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TMI Blog2016 (3) TMI 753X X X X Extracts X X X X X X X X Extracts X X X X ..... i) Whether in the facts and circumstances of the case, the ITAT has not acted illegally and perversely in reversing the order passed by the CIT (A) as well as Assessing officer for rejection of books of accounts and estimating the GP rate despite the fact that no quantitative details for verification was furnished by the assessee. (ii) Whether in the facts and circumstances of the case the ITAT has not acted perversely and illegally in directing to calculate the deduction of both 80-IB on total income". 3. The respondent-assessee in this appeal derives income from export of readymade garments and primarily is an exporter of such goods. The assessee furnished its return of income declaring an income of Rs. 44,71,080/- and thereafter a revised return was filed showing total income at Rs. 31,42,390/- in which deduction u/Sec. 80-IB of the Income Tax Act was claimed by the assessee. The assessee, as aforesaid, claimed deduction u/Sec. 80-IB of the Act @30% at Rs. 66,43,472/- on the total business income of Rs. 2,21,44,906/-. The assessee had claimed deduction in respect of entire profits of business which included export incentives to the tune of Rs. 1,02,02,570/- and it was claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e derived as profit of business. Though it may be part of the profit and loss account but it is received from the Government of India as export incentive to help an exporter. He further contended that though duty draw back is income attributable to the business being carried out by the respondent but definitely not derived from the export business of the industrial undertaking. He relied upon a direct judgment of the Hon'ble Apex Court rendered in the case of Liberty India Vs. CIT : (2009) 317 ITR 0218 (SC) and in the case of CIT Vs. Sterling Foods : (1999) 237 ITR 0579 (SC) and contended that the Hon'ble Apex Court has held that the export incentives are not derived from the export business of the industrial undertaking and thus the issue is squarely covered in favour of the Revenue. 7. Per-contra, ld. counsel for the respondents jointly contended that the amount received as export incentive is integral part of the pricing of the goods, the exporter exports the goods taking into consideration the import entitlements/ DEPB license/ duty draw back and there is direct nexus between the cost of the manufactured goods and the said receipts and DEPB license is to be compensated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s available to the eligible industrial undertaking where the gross total income of the eligible assessee includes any "profits and gains derived from any eligible business" referred to in the section (emphasis supplied). What has to be seen is "derived from" and not "attributable to". The expression "derived from" is restrictive as against "attributable to", which is wider. There should be immediate nexus and not distant nexus. In our view DEPB/duty draw back benefits do not form part of net profit of undertaking as they are not derived from the eligible business but are incentives under a particular scheme. 13. The Hon'ble Apex Court in the case of CIT Vs. Sterling Foods (supra), where the controversy was relating to deduction u/Sec. 80-HH of the Act, had an occasion to consider about the profits from sale of import entitlements, its nature and observed ad-infra:- "We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Government whereunder the export entitlements become available. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. In this connection, the Department places heavy reliance on the judgment of this court in Sterling Foods [1999] 237 ITR 579. Therefore, in the present cases, in which we are required to examine the eligible business of an industrial undertaking, we need to trace the source of the profits to manufacture. (see CIT v Kirloskar Oil Engines Ltd. reported in [1986] 157 ITR 762." The Hon'ble Court analysed Duty Exemption Remission Scheme and held DEPB as an incentive. It held in para 18 as under : "Analysing the concept of remission of duty drawback and DEPB, we are satisfied that the remission of duty is on account of the statutory/policy provisions in the Customs Act/Scheme(s) framed by the Government of India. In the circumstances, we hold that profits derived by way of such incentives do not fall within the expression "profits derived from industrial undertaking" in section 80-IB." It held in para 24 as under : "In the circumstances, we hold that duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of section 80-I/80-IA/80-IB of the 1961 Act." 16. Thus, in our view, the judgment is directly and squar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue allowed. 19. In some of the appeals, in addition to the aforesaid substantial question, other substantial question of law has been framed, we now deal the same hereunder:- 20. DB I.T. Appeal No.42/2008 (CIT Vs. M/s. Garment Crafts India Ltd.: "Whether in the facts and circumstances of the case, the ITAT has not acted illegally and perversely in reversing the order passed by the CIT(A) as well as Assessing Officer for rejection of books of accounts and estimating the GP rate despite the fact that no quantitative details for verification was furnished by the assessee?" 21. It relates to the Assessment Year 2001-02 and the question is that the AO found that the assessee has not maintained books of accounts from which true profit can be deduced, that the books are not reliable, the quantitative details does not match with the stock register maintained visa- vis the production/consumption of the raw material, and there are several cuttings and overwriting in the so-called stock register/records and thus applied provisions of Sec. 145 (3) and made a trading addition of Rs. 22,95,317/- and on an appeal by the assessee, the CIT(A) partially allowed the appeal of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.658/2008 (CIT Vs. M/s. ABC Exports) & DB Income Tax Appeal No.710/2008 (CIT Vs. M/s. ABC Exports): "Whether in the facts and circumstances of the case and in view of the fact that the interest income of the assessee has been included in the 'profit of the business' the ITAT was justified in directing to exclude the interest turn over from the total turn over of the business for the purpose of computing the deduction u/s. 80HHC(3) adopting the formula of 'profit of the business' export turn over/total turn over ?" 27. The assessee claimed that the interest received by the assessee from the FDR (Fixed Deposit Receipts) and also from other persons, was in the nature of business income on which the assessee was entitled to deduction u/Sec. 80-HHC of the Income Tax Act. However, the AO was of the view that interest received has no concern or connection over the export turnover/income, and rather it is in the nature of income from other sources and thus rejected claim of the assessee. The CIT(A) also rejected contention of the assessee. However, on a further appeal before the Tribunal, the Tribunal allowed the claim holding that it is income from business. 28. Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , after analysing the facts in the instant reference/appeals so also judgment of Larger Bench hold that interest received/earned does not enure for deduction under Section 80HHC." 31. Taking into consideration the above, in our view, it is income from other sources and when the assessee has not been able to prove nexus of the said receipt vis-a-vis export income, in the light of the judgments of this Court, the question is answered in favour of the Revenue and against the assessee. 32. DB Income Tax Appeal No.410/2008 (Commissioner of Income Tax Vs. M/s. Gulshan Fashions Pvt. Ltd.): "(i)Whether in the facts and circumstances of the case the ITAT has not acted perversely and illegally in deleting the addition of amount of GP rate taken as 20% by Assessing Officer after considering comparable cases? (ii)Whether in the facts and circumstances of the case, the ITAT was justified in law and has not acted perversely in holding the duty drawback consultancy charges as revenue expenditure instead of capital expenditure inspite of the fact that the benefit arising out of this expenses was of enduring nature?" 33. The said two questions raised in addition to Sec. 80-IB, are that the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In ultimate analysis, we may summarize the substantial questions of law as under: (i) The question relating to deduction u/Sec. 80-IB in all the aforesaid appeals is answered in favour of the Revenue and against the assessee; (ii) As regards DB Income Tax Appeal No.42/2008, while the substantial question relating to Sec. 80-IB is answered against the assesse and in favour of the Revenue, the question relating to trading addition is answered in favour of the assessee and against the Revenue; (iii) As regards DB Income Tax Appeal No.647/2008, 658/2008 and 710/2008, while the substantial question relating to Sec. 80-IB is answered against the assessee and in favour of the Revenue, the other question relating to deduction u/Sec. 80-HHC on interest received is also answered against the assessee and in favour of the Revenue. (iv) As regards DB Income Tax Appeal No.410/2008, while the substantial question relating to Sec. 80-IB is answered against the assessee and in favour of the Revenue, the other question relating to trading addition and the amount of duty draw back consultancy charges is answered in favour of the assessee and against the Revenue. 37. The batch of appeals st ..... X X X X Extracts X X X X X X X X Extracts X X X X
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