Income Tax Appellate Tribunal - Ahmedabad
Metal Link, Daman vs Department Of Income Tax on 25 November, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "D"
Before Shri N.S. SAINI, ACCOUNTANT MEMBER and
Shri MAHAVIR SINGH, JUDICIAL MEMBER
Date of hearing: 24.11.09 Drafted on:c25.11.2009
ITA No.2875/AHD/2006
Assessment Year : 1999-2000
Income Tax Officer, Vs. M/s. Metal Link,
Vapi-Ward-4, Plot No.67,
Daman. Panchal Udyog Nagar,
Bhimpore,
Nani Daman.
PAN/GIR No. : AAEFM 2426J
(APPELLANT) .. (RESPONDENT)
Appellant by : Shri C.K.Mishra Sr. D.R.
Respondent by: Shri S.N.Soparkar A.R.
ORDER
PER N.S.SAINI , ACCOUNTANT MEMBER :-
This is an appeal filed by the Revenue against the order of the ld.CIT(Appeals), Valsad, dated 21.09.2006 in Appeal No. CIT(A)/VLS/94 & 93/06-07.
2. The ground no. 1 of the appeal reads as under:
"1. On the facts and circumstances of the case and the low, the learned CIT(A) has erred in allowing the FD interest of Rs.3,12,964/- and Bank interest income of Rs.3,78,574/- and thus learned CIT(A) wrongly allowed the assessee to claim the deduction under section 80IB on both these interest incomes."
3. The brief facts of the case as observed in the Assessment order by the Learned Assessing Officer reads as under:
"As far as the remaining interest income of Rs.3,12,964/- earned on FDRs kept with Bank as securities for credit facility , it seems that the assessee has not been able to correctly interpret the decision given by the ITA No.2875/Ahd/2006 M/s.Metal Link Asst.Year -1999-2000 -2- Hon'ble Supreme Court in the case of CIT Vs. Sterling Foods (1999) 237 ITR 579. The Assessee is reiterating its argument that the deposits were kept as a result of compulsion of business. The fact is that, it is immaterial as to for what purpose the deposits were kept. What is important and materialistic is as to whether the immediate source of earning that interest income is the manufacturing activity of assessee or exports, as the case may be. The argument that the assessee could not have done its manufacturing activity or that it could not have exported its goods without these deposits is not of any significance. In the aforesaid decision, it is clearly interpreted by the highest court of the land that only income derived from manufacturing activity or exports is eligible for deduction under chapter VI-A of the Act. Any income which has not got a direct nexus either with the manufacturing activity or with the exports cannot be held to have been derived from the said activity of manufacturing or exports, as the case may be. Such an income can only be termed as an income attributable to the activity of the assessee for which benefits of section 80IA is not available. In the instant case, the immediate source of earning this interest income are the deposits and not the manufacturing activity. It can hence be treated as an income attributable to the business of the assessee. Line of distinction between "income derived from" and "income attributable to" has been drawn by the Hon'ble Supreme court in the case of CIT V/s. Sterling Foods (1999) 237 ITR 579. The assessee has also laid stress on netting out of interest income against interest expenses. There is no logic in the argument of the assessee. As discussed above, the interest income earned does not form a part of the income of the industrial undertaking, through it may form a part of income of the business. "Business" is something very different from the "undertaking" as defined in section 80IA of the Act. Interest expenses are borne by an assessee for the purposes of manufacturing activity of the undertaking. Interest income earned on fixed deposits cannot be netted out against interest expenses of an undertaking. The interest income earned on fixed deposits is taxable under the head "income from other sources". As such, I do not agree with the argument offered by the assessee to net out the interest income against interest expenses.
In view of the decision given by the Hon'ble Supreme Court in the case of CIT Vs. Sterling Foods (1999) 237 ITR 579 (SC) and the recent decision of the Apex Court in the case of Pandian Chemicals v/s. C.I.T. (2003) 129 Taxman (SC), the Apex Court in the case of Pandian Chemicals v/s. C.I.T. (2003) 129 Taxman (SC), this interest income of Rs.3,12,964/- is in income "attributable to" and not derived from" the manufacturing activity or the export business of the assessee and hence it is taxable.
This interest income is not eligible for deduction under section 80IA of ITA No.2875/Ahd/2006 M/s.Metal Link Asst.Year -1999-2000 -3- the Act. Accordingly, this accrued interest of Rs.3,12,964/- is added to the total income of the assessee and taxed.
During the course of assessment proceedings, on going through the books of accounts of the assessee and audit report filed with the return of income, it is seen that the assessee has credit an amounting of Rs.3,78,574/- as bank interest for Assessment Year 1997-98. It is also seen that while arriving at the taxable income the above said interest income was included in the profit derived from the manufacturing activity and claimed deduction under section 80IA of the Act on the above said interest income. It is to state that the said bank interest income of Rs.3,78,574/- received by the assessee, has got no direct nexus to manufacturing activity of industrial undertaking, enjoying benefits of section 80IA of the Act. This interest income can in no way be said to have been derived from the manufacturing activity, as required for getting benefits of section 80IA of the Act. It can only be treated as an income "attributable to" the business of the assessee. The Hon'ble Supreme Court has, in the case of CIT V/s. Sterling Foods (1999) 237 ITR 579 clearly distinguished the difference between "derived from" and "attributable to". Only the income derived by an industrial undertaking from manufacturing activity is eligible for deduction under section 80IB, whereas, income attributable to the manufacturing activity or any other business of the assessee is liable to be taxed. The same view has again been upheld recently by the Hon'ble Supreme Court in the case of the Pandian Chemicals V/s. CIT (2003) 129 Taxman 539. Thus, the Apex Court of the land has repeatedly reiterated that such income is not eligible for deduction under chapter VI-A. Deduction under chapter VI-A is allowable only on income derived from manufacturing activity of an undertaking. The assessee is an industrial undertaking covered under chapter VI-A of the Act. As far as deduction under section 80IA is concerned, what is important is the nexus between the manufacturing activity and the income earned for getting benefit of the said section. The immediate source of earning this interest income is that bank deposit itself and not the manufacturing activity of the undertaking. There is no direct nexus between the interest earned and the manufacturing activity and hence this interest income cannot be allowed as a deduction under section 80IA. It was hence apparent that the claim so made by the assessee was wrong. Accordingly, during the course of assessment proceedings, the Authorised Representative of the Assessee firm was asked to explain as to why the above said interest income of Rs.3,78,574/-, should not be taxed. In this context, they did not offer any explanation.
Silence of the assessee on this point makes it clear that the assessee accepts that the said accrued interest is taxable. The immediate source ITA No.2875/Ahd/2006 M/s.Metal Link Asst.Year -1999-2000 -4- of earning this interest income is the bank deposits itself and not the manufacturing activity of the undertaking.
In view of the decision given by the Hon'ble Supreme Court in the case of CIT v/s. Sterling Foods (1999) 237 ITR 579 (SC) and the recent decision of the Apex Court in the case of Pandian Chemicals v/s. C.I.T. (2003) 129 Taxman (SC), this issue interest income of Rs.3,78,574/- is an income "Attributable to" and not "derived from" the manufacturing activity of the assessee and hence it is taxable. This interest income is not eligible for deduction under section 80IA of the Act. Accordingly, this accrued interest of Rs.3,78,574/- is added to the total income of the assessee and taxed. Since the assessee attempted to evade tax on the said income of Rs.3,78,574/- despite being aware of the fact that it is taxable, it is beyond doubt that the assessee has furnished inaccurate particulars of its said income, in its return of income."
4 In appeal the Learned Commissioner of Income Tax(Appeals), observed as under:-
"I have considered the findings of the Learned Assessing Officer in the assessment order and also went through the submission as made by the Learned Authorised Representative of the Assessee and the judicial findings relied upon by him. In the above referred decisions, it is seen that the Learned Authorised Representative of the Assessee relied on the findings of Hon'ble Bombay High Court in the case of the CIT Vs. Nagpur Engineering Co. 245 ITR 806, wherein according to the Learned Authorised Representative of the Assessee, the Hon'ble Court has held that interest income from fixed deposits are eligible profits of the business while computing deduction under section 80IB of the I.T.Act. The Learned Authorised Representative of the Assessee has also mentioned that the Hon'ble Supreme Court has dismissed Special Leave Petition filed by the Department against the judgment and the same has been reported in 244 ITR (St.) 54. In other decisions as delivered by the Hon'ble ITAT Benches Ahmedabad in the cases of Suncity Synthetics Ltd.ITA No.230/Ahd/1998; Inductotherm (India) Ltd. Vs. DCIT, ITA
No.3850(1995) and Pink Star Vs. DCIT 72 ITR 137 (which has been again upheld by the Hon'ble Mumbai High Court as reported in 245 ITR 757), it is observed that the Hon'ble ITAT has allowed netting of expenses against the income earned and held that if there is any positive income, the same should be excluded while allowing deduction. It is also found that similar view has also been taken by the Hon'ble ITAT Bench, Ahemdabad in the case of M/s. Priyanka Gems Surat; M/s. R. Jaykumar & Co., Surat; M/s. Mitul Gems, Surat and M/s. B.S.P.Exports, Surat etc, by following the decision of Hon'ble ITAT Delhi(Special Bench) in the case of Lalsons Enterprises Vs. DCIT (2004) 89 ITD 25, wherein it has been ITA No.2875/Ahd/2006 M/s.Metal Link Asst.Year -1999-2000 -5- observed that for the purpose of Explanation (baa) below sub section 4(B) of section 80HHC, while reducing 90% of the net interest remaining after allowing set off of interest paid, which has a nexus with the interest received, that can be reduced and not the 90% of the gross income and thus, respectfully following the verdict of the Hon'ble Delhi ITAT(SB), the Hon'ble ITAT B-Bench Ahmedabad directed the Learned Assessing Officer in the case of above assessee to reduce 90% of the net interest received by the assessee while computing deduction under section 80HHC (4B). The Hon'ble ITAT has also observed that if the net result of interest payment and receipt is represented by excess of interest paid, no reduction is to be made in terms of Explanation (baa). The Provisions of section 80IB and section 80HHC grants deduction from profit derived from manufacturing and accordingly the ratio of above decisions though given in relation to section 80HHC is equally applicable while interpreting provisions of section 80IB. Here, in the case of the appellant, it is seen that the expenditure incurred in the form of interest is more than the interest earned by the appellant during the year. I, therefore, in view of the above referred findings of the Hon'ble Bombay High Court in the case of CIT vs. Nagpur Engineering Co. Ltd., 245 ITR 806(Bom.), the decision of Hon'ble Delhi ITAT in the case of Lalsons Enterprises vs. DCIT 89 ITD 25 (supra) along with other referred decisions, accept the contention of the A.R. and reject the exclusion as made by the Learned Assessing Officer in the form of interest received for working out the deduction under section 80IB. In the case of the appellant, it is seen that the amount of interest received is far less than the amount of interest paid and therefore, there is no cause for exclusion and hence the exclusion of interest income as made by the Learned Assessing Officer while granting deduction under section 80IB is rejected. The appellant succeeds in this ground of appeal in this issue.
5. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. In the instant case, the assessee is entitled for deduction under section 80IA in respect of income derived by it from the business of its industrial undertaking is not in dispute. The assessee received Rs.3,12,964/- and 3,78,574/- as interest on the FDR made by it with Bank and held that such interest income was not derived from the industrial undertaking and therefore, the assessee is not eligible for deduction under section 80IA on such income. The Learned Assessing Officer in view of the above, excluded the gross amount of interest income of Rs.3,12,964/- and 3,78,574/- from the net profit and allowed deduction under ITA No.2875/Ahd/2006 M/s.Metal Link Asst.Year -1999-2000 -6- section 80IA in respect of the balance amount only. On appeal, the Learned Commissioner of Income Tax(Appeals) also accepted the view of the Learned Assessing Officer that interest income is not eligible for deduction under section 80IA of the Act. However, the Learned Commissioner of Income Tax(Appeals) observed that interest payment by the assessee was more than the interest received of Rs.6,91,538/- and therefore held that no interest income was actually earned by the assessee which can be excluded for allowing deduction under section 80IA of the Act. Being aggrieved by this order of the Learned Commissioner of Income Tax(Appeals) the revenue is in appeal before us. We find that no material was brought on record by the Learned Commissioner of Income Tax(Appeals) for holding that entire interest expenditure was incurred by the assessee for earning interest receipt of Rs.6,91,538/-, in our considered view, only then interest expenditure which was incurred for earning of interest receipt of Rs.6,91,538/- can only be set off for arriving at the amount of income earned by the assessee from receipt of interest which is to be excluded for computing the deduction allowable under section 80IA of the Act. Our above view finds support of the decision of Hon'ble Delhi High Court in the case of CIT Vs. Shri Ram Honda Power Equip. & Others. (2007) 289 ITR 475(Del). In the instant case, we find that materials are not available on record to show that investment in FDR was made out of any borrowed capital or not. Therefore, in our considered opinion, it shall be just and fair to restore the issue back to the file of the Learned Assessing Officer for adjudication afresh in the light of the discussion made hereinabove after allowing reasonable opportunity of hearing to the assessee. We order accordingly. Thus, this ground of appeal of the Revenue is allowed for statistical purposes.
6. The ground no.2 of the appeal reads as under:-
"2. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing the DEPB income of Rs.4,29,441/-ITA No.2875/Ahd/2006
M/s.Metal Link Asst.Year -1999-2000 -7- and thus learned CIT(A) wrongly allowed the assessee to claim the deduction under section 80IB on the DEPB income of Rs.4,29,441/-."
7. The brief facts of the case as observed by the Learned Commissioner of Income Tax(Appeals) reads as under:
"7. During the course of assessment proceedings, observed that Profit & Loss account of the assessee for the year under consideration is credited by an amount of Rs.4,29,441/- on account of D.E.P.B. The said export benefit is included in the deduction claimed by the assessee under section 80IA of the Act. In view of the decisions of the Hon'ble Apex Court in the cases of CIT Vs. Sterling Foods (1999) 237 ITR 579 and Pandian Chemicals Vs. CIT (2003) 129 Taxman, such income is not eligible for deduction under section 80IA of the Act. Hence, it is clear that the above said DEPB amounting to Rs.4,29,441/- is not eligible for deduction under section 80IA of the I.T.Act. Accordingly, during the course of assessment proceedings the authorised representative of the assessee was asked as to why the above said income of Rs.4,29,441/- earned during the year consideration should not be excluded from the profits eligible for deduction under section 80IA of the I.T.Act and should not be taxed of the decisions of the Hon'ble Apex Court in the case of CIT Vs. sterling Food (1999) 237 ITR 579 and Pandian Chemicals Vs. CIT (2003) 129 Taxman 539(SC). In the context, the Learned Authorised Representative of the Assessee has filed written submission on 30.10.2006 stating that-
"during the Assessment Year 1999-2000 Firm has purchase all DEPB from outside at discount and utilised such DEPB against liabilities of custom duty payable. Because of this out actual cost of Raw material was lower down by benefit of discount. Instead of reducing the value of cost of Raw material we have shown the raw material at actual cost including full value of custom duty & benefit from such discount of DEPB shown as DEPB income in Profit & Loss account . Actually there is no income from sale of DEPB license. Therefore, such income considered under the head "income from Business and Profession".
Further by virtue of Bill passed in Lok Sabha dated Dec. 6, 2005 where amendment is made in section 28 of the Income Tax Act, after clause (iiic).-
(a) the following clause shall be inserted and shall be deemed to have been inserted, with effect from the 1st day of April, 1998, namely :-
"(iiid) any profit on transfer of Duty Entitlement Pass Book Scheme being Duty Remission Scheme under the export & import policy formulation & announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992."ITA No.2875/Ahd/2006
M/s.Metal Link Asst.Year -1999-2000 -8- Accordingly DEPB income is also considered under the head "income from Business & Profession."
The arguments made by the assessee have been carefully considered. The income derived on account of sale of DEPB can be considered as "Profit of Business" but it cannot at all be considered as "manufacturing profits" of the business, since it has no direct nexus with the manufacturing activity of the assessee.
The Indian Exporter is granted various incentives by the Government of India to compensate the Indian Exporter for local duties, like customs, excise, sales tax etc., which would make the cost of India Export higher than his counterpart operating from other countries. These various incentives are quantified on the basis of well laid out parameters to enable the Indian Exporter to complete with the foreign competitors. While working out the quantum of incentives, the excise duty paid or custom duty paid or deemed to have been paid etc. are taken into consideration. After examining the submission of the assessee, it is to be ascertained as to what exactly is the nature of such income received by the assessee.
In the provisions of section 80IA/80IB of the Act, the phase used is profit and gains "derived from" by an industrial undertaking. This means that it is not "any profit" which is entitled for beneficial deduction under section 80IB of the Act. In various decisions of the Supreme Court, it has also been clarified that the expression "derived from" is quite different from the express "attributable to". In other words this means that if an income is "attributable to" the industrial undertaking and not "derived from", deduction under section 80IB would not be allowed on such income. Some of such example are discussed hereunder:-
In the decision reported in 215 ITR 60 in the CIT Vs. Eastern Sea Foods Exports P. Ltd. (Madras) the following observations have been made:
"Profit or Gain can be said to have been derived from an activity carried on by a person only if the said activity is the immediate and effective source of the said profit or gain. The income, profit or gain cannot be said to have been derived from the activity merely be reason of the fact that the said activity may have helped to earn the said income or profit in an indirect or remote manner."
The above view was subsequently reaffirmed by the Supreme Court in the case of CIT Vs. Sterling Foods 237 ITR 579 by observing as under:-
"There must, for the application of the words "derived from" a direct nexus between the profits and gains of the Industrial Undertaking. Such nexus has to be directed and not incidental."ITA No.2875/Ahd/2006
M/s.Metal Link Asst.Year -1999-2000 -9- In the case of Cambay Electric supply Vs. CIT 113 ITR 84, the Apex Court had also clarified that the word "derived from" is narrower in scope compared to the term "attributable to".
Finally, the legal controversy on this subject was in the manner of speaking set at rest by the decision of the Supreme Court in the case of Pandian Chemicals Vs. CIT 129 Taxma 539 (SC).
[7.5] Recently the question before the Delhi High Court was as under[source :Website: Taxindiaonline. Com] "Is duty drawback income deductible under section 80IA of the Act?"
The Delhi High Court first referred to the decision ofa the Madras High Court wherein it was held that "Cash Assistance", "Duty Drawback" and import entitlements are undoubtedly "Attributable to" the business carried on by the assessee and the assessee would have been in a position to receive any of these benefits, had the assessee not been carrying on the business, it cannot be said, however, that such income is 'derived from' the business. The Delhi High Court also referred the decision of the Supreme Court in the case of CIT vs. Sterling Foods -237 ITR 579. Based on the above judgments, the Delhi High Court ruled that :
"Duty drawback is not an income derived form the Industrial undertaking to be eligible for the deduction under section 80IA of the Act."
The court observed that merely because under the scheme to encourage exports duty etc. is refunded subsequently by way of such duty drawback, it cannot be regarded as the profit and gain "derived from' the industrial undertaking, as its immediate and proximate source is not the industrial undertaking but the scheme of duty drawback. [7.6] In view of these facts and the recent judicial pronouncement of the Hon'ble Supreme Court in the case of CIT Vs. Sterling Foods - 237 ITR 579, the income from sale of import licence will treated as income from other sources and the same will be excluded while working the profits and eligible for deduction under section 80IB of the At. As such, the DEPB amounting to Rs.4,29,441/- received by the assessee during the year under consideration shown as income from other sources, is excluded while working out the profits and eligible for deduction under section 80IA of the Act."
8. The Learned Commissioner of Income Tax(Appeals) has decided the issue as follows:-
"During the year under consideration firm has purchased all DEPB from outside at discount and utilised such DEPB against liabilities of custom duty payable. Because of this our actual cost of raw material was lower down by benefit of discount. Instead of reducing the value of cost of raw material we have shown the raw material at actual cost including full ITA No.2875/Ahd/2006 M/s.Metal Link Asst.Year -1999-2000
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value of customs duty and benefit from such discount of DEPB shown as DEPB income in Profit and Loss Account. Actually there is no income from sale of DEPB license. Therefore, such income considered under the head "income from business and profession".
Further by virtue of Bill passed in Lok Sabha dated Dec.6, 2005 where amendment is made in section 28 of the Income Tax Act after clause(iiic)-
(a) the following clause shall be inserted and shall be deemed to have been inserted with effect from 1st day of April 1998, namely:-
"(iiid) any profit on transfer of Dity Entitlement Pass Book Scheme being Duty Remission Scheme under Export and Import Policy formulation and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992."
Accordingly, DEPB income is also considered under the head "Income from Business and Profession".
7.2 I have gone through the assessment order and the submission made by the appellant carefully. In the assessment order the Learned Assessing Officer has considered the above income as not being derived from the profits and gains of the industrial undertaking and has relied up on the decision of Hon'ble Apex court in the case of CIT Vs. Sterling foods (1999) 237 ITR 579 and Pandian Chemicals Vs. CIT(2003) 129 Taxman. The conclusion of the Learned Assessing Officer is given in paragraph no.7.6 for A.Y. 1999-2000 which is reproduced hereunder:-
"In view of these facts and the recent judicial pronouncement of the Hon'ble Supreme Court in the case of CIT Vs. Sterling Foods-237 ITR 579, the income from sale of import license will treated as income from other sources and the same will be excluded while working the profits and eligible for deduction under section 80IB of the Act. As such DEPB amounting to Rs.1,10,556/- (Rs.4,29,441/-) received by the assessee during the year under consideration shown as income from other sources, is excluded while working out the profits and eligible for deduction under section 80IA of the Act. Thus, by claiming deduction under section 80IA on the DEPB income from the purpose of computation of total income, the as has furnished inaccurate particulars of its income, from which penalty proceedings under section 271(1)(c) r.w.s. 274 of the Act is initiated on this point."
7.3 Now during the proceedings before me the appellant has submitted that during the year it has not exported any products and has only imported raw materials for the purposes of manufacturing. For the purpose of such import of raw materials the appellant purchased DEPB from the market and utilize such DEPB credits purchased towards adjustment of customs duty liability arising out of such imports. The appellant further submitted that such DEPB purchased and utilised as ITA No.2875/Ahd/2006 M/s.Metal Link Asst.Year -1999-2000
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such constitutes cost of imported raw materials. The appellant also submitted that while preparing its accounts the appellant has disclosed its purchases including customs duty and has correspondingly shown the DEPB purchased and utilised as a separate income under the head "DEPB" income. In this manner the app has not earned any DEPB credits as income during the year which is earned by only exporters. The appellant's accounts have been audited under section 44AB of the Act which along with the books of accounts have been duly verified by the assessing officer.
7.4 Considering the above factual matrix of the nature of income earned by the appellant it cannot be said that the appellant has earned any DEPB credits under the Export Import Policy as observed by the Learned Assessing Officer. Even though the appellant has disclosed Rs.1,10,556/- and Rs.4,29,441/- during A.Y. 1998-1999 and A.Y. 1999- 2000 respectively as DEPB income it has disclosed to the assessing officer the nature and substance of such income as seen from the assessment order reproduced in the earlier paragraph. In the circumstances and considering the facts of the case, I hereby direct the Learned Assessing Officer to grant deduction under section 80IB of the Act without excluding Rs.1,10,556/- and Rs.4,29,441/- during A.Y. 1998- 1999 and A.Y. 1999-2000 respectively. The appellant succeeds in this ground of appeal."
9. The Learned Departmental Representative supported the order of the Learned Assessing Officer and submitted that the issue stands covered by the decision of Hon'ble Supreme Court in the case of Liberty India Vs. CIT [2009] 317 ITR 218 (SC) against the assessee.
10. The Learned Authorised Representative of the Assessee argued that issue is covered by the decision of Mumbai Special Bench of the Tribunal in the case of Topman Exports Vs. Income-tax officer, [2009] 318 ITR (AT) 87 (Mumbai)[SB] and stated that as per the said decision, the profit on DEPB should be treated separately from the value of DEPB received on export. He submitted that the issue should set aside to the file of the Learned Assessing Officer for deciding the same afresh in light to the aforesaid decision of the Special Bench of the Tribunal.
ITA No.2875/Ahd/2006M/s.Metal Link Asst.Year -1999-2000
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11. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. In the instant case, the Learned Assessing Officer observed that the assessee credited Rs.4,29,441/- under the head income from DEPB. According to the Learned Assessing Officer, such income was not derived from the industrial undertaking and therefore the Learned Assessing Officer excluded Rs.4,29,441/- while calculating deduction allowable under section 80IB of the Act. The Learned Commissioner of Income Tax(Appeals) observed that the assessee was not an exporter and has not derived any income by sale of DEPB. The Learned Commissioner of Income Tax(Appeals) observed that the assessee was importer of raw material and for importing raw material, it purchased DEPB which was utilised by it for payment of customs duty payable on import of raw material. The system of accounting by the assessee was to show purchases by including amount of customs duty which would have been payable by the assessee had it not purchased DEPB from the market and utilised in its import transactions. Thus, Learned Commissioner of Income Tax(Appeals) finding that no profit was earned by the Assessee on sale of DEPB rather discount received from purchase of DEPB was reflected as income in the profit and loss account. The Learned Commissioner of Income Tax(Appeals) held that nothing can be excluded on account of above credit of RS.4,29,441/- in the profit and loss account for calculating deduction allowable under section 80IB of the Act. Before us, Learned Authorised Representative of the Assessee argued that issue is covered by the decision of Mumbai Special Bench of the Tribunal in the case of Topman Exports Vs. Income-tax officer, [2009] 318 ITR (AT) 87 (Mumbai)[SB] and stated that as per the said decision, the profit on DEPB should be treated separately from the value of DEPB received on export. He submitted that the issue should be set aside to the file of the Learned Assessing Officer for deciding the same afresh in light to the aforesaid decision of the Special Bench of the Tribunal.
ITA No.2875/Ahd/2006M/s.Metal Link Asst.Year -1999-2000
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We find that before the Learned Assessing Officer also the assessee submitted as under:-
"During the year under consideration firm has purchased all DEPB from outside at discount and utilised such DEPB against liabilities of custom duty payable. Because of this our actual cost of raw material was lower down by benefit of discount. Instead of reducing the value of cost of raw material we have shown the raw material at actual cost including full value of customs duty and benefit from such discount of DEPB shown as DEPB income in Profit and Loss Account. Actually there is no income from sale of DEPB license."
12. We find that the above submission of the Assessee was not controverted by the Learned Assessing Officer and the revenue has not disputed the above fact before us also. We thus, find that the uncontroverted facts of the case are that the assessee has not received any DEPB on export of goods by it under any policy of the Government as an incentive nor the assessee has sold and derived profit on sale of DEPB. In view of the above decision of the Special Bench of the Tribunal is not applicable in the instant case. Further, we find that the assessee has not received any export incentives nor derived any profit by way of sale of DEPB. The assessee because of following a peculiar system of accounting has recorded purchases at an inflated amount and reflected the corresponding amount also as income under the head DEPB income. In the instant case, the assessee has paid lesser amount for purchases because it purchased DEPB at a discount from the market. Thus, the assessee's purchases were actually at a lesser figure because the assessee was not required to pay the full amount of customs duty and assessee instead of paying full amount of customs duty actually adjusted the said liability from DEPB, which was purchased from the market at a discounted price. The Assessee increased its purchases by a notional figure of customs duty which he would have otherwise been liable for had he not purchased DEPB from the market and adjusted the same against customs duty. Thus, on the one hand, the assessee increased its purchases by notional amount which he has not actually paid and thereby reduced its profit from the ITA No.2875/Ahd/2006 M/s.Metal Link Asst.Year -1999-2000
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said amount and also increased the profit by an equivalent amount by crediting in his profit and loss account the same amount under the head income from DEPB. In view of the above, we agree with the finding of the Learned Commissioner of Income Tax(Appeals) that no income was actually derived by the assessee from DEPB and the said amount reflected in the profit and loss account is a part and parcel of the purchase of imported raw materials debited in the Profit & Loss account and no amount can be excluded for such credit while calculating the amount of income derived from the industrial undertaking eligible under section 80IB of the Act. WE therefore, confirm the order of the Learned Commissioner of Income Tax(Appeals) and reject the ground of appeal of the Revenue.
13. In the result, the appeal of the partly allowed for statistical purposes.
Order pronounced at the close of the hearing in the presence of the parities in the Court on 24/11/2009.
Sd/- Sd/-
( MAHAVIR SINGH) ( N.S. SAINI )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 24/11/2009
Prepared and compared by : Paras
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT Concerned
4. The ld. CIT(Appeals), Valsad.
5. The DR, Ahmedabad Bench
6. The Guard File.
BY ORDER,
स᭜यािपत ᮧित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad