9911796707
TMI Blog2016 (4) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... e Deduction under section 80IB in respect of central excise duty refund - Held that:- Excise duty was part of the sale receipt and thus derived from the business of manufacturing activity. Deduction under section 80IB in respect of central excise duty refund allowed. See CIT versus Dharmpal Premchand Ltd [2008 (11) TMI 231 - DELHI HIGH COURT ] - Decided against revenue Higher deduction claimed by the assessee under section 80-IB of the Act in respect of the sales made to its sister concern - CIT(A) allowed the claim - Held that:- The sale price per unit paid to the assessee by the sister concern M/s MAPL is lower than the sale price per unit paid to the other suppliers. This fact has not been controverted by the Ld. DR. In such circumstances it cannot be said that profits have been diverted to the assessee from its sister concern . We find that order of the learned Commissioner of Income-tax(Appeals) on the issue in dispute is well reasoned and no interference on our part is required - Decided against revenue - ITA No. 6172/Del/2012, ITA No. 5063/Del/2011 - - - Dated:- 8-4-2016 - Smt. Diva Singh, Judicial Member And Sh. O. P. Kant, Accountant Member For the Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to add any fresh ground of appeal and/or delete or amend any of the grounds of appeal. 3. The facts in brief are that the assessee company was engaged in business of manufacturing of essential oils, menthol solutions, DMO and menthol. The assessee filed its return of income declaring total income of ₹ 42,544/- on 07/10/2008. In the return of income filed, the assessee claimed deduction under section 80IB of the Income-tax Act, 1961 (for short the Act ) of ₹ 6,03,03,648/-. The case of the assessee was selected for scrutiny and notice under section 143(2) of the Act was issued and served within the stipulated period. It was observed by the Assessing Officer ( for short the AO ) that the assessee had set up a unit in the State of Jammu and Kashmir and has been claiming deduction under section 80IB of the Act on the profit derived from the said unit. According to the assessee, following the notifications issued by the Central Excise Department, the assessee collected the central excise duty in sales bill from the customer and paid to the Central Excise Department, who after verification, refunded the excise duty in respect of goods manufactured from the unit. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he P L account is concerned, the Assessing Officer was clearly in error. The sales bills, the sales account and figure of sales as taken in the P L account are inclusive of the element of excise duty which has been charged in invoices and posted along-with invoice value to the sales. It has also been explained that the excise duty has not been debited to the profit and loss account, since the excise paid by the appellant is subsequently refunded to it. That being the case there was no need or warrant to add the excise duty element once again to the assessed income on the ground of its not being allegedly accounted for by the appellant. I have also considered the notes as filed before the Assessing Officer dated 11th October 2010 wherein this issue has been highlighted by the appellant before the Assessing Officer. The excise duty as collected by the appellant having been shown as part of the sales, the Assessing Officer was clearly in error in once again including the same for assessment. 1 am also in agreement with the other point as raised on behalf of the appellant that the excise duty was required to be accounted for consistent with the method of accounting pursued by the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s part of the sale receipt and thus derived from the business of manufacturing activity. He further relied on the judgment of the Hon ble Jurisdictional High Court in the case of CIT versus Dharmpal Premchand Ltd (2009) 317 ITR 353 and submitted that the Special Leave Petition filed by the Revenue against the said decision was dismissed by the Hon ble Apex Court. He further reiterated the submission made before the ld. CIT(A) that Hon ble High Court of Guwahati in the case of Meghalya Steels Ltd in the order dated 16/09/2010 held that excise duty refund is covered under the purview of exemption provided under section 80-IB of the Act. 6.3 We have heard the rival submissions and perused the material on record. The deduction under section 80-IB of the Act is allowed in respect of the profit derived from the industrial undertaking. Before we deal the issue, it is important to refer the relevant part of the section 80-IB of the Act which is reproduced as under : 80-IB. (1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to (11), (11A) and (11B) (such business being hereinafter referred to as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the counsel for the assessee, we are of the view that in the instant case, as noted above, the factual aspects are required to be kept in mind. The finding of the authorities below is, that the, refund of excise duty is pivoted on the manufacturing activity carried on by the assessee. Once such a finding of fact has been returned we need not go further and examine the immediate and proximate source of refund of excise duty. In other words, as to whether there was direct nexus between the refund of excise duty and industrial activity. As a matter of fact, in the questions proposed by the Revenue, there is no specific question, that this finding of the authorities below is perverse. There is of course a very broad based and general question that the order passed by the Tribunal is perverse in law and on facts. According to us, such a question is vague. A perusal of the grounds of appeal would substantiate this aspect of the matter. There is no ground taken by the Revenue whereby the substantial findings of fact have been challenged by the Revenue as being perverse. 6.5 We find that the Hon ble High Court has not decided the issue as to whether there was direct nexus between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tem in the matter of computation of profits. That is the reason why the concept of Segment Reporting stands introduced in the Indian Accounting Standards (IAS) by the Institute of Chartered Accountants of India (ICAI). 14. Analyzing Chapter VI-A, we find that s. 80-IB/80-IA are the Code by themselves as they contain both substantive as well as procedural provisions. Therefore, we need to examine what these provisions prescribe for computation of profits of the eligible business . It is evident that s. 80-IB provides for allowing of deduction in respect of profits and gains derived from the eligible business. The words derived from is narrower in connotation as compared to the words attributable to . In other words, by using the expression derived from , Parliament intended to cover sources not beyond the first degree. In the present batch of cases, the controversy which arises for determination is: whether the DEPB credit/duty drawback receipt comes within the first degree sources? According to the assessee(s), DEPB credit/duty drawback receipt reduces the value of purchases (cost neutralization), hence, it comes within first degree source as it increases the net profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking . 16. DEPB is an incentive. It is given under 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 percentage of FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by 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. Therefore, in our view, DEPB/duty drawback are incentives which flow from the Schemes framed by Central Government or from s. 75 of the Customs Act, 1962, hence, incentives profits are not profits derived from the eligible business under s. 80-IB. They belong to the category of ancillary profits of such undertakings. 17. The next question is-what is duty drawback ? Sec. 75 of the Cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... items of revenue or income and accounted for accordingly (see : p. 44 of Indian Accounting Standards and GAAP by Dolphy D souza). Therefore, for the purposes of AS-2, Cenvat credits should not be included in the cost of purchase of inventories. Even 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 inputs (i.e. duty recoverable from the Department at later stage) arising on account of rebates, duty drawback, DEPB benefit etc. Profit generation could be on account of cost cutting, cost rationalization, business restructuring, tax planning on sundry balances being written back, liquidation of current assets etc. Therefore, we are of the view that duty drawback, DEPB benefits, rebates etc. cannot be credited against the cost of manufacture of goods debited in the P L a/c for purposes of s. 80-IA/80-IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking. 23. We are of the view that Department has correctly applied AS-2 as could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit and gains of the industrial undertaking and reimbursement of the subsidies. The Hon ble Apex Court distinguished the subsidies in the form of drawback or DEPB which are related to export and not directly related to the manufacturing and thus the ratio held in the case of Liberty India (supra) was not applicable. The relevant Paras of the judgment are reproduced as under: 17. An analysis of all the aforesaid decisions cited on behalf of the Revenue becomes necessary at this stage. In the first decision, that is in Cambay Electric Supply Industrial Company Limited v. Commissioner of Income Tax, Gujarat II, this Court held that since an expression of wider import had been used, namely attributable to instead of derived from , the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity. In short, a step removed from the business of the industrial undertaking would also be subsumed within the meaning of the expression attributable to . Since we are directly concerned with the expression derived from , this judgment is relevant only insofar as it makes a distinction between the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale price of an article all elements of cost which go into manufacturing or selling it. Thus understood, it is clear that profits and gains are derived from the business of the assessee, namely profits arrived at after deducting manufacturing cost and selling costs reimbursed to the assessee by the Government concerned. 19. Similarly, the judgment in Pandian Chemicals Limited v. Commissioner of Income Tax is also distinguishable, as interest on a deposit made for supply of electricity is not an element of cost at all, and this being so, is therefore a step removed from the business of the industrial undertaking. The derivation of profits on such a deposit made with the Electricity Board could not therefore be said to flow directly from the industrial undertaking itself, unlike the facts of the present case, in which, as has been held above, all the subsidies aforementioned went towards reimbursement of actual costs of manufacture and sale of the products of the business of the assessee. 20. Liberty India being the fourth judgment in this line also does not help Revenue. What this Court was concerned with was an export incentive, which is very far removed from reimburse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, by a judgment dated 15.1.2015, distinguished the judgment in CIT v. Andaman Timber Industries Ltd. and followed the impugned judgment of the Gauhati High Court in the present case. In a pithy discussion of the law on the subject, the Calcutta High Court held: Mr. Bandhyopadhyay, learned Advocate appearing for the appellant, submitted that the impugned judgment is contrary to a judgment of this Court in the case of CIT v. Andaman Timber Industries Ltd. reported in (2000) 242 ITR, 204 wherein this Court held that transport subsidy is not an immediate source and does not have direct nexus with the activity of an industrial undertaking. Therefore, the amount representing such subsidy cannot be treated as profit derived from the industrial undertaking. Mr. Bandhypadhyay submitted that it is not a profit derived from the undertaking. The benefit under section 80IC could not therefore have been granted. He also relied on a judgment of the Supreme court in the case of Liberty India v. Commissioner of Income Tax, reported in (2009) 317 ITR 218 (SC) wherein it was held that subsidy by way of customs duty draw back could not be treated as a profit derived from the industrial u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to industrial entrepreneurs to start and run industries in remote parts, by giving them a level playing field so that they could compete with their counterparts in central (nonremote) areas. The huge transportation cost for getting the raw materials to the industrial unit and finished goods to the existing market outside the state, was making it unviable for industries in remote parts of the country to compete with industries in central areas. Therefore, industrial units in remote areas were extended the benefit of subsidized transportation. For industrial units in Assam and other north-eastern States, the benefit was given in the form of a subsidy in respect of a percentage of the cost of transportation between a point in central area (Siliguri in West Bengal) and the actual location of the industrial unit in the remote area, so that the industry could become competitive and economically viable. (Paras 14 and 15) 25. The decision in Sahney Steel and Press Works Ltd. v. Commissioner of Income Tax, A.P. - I, Hyderabad (1997) 7 SCC 764, dealt with subsidy received from the State Government in the form of refund of sales tax paid on raw materials, machinery, and finish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29. For the reasons given by us, we are of the view that the Gauhati, Calcutta and Delhi High Courts have correctly construed Sections 80-IB and 80-IC. The Himachal Pradesh High Court, having wrongly interpreted the judgments in Sterling Foods and Liberty India to arrive at the opposite conclusion, is held to be wrongly decided for the reasons given by us hereinabove. 6.10 We find from the para 29 of the aforesaid judgment that the judgment of the Hon ble Delhi High Court in the case of the Dharmpal Premchand Ltd. (supra) , where also the issue of deduction under section 80-IB of the Act on refund of excise duty was involved, has been approved by the Hon ble Apex Court. Thus, respectfully following the judgment of the jurisdictional High Court in the case of Dharmpal Premchand Ltd (supra) and the Hon ble Apex Court judgment in the case of Meghalya Steels Ltd (supra), we uphold the findings of the ld. Commissioner of Income-tax(Appeals) on the issue in dispute in the impugned order. Accordingly, the grounds of the Revenue are dismissed 7. In ground No. 6 the Revenue has raised the issue of higher deduction claimed by the assessee under section 80-IB of the Act in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indication of the trading result and that a safer and more reliable estimate would be the gross profit realization. The appellant has shown the profits of the preceding years where from it is evident that the results of the subject year are not as attractive as those of the preceding years. From the assessment order of Mentha Allied Products Ltd., it is clear that if facts as narrated by the Assessing Officer in the subject case are taken to be correct, then there was good reason for not allowing that loss. That, however, is not the case here. Further in terms of the mandate u/s 80IA(10) the onus to show that there is an arrangement between the two connected entities for profit management is on the Assessing Officer which in the subject case has not been satisfactorily discharged. The sales as made are at rates similar to those of outside parties. Further, the rates as per the advance settlements with the appellant could not be compared with the current rates of outsiders with Mentha Allied Products Ltd. In the circumstances of the case there appears to be no justification for disturbing the book result by the Assessing Officer after taking recourse to Section 80- IA (10) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
