Madhya Pradesh High Court
Commissioner Of Income-Tax vs Siddharth Tubes Ltd. on 4 April, 2006
Equivalent citations: [2008]296ITR221(MP)
JUDGMENT S.K. Kulshrestha, J.
1. The appellant has filed this appeal against the order passed by the Income-tax Appellate Tribunal, Indore, dated May 30, 2002, in appeal I.T.A. No. 216/Ind of 2000 for the assessment year 1995-96. The appeal has been admitted by this Court on the following question of law:
Whether on the facts and in the circumstances of the case and in law, the Income-tax Appellate Tribunal was justified in holding that the refund of excise duty amounting to Rs. 1,63,38,856 is includible in the profits computed for the purpose of deduction under Sections 80HH and 80I of the Income-tax Act, 1961?
2. The assessee-company is engaged in the business of manufacture of steel pipes and steel tubes and cold rolled formed sections. It filed return of the income for the assessment year 1995-96 on November 30, 995, showing income of Rs. 9,24,490. After examining the books of account and other relevant documents, the Assessing Officer completed the assessment under Section 143(3) on March 27, 1998, on the total income of Rs. 85,23,550. After passing the order, the Assessing Officer noted that there was a mistake apparent on record and initiated rectification proceedings under Section 154. The order was rectified and assessment was made on a total income of Rs. 2,39,99,231. The Commissioner of Income-tax observed that for the relevant period the assessee-company received export incentive of Rs. 2,87,64,294 in the sale of export entitlement, an excise duty refund which had not been excluded while computing deduction under Sections 80HH and 80I of the Act. It was observed that job work receipts of Rs. 55,37,429 were not included in the total turnover for computation of deduction under Section 80HHC of the Act. He, therefore, set aside the order of the Assessing Officer in suo motu exercise of the power of revision and remitted the matter to the Assessing Officer for recalculation of the deductions.
3. Aggrieved by the order of the Commissioner of Income-tax under Section 263, the assessee preferred an appeal before the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal, vide impugned order held that refund of excise duty amounting to Rs. 1,63,38,856 was includible in the profits computed for the purpose of deductions under Sections 80HH and 80I of the Income-tax Act. It is against this order of the Income-tax Appellate Tribunal that the Department has filed the present appeal which has been admitted on the question hereinabove set out.
4. Learned Counsel for the Department has placed heavy reliance on the decision of the apex court in CIT v. Sterling Foods . In the said decision claim was made with regard to the import entitlement earned by the assessee on which claim for deduction under the provisions of Section 80HH was being made. It was observed by the apex court that since it relates to the profits derived from the industrial undertaking, such a claim was not admissible. Learned Counsel for the assessee, per contra, has referred to the statement to point out that the controversy before the apex court was quite different and has no bearing over the issue raised in the present case and the Tribunal has, therefore, rightly distinguished the said case.
5. Before adverting to the contention of the learned Counsel for the parties, it would be advantageous to first refer to the provision contained in Sub-section (1) of Section 80HH of the Income-tax Act which reads as under:
80HH. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent, thereof.
6. Learned senior Counsel for the respondent assessee has submitted that in the judgment relied upon by the learned Counsel for the Revenue, it is clearly mentioned that the assessee was entitled to use the import entitlements itself or sell the same to others. In fact the import entitlements had been sold by the said assessee to others and it was on the sale proceeds of such entitlements that relief under Section 80HH of the Act in respect of the sale proceeds was being claimed. The question, therefore, that was being considered was whether the income derived by the assessee by the sale of import entitlements was profits and gains derived from its industrial undertaking of processing sea food. It was in this context that it was observed that it was totally unconnected with the business of the industrial undertaking that the said profit was derived and, therefore, it could not be claimed to be a profit derived from the industrial undertaking to entitle the relief under Section 80HH. In the case in hand, the refund has been made directly to the industrial undertaking and it has, therefore, inflated the profits and gains component of the very industrial undertaking. From the facts placed on record before us, we are not able to say that any refund has been diverted for the purpose other than the business of the industrial undertaking and, therefore, we have no hesitation in holding that the amount refunded had the result of inflating the profits and gains of the industrial undertaking, the respondent assessee.
7. Learned senior Counsel for the Department has also referred to CIT v. Sundaram Clayton Ltd. holding that the sales tax, excise duty on sales of raw materials, charges of miscellaneous income and commission do not form part of the turnover for the purpose of calculation or deduction under Section 80HHC. In the case before us, the duty of excise had the effect of increasing the profits and gains of the industrial undertaking and, therefore, within the parameters of Sections 80HH and 80I, the relief could be made. The appeal is, therefore, dismissed.