Commissioner Of Income Tax v. M/S Bhandari Hosiery Exports Ltd

ITA No. 127 of 2008 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Commissioner of Income Tax Versus M/s Bhandari Hosiery Exports Ltd. ITA No. 127 of 2008 (O&M)Date of Decision: 18.4.2011 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Katoch, Advocate for the appellant. None for the assessee. ADARSH KUMAR GOEL, J. 1.This order will dispose of ITA Nos. 127 and 128 of 2008 asit is stated that in both the appeals question involved is same. 2.ITA No. 127 of 2008 has been filed by the revenue underSection 260A of the Income Tax Act, 1961 (in short “the Act”) againstthe order of the Income Tax Appellate Tribunal, Chandigarh Bench “A”,Chandigarh (hereinafter referred to as “the Tribunal”), passed in ITA No.608/Chandi/2002 dated 28.6.2005 for the assessment year 1994-95,raising following substantial question of law:- “Whether on the fact, law and in the circumstances ofthe case, the Hon'ble Income Tax Appellate Tribunalwas legally justified in holding that the withdrawal of deduction u/s 80-I with reference to the receipts onaccount of duty draw back was beyond the scope ofthe A.O. u/s 154 in view of the law laid down by theHon'ble Supreme Court in the case of CIT Vs.Sterling Foods Ltd., 237 ITR 379 and PandianChemicals Ltd. v. CIT 262 ITR 278?” 3.The assessee claimed deduction under Section 80-I of theAct in respect of export incentives received by it as per scheme framedunder the provisions of the Customs Act, 1962. The claim was allowedinitially but the Assessing Officer initiated proceedings under Section154 of the Act for rectification. The assessee conceded that importentitlements did not qualify for deduction under Section 80-I of the Act inview of the judgment of the Hon'ble Supreme Court in Commissionerof Income Tax v. Sterling Foods Ltd. [1999] 237 ITR 379 butsubmitted that duty draw back stood on different footing. TheAssessing Officer, however, rectified the order and rejected the claimfor deduction for duty draw back. The CIT(A) upheld the plea of theassessee which has been further upheld by the Tribunal. The Tribunalobserved:- “It is evident from the decision of the Tribunal as well as thedecision of Gujarat High Court that the view that duty drawback receipts are to be taken as income derived from theindustrial undertaking is a plausible view. The viewcanvassed on behalf of the revenue may also be a possibleview. But in the light of the decision of the Gujarat HighCourt referred to above, the issue is not free from doubt and debate. Thus, it cannot be said that deduction allowedto the assessee with reference to receipts on account ofduty drawback u/s 80-I is a mistake apparent from record.It is well settled that the power of the Assessing Officer u/s154 cannot be exercised in respect of a debatable issue oflaw [see T.S. Balram, ITO v. Volkar Brothers, 82 ITR 50(SC) and CIT v. Hero Cycles Pvt. Ltd. 228 ITR 463 (SC)]. Taking the totality of facts and circumstances of thiscase into consideration, we are of the considered view thatwithdrawal of deduction u/s 80I with reference to thereceipts on account of duty drawback is beyond the scopeof the AO u/s 154. We accordingly uphold the order of theCIT(A) and dismiss the appeals of revenue.” 4.We have heard learned counsel for the revenue. Noneappears for the assessee in spite of service. Taking the totality of facts and circumstances of thiscase into consideration, we are of the considered view thatwithdrawal of deduction u/s 80I with reference to thereceipts on account of duty drawback is beyond the scopeof the AO u/s 154. We accordingly uphold the order of theCIT(A) and dismiss the appeals of revenue.” 4.We have heard learned counsel for the revenue. Noneappears for the assessee in spite of service. 5.Learned counsel for the revenue submits that merelybecause the words duty draw back were not referred to in the judgmentof the Hon'ble Supreme Court in Sterling Foods Ltd's case (supra),did not affect the principle of law laid down therein that the deductionpermissible under Section 80-I was only income “derived from” theindustrial undertaking and did not refer to export incentives in any form.Duty draw back admittedly is also export incentive and could not betreated as income derived from the industrial undertaking in view of lawsettled by the Hon'ble Supreme Court in Sterling Foods Ltd's case(supra). This view has been further reiterated in subsequent judgmentin Liberty India v. Commissioner of Income Tax [2009] 317 ITR 218 as follows:- “We may reiterate that ss. 80-I, 80-IA and 80-IB have acommon scheme and if so read it is clear that the saidsections provide for incentives in the form of deduction (s)which are linked to profits and not to investment. Onanalysis of ss. 80-IA and 80-IB it becomes clear that anyindustrial undertaking, which becomes eligible on satisfyingsub-s. (2), would be entitled to deduction under sub-s. (1)only to the extent of profits derived from such industrialundertaking after specified date(s). Hence, apart fromeligibility, sub-s. (1) purports to restrict the quantum ofdeduction to a specified percentage of profits. This is theimportance of the words “derived from industrialundertaking” as against “profits attributable to industrialundertaking.” 16.DEPB is an incentive. It is given under DutyExemption Remission Scheme. Essentially, it is an exportincentive. No doubt, the object behind DEPB is toneutralize the incidence of customs duty payment on theimport content of export product. This neutralization isprovided for by credit to customs duty against exportproduct. Under DEPB, an exporter may apply for credit aspercentage of FOB value of exports made in freelyconvertible currency. Credit is available only against theexport product and at rates specified by DGFT for import ofraw materials, components etc. DEPB credit under the Scheme has to be calculated by taking into account thedeemed import content of the export product as per basiccustoms duty and special additional duty payable on suchdeemed imports. Therefore, in our view, DEPB/dutydrawback are incentives which flow from the Schemesframed by Central Government or from s. 75 of theCustoms Act, 1962, hence, incentives profits are not profitsderived from the eligible business under s. 80-IB. Theybelong to the category of ancillary profits of suchundertakings. 17.The next question is – what is duty drawback? Sec.75 of the Customs Act, 1962 and s. 37 of the CentralExcise Act, 1944 empower Government of India to providefor repayment of customs and excise duty paid by anassessee. The refund is of the average amount of dutypaid on materials of any particular class or description ofgoods used in the manufacture of export goods of specifiedclass. The rules do not envisage a refund of an amountarithmetically equal to customs duty or central excise dutyactually paid by an individual importer-cum-manufacturer.Sub-s. (2) of s. 75 of the Customs Act requires the amountof drawback to be determined on a consideration of all thecircumstances prevalent in a particular trade and alsobased on the facts situation relevant in respect of each ofvarious classes of goods imported. Basically, the source ofduty drawback receipt lies in s. 75 of the Customs Act and s. 37 of the Central Excise Act. 18.Analysing the concept of remission of duty drawbackand DEPB, we are satisfied that the remission of duty is onaccount of the statutory/policy provisions in the CustomsAct/Scheme(s) framed by the Government of India. In thecircumstances, we hold that profits derived by way of suchincentives do not fall within the expression “profits derivedfrom industrial undertaking” in s. 80-IB.” 6. The view taken by the CIT(A) and the Tribunal that thejudgment of the Hon'ble Supreme Court in Sterling Foods Ltd's case(supra) was concerned only with export incentives other than duty drawback cannot, thus, be sustained. 7.In view of the above, the question has to be answered infavour of the revenue and against the assessee. 8.The appeals are allowed. 9.A photo copy of this order be placed on the file of theconnected case. (ADARSH KUMAR GOEL)JUDGE April 18, 2011gbs (AJAY KUMAR MITTAL)JUDGE