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TMI Blog2013 (11) TMI 262X X X X Extracts X X X X X X X X Extracts X X X X ..... umbai Bench of Hon'ble Income Tax Appellate Tribunal in the case Arts and Crafts Exports [2010 (6) TMI 645 - ITAT MUMBAI], after considering the decision of Liberty India (2009 (8) TMI 63 - SUPREME COURT) has taken a clear cut decision in favour of the assessee. This decision has been approved by Hon'ble Bombay High Court [2011 (12) TMI 338 - Bombay High Court] and the decision in the case of M/s. Maral Overseas Limited Vs ACIT [2012 (4) TMI 345 - ITAT INDORE] All the assessees before us are eligible for deduction u/s 10BA of the Act. - ITA No. 336/Jodh/2011, ITA No. 360/Jodh/2012, ITA No. 386/Jodh/2011, ITA No. 350/Jodh/2011, ITA No. 423/Jodh/2012, ITA No. 368/Jodh/2012, ITA No. 269/Jodh/2011, ITA No. 399/Jodh/2012, ITA No. 254/Jodh/2010, ITA No. 353/Jodh/2012, ITA No. 352/Jodh/20 - - - Dated:- 31-1-2013 - Shri Hari Om Maratha And Shri N. K. Saini,JJ. For the Petitioner : Sh. U. C. Jain and Sh. Rajendra Jain For the Respondent : Shri Subhash Chandra CIT(DR) ORDER Per Bench : All the above captioned appeals, filed by different assessees have raised almost identical issues with regard to income derived from the manufacturing and exporting of handicraft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decreased. The cost of handicrafts items were also increased on account of increase in value of timber and other raw material. The rates of wages have also been increased. On account of these reasons, the cost of handicrafts items decreased the rate of gross profit is very much less as compared to the assessment year 2007-08. He has also filed the chart regarding fall in rate of dollar and increase income cost of timber as compared to last year. 3. After considering the above reply, the A.O. found it a fit case for application of section 145(3) of the Act. Regarding duty-draw-back received by the assessee-firm amounting to Rs. 38,37,416/- and shown in the Trading Account, which is an incentive given under Customs Act, it was held by A.O. that such incentive do not form part of profit for the benefit of Section 10BA, not being profit derived from manufacturing activities of the eligible goods. Therefore, he invited objections against this proposed denial of benefit u/s 10BA. The A.R. of the assessee submitted his objections through a written submission, the relevant portion of which is being reproduced below :- The A/R of the assessee firm has submitted his written submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of Interest was wrong and unjustified. 5. In fact, at the time of the hearing ground No. (1) was not pressed by Shri U.C. Jain, ld. Advocate appearing for the appellant. The other two grounds i.e. ground No. 2 and 3 are of utmost importance. The issues raised vide ground No. 2 and 3 are common in other appeals also. 6. We have heard Shri U.C. Jain, ld. Advocate appointing for this assessee. We have also heard Shri Dinesh Boob and Shri T.L. Jain, ld. ARs etc. appearing for other appellants. We have also heard ld. CIT-DR Shri Subhash Chandra at length. He has filed a detailed written submission with a request that its averments may be incorporated in the order, in extent. 7. We have circumspected the entire record available before us. We have gone through the relevant provisions of the Act and have also treaded through the relevant precedents relied before us. The sum and substance of the submissions made from the side of the assessee can be summarized as under :- "1. That during the year under consideration the assessee has claimed deduction u/s 10BA on DEPB/DDB. The authorities below has disallowed the claim of the assessee in light of the decision of Hon'ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things bears to the total turnover of the business carried on by the undertaking." The relevant part of s. 28 reads as under: "Sec. 28 the following income shall be chargeable to income-tax under the head "Profits and gains of business or profession"- [iiic) any duty of customs or excise repaid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971; [iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under s. 5 of the Foreign Trade [Development and Regulation) Act, 1992 [22 of 1992); [iiie) any profit on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission Scheme under the export and import policy formulated and announced under s. 5 of the Foreign Trade [Development and Regulation) Act, 1992 [22 of 1992);" e. That the decision of Hon'ble ITAT Mumbai Bench has been approved by the Hon'ble Bombay High Court re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roposition that export incentive is to be allowed in terms of the verdict of Moral Overseas Ltd.(supra). Undisputedly, this decision of the Respected Special Bench dated 28/03/2012 was not available when the assessment was finalized. The Assessing Officer did not have the benefit of this verdict. The Respected Special Bench has given the direction that an assessee is eligible for claim of deduction as export incentive received by it in terms of provisions of sec.10B(1) r.w.s. 10B(4) of the Act. On the same lines, we hereby direct the Assessing Officer to verify the correctness of the claim and if satisfied, then apply the formula as discussed in this case-law and thereafter allow as per law. Resultantly, these grounds may be treated as allowed but for statistical purposes only." In light of above the assessee is eligible for deduction u/s 10BA on DEPB and the authority below has wrongly applied the ratio of decision of Hon'ble Supreme Court in the case of Liberty India which has no application in the case of appellant." 7. The Id. CIT-DR has repeated, all the reasons given by A.O. as well as ld. CIT(A) as to why and how the assessee s are not entitled to the exemption of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules, 1971; (iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992); (iiie) any profit on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992); In the light of above discussion, we find that the assessee is entitled to deduction u/s 10BA on DEPB as in accordance with section 28 of the Act these are business income. The AR further submitted that against the above decision the department filed an- appeal before the Hon'ble Bombay High Court which inter-alia held as under :- The counsel for the Revenue fairly states that though the question has been raised by relying upon the decision of the apex court in the case of Liberty India vs. CIT MANU/SC/1585/2009: (2009) 225 CTR (SC) 233: (2009) 28 DTR (SC) 73: (2009J 317ITR218 (SC). The said decision has no relevance to the facts of the present case. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble SC in the case of Liberty India and many other cases (by way of consolidated order) had decided the nature of incentives i.e. DDB/DEPB in length, accordingly held that the incentive profits are not profits derived from the eligible business undertaking. It is further held that they belongs to the category of ancillary profits of such undertakings and constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking. In view of these facts brief observations of the Hon'ble ITAT Benches as well as Hon'ble Bombay High Court cannot overtake the clear-cut finding given by the Hon'ble SC in the case of Liberty of India, which has been held in length" after considering the facts of the another 25 cases on similar issues. The facts ofjthe other cases relied by the AR's not discussed as the same have already been considered by the A.O. / CIT (A). When the facts are same and the issue is same i.e. whether duty drawback and export quota could be considered as 'derived from' undertaking or they are derived from scheme framed by Central Government. The Hon'ble ITAT cannot differentiate and override the decision of Hon'ble SC as held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not, therefore, enter into profits and gains derived by an industrial undertaking from the export out of India of eligible articles or things for the purpose ofsub-s. (1)r/w Sub-s.(4)of s. 10BA, even though the same are ancillary profits to such undertaking assessable under the head "Income from business". There is remaining no dispute on the issue under consideration; a reference is not required to be made to President, Tribunal for constitution of a Larger Bench for considering this issue. Under the facts-circumstances and keeping in view aforesaid position of law, amount of DEPB benefits/duty drawback receipts do not from profits and gains derived by an industrial undertaking from the export out of India eligible articles or things and as such the same shall not be allowed to be deducted from the total income of the assesses." The issue of import license sale was considered by Hon'ble Apex Court in Sterling foods 237 ITR 579 (SC) and it was decided that same cannot form part of export turnover for calculation of deduction u/s 80HHC. Because source of import entitlement is the import promotion scheme of Central Government and not the industrial undertaking. It is well settle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B. Cash assistance received is not part of export turnover for 80HHC deduction as held in case of Khan International Export P. Ltd. (All) 280ITR 165. After excluding premium of export license, export subsidy and duty drawback there is no profit from export business. No deduction u/s 80HHC is allowable as held in case of Krislar Diesal Engines P. Ltd. (ITAT Mad) 74 ITR 414. Although Hon'ble apex court in case of B. Deshraj 301 ITR 439 (SC) held that word "business profits" in formula given in section 80 HHC (3) include cash compensatory allowance and duty drawback on the reasoning that section 80HHC was required to be read with section 28(iiib) of the IT. Act because both were amended by same Finance Act of 1990. But it was a decision of two member bench in which neither meaning of word 'derived' was considered nor the issue of source of 'export incentives' was examined as to whether it is coming out from Central Government scheme or from manufacturing activity of industrial undertaking. A subsequent decision by two member bench of Supreme Court in case of Liberty India where both these crucial issue were considered at length is binding as held in case of West Patent Press Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 they further said "we hold that profit derived by way of such export incentives do not fall within the expression "profit derived from industrial undertaking under section 801B." In Topman Exports, the decision of Hon'ble Supreme Court, in Liberty India, was neither considered nor differentiated. Infact decision in case of M/s Topman Export was overturned set aside by Mumbai High Court in the case of Kalpataru Colours Chemicals 328 ITR 451 (Mum.) As mentioned above tribunal ft courts have applied decision of Liberty India not only in cases of claim u/s 80 IA/80IB of the IT. Act but also in cases of 80HHC which is akin to section 10B. The tribunal decisions where the decision of Liberty India was applied to decide the cases under section 10B of the IT. Act, are discussed, here as under. Tricom India Ltd. ITAT Mumbai 'E' Bench (2010) 36 SOT 302 (Mumbai) in which inter-alia the following was observed':- "Para 13:- We further find that similar view has been taken by the Hon'ble Supreme Court again in the case of Liberty India. In this case the question was whether profit from Duty Entitlement Pass Book Scheme (DEPB) and Duty Draw Back Scheme could be said to be profit der ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P H). 3 Plastibends India Ltd. Vs. Addl. CIT 8(2) Mumbai (2009) 318 ITR 352 (Bom.)- In this case the judges said that in their opinion, the above question is no longer res integra in view of decision of Apex Court in case of Liberty India. 4. CIT Vs. Kiran Enterprises (2010)327 ITR 520(HP). 5. Eastman Exports Global Clothing (P) Ltd. Vs. ACIT, 331 ITR 232 (Mad). In the case of Mahalaxtni Art Emporium, the Hon'ble IT AT Jodhpur Bench, in ITA No. 231/JU/2010, for A.Y. 2007-08, order dated 08110/2010, inter-alia held as under- "If is seen that the Hon'ble Apex Court deliberated upon the meaning of the word "derived from" and held that DDB and DEPB do not form part of net profit of eligible industrial undertaking, though, u/s 80 (1), 80 (1A), 80 (1B) of the Act. While coming to this conclusion Hon'ble Apex Court affirmed the decision from Hon'ble Punjab and Haryana High Court in 293 ITR 520, CIT vs Lakmindar Singh, 317 ITR 209 (Delhi), CIT V/s Ritesh Industries Ltd., 274 ITR 324, Madras and Sakthi Foot Wear Vs CIT (317 ITR 199). If the language employed in section 80 (1A), 80(1 B) of the act is seen these speaks about "any profit" and gain "derived by" an undertaking or an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said formula in s. 80HHC(3) of the Act. Similarly, by Finance Act, 1991 w.e.f. 1st April, 1992, for the first time, the expression 'profit of the business' stood defined to mean the 'profits of the business' as computed under the head 'Profit and gains of business'. Para 18:- The above discussion indicates that the formula in s. 80 HHC (3) of the IT Act provided for a fraction of export turnover divided by total turnover to be applied to business profits calculated after deducting 90 percent of the sums mentioned in cl. (baa) to the said Explanation. That, profit incentives and items like rent, commission, brokerage, charges etc. though formed part of gross total income had to be excluded as they were 'independent income' had no element of export turnover. That, the said items distorted the figure of export profits." Even the formula for computation of deduction u/s 80HHC (3) was elaborately discussed in this order where in para 21 Lordship held:- "Therefore, in the above formula, we have to read all the four variables. On reading all the variables it becomes clear that every receipt may not constitute sale proceeds from Exports." In para 22 it was held that 90% of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the undertaking is laid down, whereas in Section 10BA and Section 80HHC formula is prescribed for the purpose. Therefore, ;in our considered opinion, section 10BA and 80HHC are more nearer to each other, and whatever interpretation of 'derived from' is given in any decision in which Section 80HHC is involved, would also mutatismutandis to the interpretation of Section 10BA. The Hon'ble Apex Court in the cases of Topman Exports vs. CIT reported in 67 DTR 185 (S.C.) and ACG Associated Capsules Pvt. Ltd. vs. CIT reported in 67 DTR 205 has recently held that DEPB is chargeable as income and Cl. (iiib) of Section 28 in the year in which the assessee applies for DEPB credit against the exports whereas the profit on transfer of DEPB by the assessee is chargeable as income under Cl. (iiid) of Section 28 in his hands in the year in which he makes the transfer. The Mumbai Bench of Hon'ble Income Tax Appellate Tribunal in the case Arts and Crafts Exports vs Income-tax Officer reported in 66 DTR 69 (Mumbai), after considering the decision of Liberty India (supra) has taken a clear cut decision in favour of the assessee. The held portion of the Mumbai Bench is as under: "Para-11.14-As rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 't find any merit worth dissuading by us, from the considered and settled view taken by the Hon'ble Apex Court and various High Courts and the Tribunal. All the arguments raised by ld. CIT(DR) stand explained in our above finding. 11. We have noticed that section 10BA(4) takes its shape and form from erstwhile section 10B(4) which was amended vide the Finance Act, 2001 w.e.f. 01.04.2001. Prior to 01.04.2001, this section 10B(4) read as under :- 10B(4) for the purpose of s.s. (1), profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business, the same proportion as the export turnover of the business carried on by the assessee. Clarifications on notes of clauses of the Finance Act, 2001 clarifies the purpose of this amendment that under the existing provision contained in s.s. (4), the profits derived from export of articles or things or computer software shall be the amount which bears to the profit of the business, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the assessee. Sub clause (b) ..... 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