and accounted for accordingly. It was, therefore, held that for the purposes of AS-2, Cenvat credits should not be included in the cost of purchase of inventories of raw material consumed. This decision was passed after th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apex Court in their decision dated 31.8.2009 in Liberty India(supra), DEPB is an incentive. It is given under the 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. Under DEPB, an exporter may apply for credit as a percentage of the FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by the DGFT for import of raw materials, components, etc., DEPB credit under the Scheme has to be calculated by taking into account the deemed import content of the export product as per basic customs duty and special additional duty payable on such deemed imports. After analyzing the DEPB scheme, Hon'ble Apex Court concluded that DEPB/Duty drawback are incentives which flow from the schemes framed by Central Government or from section 75 of the Customs Act, 1962 and hence, incentives profits are not profits derived from the eligible business under section 80-IB of the Act. They belong to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T credit taken on inputs, if such inputs are removed as such or after being partially processed; or (iii) an amount equal to the CENVAT credit taken on capital goods, if such capital goods are removed as such; or (iv) service tax on any output service, as per the conditions laid down in the rules. 6.3 In the instant case before us, not only that the ld. DR did not demonstrate before us as to how the schemes relating to DEPB and Duty Draw Back on one hand and Cenvat on the other, are similar, as observed by AO/CIT(A), she did not even dispute the facts that net impact of entries made by the assessee in the profit and loss account is nil and that the assessee did not receive any incentive on this account from the Government, as revealed from computation on page 3 and 4 of the paper book filed by the assessee. 6.4 Even otherwise, as is apparent from the facts of the case, the assessee received Cenvat on excise duty paid on purchases of raw material and debited in the Cenvat adjustment recoverable account. The excise duty payable on sales was also adjusted against the said Cenvat adjustment recoverable account. The assessee reflected purchases in the profit and loss account inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the Revenue was CIT vs. Ritesh Industries Ltd. (2005) 274 ITR 324. A Division Bench of this Court was called upon to construe the provisions of Section 80.I of the Act in the context of the claim of the assessee for inclusion of amounts received as 'duty drawback' for the purposes of ascertainment of profits or gains derived from the industrial undertaking within the meaning of provision of Section 80I of the Act. The Division Bench of this Court applying the ratio of the judgments of the Supreme Court in the case of Sterling Foods (supra), Cambay Electric Supply (supra) as also the judgment of Madras High Court in the case of CIT vs. Vishwanathan and Co. [2003 261 ITR 737] came to the conclusion that 'duty drawback' could not be regarded as profit or gain derived from an industrial undertaking as the immediate and proximate source was not the industrial undertaking but the claim for 'duty drawback'. The view of the Division Bench of this Court to which one of us (i.e. Badar Durre Ahmed J.) was a party, was based in the context of the facts obtaining in the said case. In the instant case the proximity with industrial activity is clear and there is no scope for holding oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus the refund is assessee's own money itself in a way security deposit which is being refunded on submission of the evidence depositing the same. Therefore, in our view this is not an income at all. Therefore, the A.O, in our view, was not justified in making a separate addition of income and thereby denying the relief eligible u/s 80.IB of the Act on that amount. 7. Before we part with the matter, we think it fit to deal with the contention of the Revenue that the decision of the Apex Court in Liberty India (supra) concludes the issue in favour of the revenue. We may say the judgment in the case of Liberty India was on the issue of DEPB/Duty Draw Back which was an incentive and was not concerned with the refund of the amount paid. The Court in that case has negated the contention of the assessee at page 234 by observing as under:- "The Rules do not envisage a refund of an amount arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cum-manufacturer. Sub-section (2) of Section 75 of the Customs Act requires the amount of drawback to be determined on a consideration of all the circumstances prevalent in a particular trade and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refunded to the assessee is the amount paid under the modalities provided by the Department of Revenue for giving effect to the exemption notifications. There is also nothing to suggest that the assessee has recovered or passed on the excise duty element to its customers. Even assuming the refund does amount to income in the hands of the assessee, s a profit or gain directly derived by the assessee from its industrial activity. The payment of Central excise duty has a direct nexus with the manufacturing activity and similarly, the refund of the Central excise duty also has a direct nexus with the manufacturing activity. The issue of payment of Central excise duty would not arise in the absence of any industrial activity. There is, therefore, an inextricable link between the manufacturing activity, the payment of Central excise duty and its refund. In the circumstances, we are of the opinion that question No. 2 must be answered in the affirmative in favour of the assessee and against the Revenue." 6.2 The Hon'ble High Court has decided the issue in favour of the assessee after considering the decision of the Hon'ble Supreme Court in the case of Liberty India vs. CIT reporte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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