Income Tax Appellate Tribunal - Chandigarh
Shakti Impex, Ahmedgarh. vs Assessee on 27 May, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI H.L.KARWA, VICE PRESIDENT
AND MS. RANO JAIN, ACCOUNTANT MEMBER
ITA No.913/Chd/2013
(Assessment Year : 2010-11)
M/s Shakti Impex, Vs. The Income Tax Officer,
Jagera Road, Ward-IV(4),
H.O. Ahmedgarh. Malerkotla.
PAN: AAXFS1081J
Appellant by : Shri Ashwani Kumar
Respondent by : Shri S.K. Mittal
Date of hearing : 25.05.2016
Date of Pronouncement : 27.05.2016
O R D E R
PER RANO JAIN, A.M. :
The appeal filed by the assessee is directed against the order of learned Commissioner of Income Tax (Appeal)-II, Ludhiana dated 16.7.2013 for assessment year 2010-11, against the order passed under section 263 of the Income Tax Act, 1961 (in short 'the Act').
2. Briefly, the facts of the case are that the assessee is a partnership firm engaged in the business of processing and import of honey, trading of zinc and mustard oil. During the year, the assessee had received an amount of Rs.37,98,886/- as duty draw back and 2 Rs.1,83,14,528/- under the head 'Vishesh Krishi Upaj Yojna'. The Assessing Officer disallowed the claim of the assessee under section 80IC of the Act on these receipts in pursuance of an order passed by the Commissioner of Income Tax under section 263 of the Act.
3. The CIT (Appeals) confirmed the disallowance made by the Assessing Officer relying on his own order in assessee's case for assessment year 2009-10.
4. Aggrieved by this, the assessee has come up in appeal before us, raising following ground of appeal :
"That order passed u/s 250(6) of the Income Tax Act, 1961 by the Ld. CIT(A)-II, Ludhiana is against law and facts on the file in as much as he was not justified to arbitrarily uphold the action of the Ld. Assessing Officer in disallowing claim of deduction u/s 80IC on the amounts received as duty draw back at Rs. 37,98,866/- and under Vishesh Krishi Upaj Yojna at Rs. 1,83,14,528/-."
5. At the outset, the learned counsel for the assessee fairly admitted before us that similar issue was there in assessee's own case for assessment year 2009-10, which has been decided against the assessee by the I.T.A.T., Chandigarh Bench in ITA No.153/Chd/2013 dated
6. The learned D.R. relied on the orders of the lower authorities.
37. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record.
On perusal of the order of the I.T.A.T. in assessee's own case for assessment year 2009-10, we observe that same issue was there before the I.T.A.T., which has been decided in favour of the Revenue. The relevant findings are at para 7 onwards, which read as under :
"7. O n t h e p e r u s a l of t h e r e c o r d , w e f i nd t h a t s i m i l ar i s s u e o f a l l o w a b i l i t y o f d e d u c t i o n u n de r s e c t i o n 8 0 I C o f t h e A c t o n t h e r e c e i p t s f r o m V i s h e s h K r i s h i U p aj Y o j na a r o s e b e f or e t h e T r i b u n al i n t h e c a s e o f M / s L i t t l e B ee Impex Vs DCIT (s u p r a ) wherein vide order dated 0 3 . 0 1 . 2 0 14 , t h e T r i b u n a l h el d a s u n d e r :
"50. We have heard the rival contentions and perused the record.
The assessee during the year under consideration had received incentives from Ministry of Commerce, Government of India under 'Vishesh Krishi Upaj Yojna' @ 5% of FOB value of exports. During the year under consideration the assessee has booked incentives for the financial year 2005-06 and 2004-05 on accrual basis. The details of the incentives accrued/received were filed before the Assessing Officer during the course of assessment proceedings as is apparent from the letter dated 28.11.2008 placed at pages 65 to 72 of the Paper Book to which the details were annexed as Annexure-I. The said licences are granted by the DGFT, Ministry of Commerce and is equivalent to 5% of FOB value of the exports made by the assessee, which in turn is calculated on the basis of shipping bills/BRCs filed with DGFT. The value of licences worked to Rs.2.23 crores on export sales of Rs.46.46 crores for financial year 2005-06 and Rs.76.33 lacs on export sales of 16.17 crores relating to financial year 2004-05. The said licences were sold by the assessee during the year under consideration for Rs.2.16 crores and Rs.61 lacs respectively totaling Rs.2.78 crores. Further amount of Rs.30 lacs was provided on estimate basis for 4 pending licenses and the income of Rs.2.80 crores was shown in the books of account on the basis of actual sale price of the licences/provision. The deduction under section 10B of the Act on the same had been claimed at Rs.2,57,88,457/-. In the first instance where the queries had been raised by the Assessing Officer, which in turn had been replied to by the assessee and the issue having been considered by the Assessing Officer and one possible view of allowing the deduction under section 10B of the Act having been passed, the issue arises, whether the same is open to revision under section 263 of the Act. The Hon'ble Courts have held that the Commissioner of Income Tax by way of the proceedings initiated under section 263 of the Act is not empowered to substitute one view adopted by the Assessing Officer by another view in this regard. In view thereof, the order of revision order passed under section 263 of the Act by the Commissioner of Income Tax is without jurisdiction or not is to be seen in line with the allowability of the said claim in the hands of the assessee.
51. Under the said section 10B of the Act it is provided that deduction of such profits and gains as are derived by a hundred per cent exports oriented undertaking from the export of articles or things from the year in which the undertaking begins to manufacture the articles or things, deduction is to be allowed on the total income of the assessee. The assessee is admittedly engaged into hundred per cent exports and is a hundred per cent EOU unit. We have already held the assessee to be entitled to the claim of deduction under section 10B of the Act in the above said paras. Now the only issue to be seen is whether the receipts as such i.e. the incentives received under 'Vishesh Krishi Upaj Yojna', which in turn is determined @ 5% and the FOB value of the export sales made by the assessee, is derived from the undertaking. Both the Commissioner of Income Tax and the learned D.R. for the Revenue have placed reliance on the ratio laid down by the Hon'ble Supreme Court in Liberty India Vs. CIT (supra) to hold that the assessee is not entitled to the said deduction.
52. The perusal of the said decision reflects that the issue before the Hon'ble Supreme Court in Liberty India Vs. CIT (supra) was the claim of deduction u/ss 80I/80IA and 80IB of the Act which also provides for deduction with reference to the profits derived from eligible business. The Hon'ble Apex Court in Liberty India Vs. CIT (Supra) observed as under :5
"The Income-tax Act, 1961, broadly provides for two types of tax incentives, viz., investment-linked incentives and profit-linked incentives. Chapter VI-A of the Act which provides for incentives in the form of deductions essentially belongs to the category of "profit-linked incentives". Therefore, when section 80-IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives: what attracts the incentives under section 80-IA/80IB is the generation of profits (operational profits). It is for this reason that Parliament has confined deduction of profits derived from eligible business mentioned in sub- sections (3) to (11A). Each of the businesses mentioned in sub-sections (3) to (11A) constitutes a stand-alone item in the matter of computation of profits.
Sections 80-IB and 80-IA are a code by themselves as they contain both substantive as well as procedural provisions.
Section 80-IB provides for the allowing of deduction in respect of profits and gains derived from the eligible business. The connotation of the words "derived from" is narrower as compared to that of the words "attributable to". By using the expression "derived from" Parliament intended to cover sources not beyond the first degree.
Sections 80-I, 80-IA and 80-IB provide for incentives in the form of deductions which are linked to profits and not investment. On analysis of sections 880-IA and 80-Ib it becomes clear that any industrial undertaking which becomes eligible on satisfying sub- section (2) would be entitled to deduction under sub- section (1) only to the extent of profits derived from such industrial undertaking after the specified date. Apart from eligibility, sub-section (1) purports to restrict the quantum of deduction to a specified percentage of the profits. This is the importance of the words "derived from an industrial undertaking" as against "profits attributable to an industrial undertaking".
53. The Hon'ble Apex Court further observed as under:
"The word "derived from" are narrower in connotation as compared to the words "attributable to". In other words, by using the expression "derived 6 from", Parliament intended to cover sources not beyond the first degree."
On an analysis of sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-section (2) would be entitled to deduction under sub-section (1) only to the extent of profits derived from such industrial undertaking after specified date(s). Hence, apart from eligibility, sub-section (1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words "derived from industrial undertaking" as against "profits attributable to industrial undertaking".
54. The Apex Hon'ble Court thus held as under:
"DEPB is an incentive. It is given under the 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 a percentage of the FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by the 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 section 75 of the Customs Act, 1962, hence, incentives profits are not profits derived from the eligible business under section 80-IB. They belong to the category of ancillary profits of such undertakings."
55. In view of the ratio laid down by the Hon'ble Supreme Court in Liberty India Vs. CIT (supra) the issue to be considered is whether the incentives receipts under the 'Vishesh Krishi Upaj Yojna' are the receipts on first degree and entitled to the claim of deduction under section 10B of the Act. While denying the benefit of deduction u/ss 80I/80IA and 80IB of the Act on DEPB receipts, it was observed by the Hon'ble Supreme Court in Liberty India Vs. CIT(supra) that the object behind DEPB is to neutralize the incidence of customs duty payment on the import content of export product, which was provided for by way of credit to customs duty against export product. The exporter was entitled to apply for credit as a percentage of the FOB value of export under the 7 incentive scheme of grant of DEPB. The said credit was available at rates specified by the DGFT for import of raw material/components etc. The Hon'ble Supreme Court further held that DEPB/Duty Drawback were incentives which flow from the schemes framed by Central Government.
56. In the present case before us the copy of the scheme of 'Vishesh Krishi Upaj Yojna' is placed at pages 20 and 21 of the Paper Book. The objective of the said scheme was to promote the exports of Agricultural Produce and their value added products, Minor Forest Produce, Gram Udyog Products, Forest Based Products and other products which may be notified from time to time. The entitlement to the scheme as per clause 3.13.2 is as under:
"3.13.2 Duty Credit Scrip benefits as granted with an aim to compensate high transport costs and to offset other disadvantages.
Exporters of products notified in Appendix 37A of HBPvl, shall be entitled for Duty Credit Scrip equivalent to 5% of FOB value of exports (in free foreign exchange) for exports made from 27.8.2009 onwards."
57. Under clause 3.13.3 it is provided that Duty Credit Scrip benefits under the scheme would be granted only at the reduced rate of 3% of FOB value of exports in cases where exporter has availed the benefit of:
(i) Drawback at rates higher than 1% and/or
(ii) Specific DEPB rate (i.e. other than Miscellaneous Category - Sr.Nos.22C & 22D of Product Group 90%); and/or
(iii) Advance Authorization or Duty Free Import Authorization Import of inputs (other than catalyst, consumable and packing materials)for the exported product for which Duty Credit Scrip under VKGUY is being claimed."
58. Further benefits are also given under the scheme, but the relevant benefits of the scheme vis-à-vis assessee are as referred to by us in the above para. In view of the scheme under which the assessee is entitled to the incentives which in turn are to compensate high transport cost and to offset other 8 advantages to the exporters, and also in view of the fact that the incentives are to be allowed at reduced rates where the assessee is in receipt of Duty Drawback, DEPB, we are of the view that the incentives received by the assessee under the 'Vishesh Krishi Upaj Yojna' as an export incentive were given to the assessee to neutralize the incidence of high transport cost and also to offset other disadvantages. The said neutralization as in the case of Hon'ble Supreme Court in the case Liberty India Vs. CIT (supra) is linked to the FOB value of exports by way of Duty Credit Scrip. The said benefits are provided by DGFT in the case of the assessee and the said scheme being similar to the scheme of grant of Duty Drawback/DEPB and in turn applying the ratio laid down by the Hon'ble Supreme Court in the case of Liberty India Vs. CIT (supra) we hold that the assessee is not entitled to the claim of deduction under section 10B of the Act on the said incentives. In view thereof, we uphold the order of enhancement passed by the Commissioner of Income Tax in exercise of its jurisdiction under section 263 of the Act. The ground No.5 raised by the assessee is thus dismissed."
8. Thereafter, the as s e s s e e moved a Miscellaneous A p p l i c a t i o n a ga i n s t t h e o r d e r of t h e T r i b un a l a n d t h e T r i b un a l in c o n s o l i d at e d order in MA Nos. 3 to 6 / C h d/ 2 0 1 4 r el a t i ng t o a s s e s s m e nt y e a r s 2 0 0 6 - 7 t o 2 0 0 9- 1 0 v i d e o r d e r d a t e d 1 9 . 0 6 . 2 01 4 h e l d a s u n d e r :
" 5. We ha ve h ear d t he r i val cont ent i ons and per us ed t h e r ecor d. T he as s es s e e i n IT A N o. N o. 5 53/ C hd/ 2011 had r ai s ed t he i s s ue of cl ai m of deduct i on under s ect i on 10B of t he Act vi s -à-vi s t he pr of i t s on sal e of i ncent i ves r ecei v ed under t he s cheme Vi s hes h K r i s hi Upaj Y oj na @ 5% of FOB val ue o f expor t s , r ecei v ed f r om Mi ni s t r y of C ommer ce, Govt . of Indi a. T he T ri bunal vi de par as 47 t o 59 at pages 40 t o 48 had cons i der e d t he pl ea of t he as s es s ee and t he s cheme und er w hi ch i ncent i ves w er e r ecei v ed and al s o t he r at i o l ai d down by t he Hon' bl e Supr eme C our t i n L i ber t y Indi a V C I T (s upr a ). Af t e r hol di ng t hat t he as s es s ee w as ent i t l ed t o cl ai m of deduct i on under s ec t i on 10B of t he Act on i t s pr of i t s fr om bus i nes s , t he ot her i s s ue cons i der ed by t he T r i bunal w as w het her t he i ncent i ves r ecei ved unde r Vi s hes h K r i s hi Upaj Y oj na w er e de r i ved f r om t h e unde r t aki ng and w er e t hus , el i gi bl e f or deduct i on under s ect i on 10B of t he Act . T he T r i bunal vi de par as 56 and 57 cons i der ed t he s cheme under w hi ch t he as s es s ee had r ec ei ved t he i ncent i v es and i t has been hel d that t he i ncent i ves r ecei ved by t he as s es s ee under t he s ai d s che me w e r e gi ven t o t h e as s es s ee t o neut r al i z e t he i nci dence of hi gh t r ans port cos t and al s o t o offs et ot her di s advant age. T he T r i bunal f ur t her hel d t hat " T he s ai d neut r al i z at i on as i n t he cas e 9 of Hon' bl e Supr eme C our t i n t he cas e L i ber t y Indi a Vs . C IT (s upr a ) i s l i nk e d t o t he FOB val ue of expor t s by w ay of Dut y C r edi t S cr i p. T he s ai d b enef i t s ar e pr o vi ded b y DGFT i n t he cas e of t he as s es s ee and t he s ai d s cheme bei ng s i mi l ar t o t he s che me of gr ant of Dut y Dr aw back/ DEPB an d i n t ur n appl yi ng the r at i o l ai d down by t he Hon' bl e Supr eme C our t i n t he cas e of L i ber t y Indi a Vs . C IT (s up r a) w e hol d t hat t h e as s es s e e i s not ent i t l ed t o t he cl ai m of deduct i on und er s ect i on 10B of t he Act on t he s ai d i ncent i ves ."
6. In vi ew of t he s ai d f i ndi ngs , w e f i nd no mer i t i n t he s t and of t he as s es s ee t hat t he Speci al Bench of T r i bunal i n Mar al Ov er s eas Vs Addl . C IT (s u pr a) and Mu mbai Bench of T r i bunal i n Ar t s & C r af t s Expor t s V IT O (s upr a ) had al l ow ed s i mi l ar benef i t of exempt i on under s ect i on 10B of t he Act i n r es pect of expor t benef i t s . T he s ai d deci s i ons w er e r ef er r ed t o b y t he l d. AR f or t he as s es s ee dur i ng t he cour s e of ar g ui ng t he appeal . How ever , s i nce t he i s s ue w as s quar ely cover ed by t he r at i o l ai d dow n by t he Hon' bl e Supr eme C our t and t he s cheme bei ng s i mi l a r as t o t he s chem e cons i der ed b y t he Hon' bl e Supr eme Cour t i n L i ber t y Indi a V C IT (s upr a ) and f ur t her t he s cheme cons i der ed by t he di f f er ent benches of T r i bunal bei ng at var i ance, no f aul t can be f ound w i t h t he or der of t he T r i bunal and w e f i nd no mer i t i n t he pr es ent Mi s cel l aneous Appl i cat i on moved by t he as s es s ee i n t hi s r egar d and t he s ame i s di s mi s s ed.
9. T h e i s s u e r a i s e d i n t h e p r e s e n t a p p e al i s i d e n t i c al t o t h e i s s u e b e f o r e t h e T r i b u na l a n d f o l l ow i n g t h e s a m e p a r i t y of r e a s o ni n g a s i n M / s L i t t l e Be e I m p e x , w e h o l d t h a t a s s e s s e e i s no t e n t i t l e d t o t h e d e du c t i o n u n d e r s e c t i on 80IC of the Act on receipts from Vishesh Krishi Upaj Y o j n a.
10. A n o t h e r i s s u e r a i s ed b y t h e a s s e s s e e i s w i t h r e g a r d t o t h e c l a i m o f d e du c t i o n u n d e r s e c t i on 8 0 I C o f t h e A c t on Duty Draw Back. T h e s ai d i s s u e i s s q u a r e l y c o v e r e d b y t h e r a t i o l a i d d ow n b y t h e H o n' b l e S u p r e m e C o ur t i n L i b e r t y I n di a L t d . V s C I T (s u p r a ) w h e r e i n i t i s h e l d t h at t h e a s s e s s e e i s n ot e n t i t l e d t o a n y d e du c t i o n u n d e r s e c t i on 80IC on Duty Draw Back. The receipts being similar and t h e p r o v i s i o n s o f s e c t i o n 8 0 I A a n d 8 0 IC b e i n g p e r i m a t er i a, w e h o l d t h at t h e as s e s s e e i s n o t e nt i t l e d t o t h e c l ai m o f deduction under section 80IC on Duty Draw Back.
10R e j e c t i n g t h e pl e a o f t h e a s s es s e e , w e d i s mi s s t h e g r o u n d o f a p p e al r a i s e d b y t h e a s s e s s e e ."
8. Since no distinguishing facts are brought to our notice, respectfully following the order of the Coordinate Bench, we dismiss the ground of appeal raised by the assessee.
9. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on this 27th day of May, 2016.
Sd/- Sd/- (H.L.KARWA) (RANO JAIN) VICE PRESIDENT ACCOUNTANT MEMBER Dated : 27 t h May, 2016 *Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh