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TMI Blog2014 (8) TMI 762X X X X Extracts X X X X X X X X Extracts X X X X ..... @ 30% of the profit derived from business. The AO denied the claim of the assessee u/s 80IB with the following concluding remarks. From the discussion above, the following facts emerge: The assessee carries on blending and bottling of Royal Stag Whisky, Imperial Blue Whisky and Three Kings Brandy, as per the labels printed on the finished product by the assessee itself. The raw material used by the assessee is Vatted Malt spirit/CAB or concentrate of alcoholic beverage. The alcoholic beverage is whisky/brandy. The concentrated whisky/brandy is diluted further by addition of water, the alcohol content is then increased by adding spirit and given colour by caramel. Therefore the process carried on by the assessee is blending of different types of alcohol with water. Alcohol of different qualities is the raw material of the assessee along with water. Vatted Malt spirit/CAB (whisky/brandy) is of superior quality and grain neutral spirit is of a lower quality. Both these are blended together with water. The blending does not require any other means of change such as malting, fermentation, heating, vaporizing, distillation etc. The end result is whisky/brandy having a particular b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the rival contention of both the parties. Looking to the facts and circumstances of the case, we find that the issue in controversy is covered by the assessee's own case in A.Y.2006-07 in ITA No. 90/PNJ/2009 wherein the Tribunal has allowed the claim of the assessee for assessment year 2006-07 and this A.Y. 2008-09. We find that in ITA No. 90/PNJ/2009 wherein the Tribunal has dismissed the department's appeal by observing as under: "6. Having carefully heard the submissions of the rival parties and perusing the material available on record, we find merit in the plea of the Learned Counsel that the Tribunal in assessee's own case supra, while following the order of the Channai Bench of the Tribunal in Vinbros & Company (supra) in ITA Nos,2019 and 2020/Madras/2006, dated 23rd February 2007, which was upheld by the Hon'ble Madras High Court, vide its order dated 29th October 2007 (Tax Case (Appeal) No.1361 and 1362/2007, has confirmed the order of the learned CIT(A) in allowing the assessee's appeal. We further find that, recently, the Hon'ble Supreme Court in Vinbros & Company (supra), after admitting the appeal, has dismissed the civil appeal filed by the Revenue. In the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g as under: "9. I have gone through the letter of the A.O. requesting for enhancement and the submission of the appellant. In this case, the assessee is collecting 100% of the sales tax from its customers and paying 25% to the Govt. of Goa, while retaining the balance amount for itself. The incidence of collection of sales tax is intricately connected to every sale made by the appellant and therefore is part of assessee's sales turnover and the same cannot be separated. The amount paid to the Govt. of Goa is an expense to the assessee. Since sales tax recovered is part of sales turnover, it is the income derived from the Industrial undertaking and therefore, in my opinion, the enhancement application filed by the A.O. cannot be sustained. However, in para 13 of its submission, the appellant claimed that there has been an inadvertent mistake because of which excess claim amounting to Rs. 3,558/- has been made by the assessee. The A.O. is directed to verify the claim of the assessee and then enhance the income to that extent. In the result, the appeal is allowed." 3.2 Learned DR submitted that the issue in controversy is covered by the decision of ACIT vs. M/s. Sri Mahalasa Power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strial undertaking benefit, therefore, it is not a profit derive from the eligible business. Therefore, AO has requested for enhancing the income following the decision. The learned AR has filed written submission which read as under: "The Respondent states and submits that the contentions raised by the AO in the assessment order are not tenable in law and the order of the Learned CIT(A) does not require interference, for the following reasons without prejudice to one another: 1 The Respondent charges OUTPUT VAT to its customers and pays 25% of the OUTPUT VAT as reduced by INPUT VAT to the Govt of Goa. The case is not covered by any of the cases cited by the AO. a. In STERLING FOODS case the assessee was engaged in processing prawns and other sea food, which it exported. It also earned some Import entitlements granted by the Central Government under an Export Promotion Scheme. The assessee was entitled to use the import entitlements itself or sell the same to others. It sold the import entitlements that it had earned to others. Its total income for the assessment year 1979-80 included the sale proceeds for such import entitlements and it claimed relief under section 8OHH of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sale of goods and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be-----------------adjusted to include the amount of any tax-------- actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation and that any tax under any-------------law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment. 3 The section 145A thus mandates INCLUSIVE method of accounting (which treats tax collection and payments as trading receipts and trading expenses respectively) rather than EXCLUSIVE method of accounting (which treats tax collection and payments as liabilities and assets respectively) 4 Even prior to insertion of Section 145A, the Apex Court has held in CHOWRINGHEE SALES BUREAU P. LTD. V. COMMISSIONER OF INCOME-TAX 87 ITR 542 that the sum realised as sales tax formed part of its trading receipts and that the fact that the Respondent credited the amount received as sales tax under the head "sales tax collection account" did not make any material difference. It is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om computation on pp. 3 and 4 of the paper book filed by the assessee." and Paragraph 7 thereof reads :- "In the light of view taken in the aforesaid decisions, especially when the net effect of the accounting methodology employed by the assessee, as revealed from calculations on pp. 3 and 4 of the paper book is that, it did not, in sum and substance, impact the derivation of profits and gains ascertainable for the purposes of deduction under s. 80- lB of the Act while the Revenue has not demonstrated before us as to how the Cenvat scheme is parallel to the scheme of DEPB or duty drawback, we have no hesitation in holding that the learned CIT(A) was not justified in upholding the disallowance of deduction under s. 80-lB of the Act made by the AO in relation to the Cenvat credit of excise duty" 8 The Respondent submits that the principles of VAT are analogous to those of CENVAT (as enunciated in the above decision) as the effect of the VAT entries cancels the impact of the so-called incentives. 9 The Respondent submits that there is a distinction between incentives such as duty draw back/DAPB on one hand and the VAT schemes on the other. In short Duty draw backs /DAPB are the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cost of purchase includes duties and taxes (other than those subsequently recoverable by the enterprise from the taxing authorities), freight in wards and other expenditure directly attributable to the acquisition (Quoted from AS2). Hence, trade discounts, rebate, duty drawback, and such similar items are deducted in determining the costs of purchase. Therefore, duty drawback, rebate, etc., should not be treated as adjustment (credited) to the cost of purchase or manufacture of goods. They should be treated as separate items of revenue or income and accounted for accordingly. (see page 44 of the Indian Accounting Standards and GAAP by Doiphy D'souza). Therefore, for the purposes of AS-2, Cenvat credits should not be included in the cost of purchase of inventories. Even the Institute of Chartered Accountants of India (ICAI) has issued guidance note on accounting treatment for Cenvat/Modvat under which the inputs consumed and the inventory of inputs should be valued on the basis of purchase cost net of specified duty on in puts (i.e., duty recoverable from the Department at a later stage) arising on account of rebates, duty drawback, DEPB benefit, etc. Profit generation could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of ACIT vs. M/s. Sri Mahalasa Power Rentals, ITA No. 54/PNJ/2013 wherein the Tribunal has decided the issue by observing as under: "3. We have heard the rival submissions and carefully considered the same. So far as the issue relating to the interest on FDR is concerned, we find that the issue is duly covered by the decision of the Hon'ble Supreme Court against the Assessee in the case of Pandian Chemicals Ltd. v CIT, 262 ITR 278 in which the Hon'ble Supreme Court while considering the issue relating to the claim of deduction of the Assessee u/s 8OHHC held as under: Head note:- "The words "derived from" in section 8OHH of the Income-tax Act, 1961, must be understood as something which has a direct or immediate nexus with the assessee's industrial undertaking. Although ectricity may be required for the purposes of the industrial undertaking, the deposit tequired for its supply is a step removed from the business of the industrial undertaking. Held accordingly, that interest derived by the industrial undertaking of the assessee on deposits made with the Electricity Board for the supply of electricity for running the industrial undertaking could not be said to flow directl ..... 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