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Income Tax Appellate Tribunal - Ahmedabad

Suzlon Energy Limited, Ahmedabad vs Department Of Income Tax on 23 August, 2012

      IN THE INCOME TAX APPELLATE TRIBUNAL,
               " C" BENCH, AHMEDABAD
      Before Shri A. K. GARODIA, ACCOUNTANT MEMBER
           and Shri KUL BHARAT, JUDICIAL MEMBER
             I.T.A. No. 3911/Ahd/2007 & 1367/ Ahd/2008
                 (Assessment year 2005-06 &2006-07)

M/s. Suzlon Energy Limited,         Vs.    DCIT, Circle 8,
Suzlon House,                              Ahmedabad
5, Shrimali Society,
Navrangpura, Ahmedabad

       PAN/GIR No. : AADCS0472N

             I.T.A.No. 4358/Ahd/2007 & 1677/Ahd/2008
                 (assessment year 2005-06 & 2006-07)

DCIT, Circle 8,               Vs.    M/s. Suzlon Energy Limited,
Ahmedabad                            Suzlon House,
                                     5, Shrimali Society,
                                     Navrangpura, Ahmedabad

        (APPELLANT)                   ..        (RESPONDENT)

          Appellant by:               S/Shri Tushar Hemani &
                                      Ankit Talsania, Adv.
          Respondent by:              Shri S K Gupta, CIT DR

            Date of hearing:       23.08.2012
            Date of pronouncement:    21.09.2012
                             ORDER

PER SHRI A. K. GARODIA, AM:-

These are cross appeals of the assessee and revenue for two years which are directed against two separate orders of Ld. CIT(A) XIV, Ahmedabad dated 27.09.2007 for the assessment year 2005-06 and dated 17.03.2008 for the assessment year 2006-07. All these appeals were 2 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 heard together and are being disposed off by way of this common order for the sake of convenience.

2. First, we take up the appeals of the assessment year 2005-06. Ground No.1 of the assessee's appeal and ground no.1 of the revenue's appeal are interconnected as per which the grievance of the department is regarding deletion of disallowance of Rs.9,34,95,200/- made by the A.O. on account of sales commission paid u/s 37 of the Income tax Act, 1961 and the grievance of the assessee is regarding confirmation of part disallowance on this account to the extent of Rs.42,81,600/-. 2.1 Brief facts of this issue till the assessment stage are noted by Ld. CIT(A) in para 2.1 of his order and for the sake of ready reference, the same is reproduced below:

"The first ground is with regard to the disallowance of sales commission expenditure of Rs.9,77,76,800/-. The appellant company is engaged in the business of manufacturing wind turbine generators (WTGs) at Daman & Pondicherry. During the year, under consideration, the appellant claimed sales commission expense in the sum of Rs.9,77,76,800/- on total sales of Rs.1917.50 crores. The appellant has paid commission to 27 parties on 137 transactions of sales out of total 451 wind mills sales. The A.O. called six customer for personal verification by issuing summons u/s 131 of the act, who were examined and their statements were recoded. The A.O. has discussed these facts in details in the assessment order and concluded that there is no evidence that the assessee company received inbound services and its claim of payment of commission is not justified, as no services were rendered by the agents. Hence, he A.O. disallowed the entire sales commission expenses of Rs.9,77,76,800/- and added the same to the total income of the assessee."

2.2 Being aggrieved, assessee carried the matter in appeal before Ld. CIT(A) who has deleted the part disallowance to the extent of Rs.9,54,95,200/- and confirmed the balance disallowance of Rs.42,81,600/- and now, the revenue is in appeal for the amount of 3 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 disallowance deleted by Ld. CIT(A) and the assessee is in appeal for the part disallowance confirmed by Ld. CIT(A).

2.3 Ld. A.R. supported the order of Ld. CIT(A) with regard to ground raised by the revenue and with regard to the part disallowance confirmed by Ld. CIT(A), in respect of six persons, it was submitted that even after initial introduction, the agent carries out many functions and, therefore, even if the sales is initiated by the customers as alleged by the revenue, remissiors also provided other business information as stated in the agreement so as to justify the allowability of the commission expenditure. It was the submission that it was a contractual arrangement with remissiors as stated in the contract and the services were rendered to the assessee and there was no provision for rendering any services to the customers. He also submitted that the assessee is eligible for deduction u/s 80-IB to the extent of 100% and, therefore, even after disallowance of sales commission, there is no impact on the profit of the assessee and the tax effect is revenue neutral. He also submitted that apart from the introducing of customers, the commission agents were rendering other valuable services such as providing with the other valuable information such as credibility report of the customers and they were also helping in making collection from the customers and therefore, commission paid by the assessee is allowable in full. Reliance was placed on the following judgements:

(a) Pennzpl Investment & Trading Co.(P) Ltd. Vs CIT 49 ITD 534 (Hyd.)

(b) Swastic Textile Co.(P) Ltd. vs CIT 150 ITR 155 (Guj.)

(c) CIT Vs Hewitt Robins (New York) 141 ITR 278 (Cal.)

(d) CIT Vs Ishwarprakash & Bros. 159 ITR 843

(e) ITO Vs Shakti Cables 50 Taxman 329 (Del.)

(f) Ciba Dyes Ltd. vs CIT 25 ITR 103 (Bom.)

(g) JCIT Vs Concept Communication Ltd. 9 SOT 75 (Mum.) 4 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 2.4 As against this, it was submitted by the Ld. D.R. that only customers had approached the assessee and not otherwise that the assessee has approached the customers and, therefore, it did not come out from the record that the customers were introduced to the assessee by some other person. He also submitted that no evidence has been produced regarding rendering of any services by these persons and hence, commission was rightly disallowed by the A.O. Reliance was placed on the judgement of Hon'ble Apex Court rendered in the case of Laxmi Sugar Mills & Oil Mills Vs CIT as reported in 84 ITR 439 (S.C.).

2.5 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that this issue was decided by Ld. CIT(A) as per para 3.2 of his order which is reproduced below:

"3.2 I have considered the facts of the case and the submissions as advanced by the appellant along with the case laws as relied upon. The facts emerged that agreements have been entered into for payment of commission in respect of Work done by the agents and for providing information which resulted in maturity of sales. The payments were made as per the agreement. As per the agreement, the scope of services depending on type of customer required to be done by the agents were as under.-

a) The Remissier based on their internal resources shall amongst its business associates identify the buyers who propose to/have intention to buy and have the capacity to buy the WTGs. ,

b) The Remissier on identifying the buyers would suggest, inform, indicate, introduce, recommend and/or solicit them to the company so as to facilitate the company in carrying out the sales of WTG as per the requirements of the Buyer.

Remissier would function as a silent professional to render inbound services to the company and depending upon the circumstances, looking at his reputation, status, financial Standing, the company Will not reveal the name of Remissier to the party referred by him but any referred source resulting into successful commercial transaction would make the 5 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 Remissier entitled to the commission at the agreed rate referred to hereinafter.

d) In majority of circumstances the buyer would prefer no intermediate with a view to control his cost and .hence it is in the interest of both the party that the Remissier would not come oh front line.

In the case of the appellant, it is seen that

i) All the payments were made by cheques arid parties were genuine. The parties have confirmed the receipt of payments and rendering services in the form of giving information about its customers.

ii) All the agents are tax payers "and the commission received by the assessee company is shown in their Income tax returns and the tax has been paid thereon,

iii) For the appellant, there is no motive to save-taxes as units of appellant are eligible for deduction u/s. 80I&-

iv) All the recipients of the commission are independent persons and they are not related to the appellant company.

v) There is increase in the sales this year, which justifies the payment of commission,

vi) As per the Hon. Supreme Court's decision relied on by the appellant, the AO cannot sit in judgement over commercial wisdom of the appellant and determine the reasonableness of the expenditure, unless the person is related person to the assessee u/s. 40A 2(b).

As the appellant has given the evidence that the recipients provided information in respect of the services, which helped the sales to be matured and realised, the payment of commission is justified. However, at the same time, it is also observed that the entire expenditure of commission cannot be allowed, in view of the specific finding brought on record by the AO after enquiry in certain cases, wherein he examined the six customers and brought on record that in respect of these customers, the agents played no role in achieving the sales and these customers directly approached the assessee for the transaction:-

I.T.A.No.1367,1677 /Ahd/208 Name of person called u/s. Name of party to whom Commission Agent Commission 131 sales made. paid Shri Somchand Savia Twisters Pvt. Ltd. India Wind power Ltd. 8,00,000 Laljibhai Savia.

Shri Dhanjibhai Anandbhai Makson Pharmaceuticals Vishal Corporation 8,00,000 Makvana Ltd.

Shri Amrutlal Jethalal       Intricast Pvt.. Ltd.       t rikaya Metalic Ltd.      2,00,000
Kalaria                                                 '

Shri Nirbhaya      Krishna Harsha Engineers Ltd.        Shree Radhika Steel-chem 8,81,600
Agrawal                                                 -Ltd.
Shri Pareshkumar             Arnbuja Intermediates      PKM Industries           8,00,000
Labsankar                    Ltd.
Vyas
ShriNareshbhai               M/s. Sahastra Properties   Sonica Granite Pvt. Ltd.   8,00,000
Manchand Shah                Pvt.

                                                                                   42,81,600

In respect of the above six transactions, the company has not initiated any dialogue and not approached the customers on the basis of any information received from the agents. Therefore, it is held that the statements recorded from the six persons prove that the initiation of the transaction was from the side of the customers and it negates the claim of the appellant company of having received the so called inbound services. If the appellant had received any inbound services, then the initiation for the sales would have been made by the appellant company and not by the customers. Further, there is no evidence in support of the contention that the customers were induced by the agents to approach the appellant company. Hence, it is held that in respect of the six parties, the payment is not made for receiving the information, which resulted into maturity of sales. Therefore, I hold that the payment is not made in accordance with the terms of contract entered into in this respect and these payments are not made for the business purposes. The AO was justified in disallowing the payment of commission in respect of these transactions and the disallowance of Rs. 42,81,600/- is confirmed. However, the entire expenditure cannot be disallowed merely based on the statements of six customers, who form, a very negligible percentage of sales and the commission expenditure. Therefore, the appellant is allowed relief in respect of the balance amount of commission paid."

I.T.A.No.1367,1677 /Ahd/208 2.6 From the above para of the order of Ld. CIT(A), we find that a clear finding is given by Ld. CIT(A) that the assessee has given evidence that the recipient provided information in respect of services which helped the sales to mature and realize and, therefore, payment of commission is justified except for 6 parties. In respect of these 6 parties, it is noted by Ld. CIT(A) that the A.O. after inquiry has brought on record in respect of these 6 customers, the agents had no role in achieving the sales and these customers directly approached the assessee for all transactions. The income of all the units of the assessee is eligible for deduction u/s 80-IB of the Income tax Act, 1961. We also find that in the assessment order, the A.O. has allowed additional deduction u/s 80-IB in respect of various additions made by him in the assessment and hence, this contention of the assessee is supported by facts on record that there is no motive to save taxes by paying commission since the units of the assessee are eligible for deduction @ 100% u/s 80-IB. In respect of 6 parties which were not introduced by the commission agent, it was the submission of the Ld. A.R. that the agents had furnished other information such as report about reputation, status, financial standings etc. Regarding these 6 parties, he also submitted that they have also helped in realization. The Ld. A.R. was asked to file letters of these agents but the same are not filed by the Ld. A.R. and hence, in the facts of the present case, we feel that the order of Ld. CIT(A) on this issue does not call for any interference from our side because part disallowance confirmed by him is on this basis of these 6 customers were not introduced by these agents whereas for the balance amount for which disallowance of commission is deleted by Ld. CIT(A), he has given a clear finding that these parties were introduced by the commission agents 8 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 and evidence were filed regarding rendering of the services by them and these findings of Ld. CIT(A) could not be controverted by the Ld. D.R. Regarding the judgment of Hon'ble Apex Court on which reliance has been placed by the Ld. D.R., we find that this judgment is not applicable in the present case because the facts are different. In that case, this finding was recorded by the tribunal that selling agency firm and the assessee has no genuine existence and such selling agency was found to be make believe document. The facts in the present case are not so. In the present case, a clear finding is given by Ld. CIT(A) that services were rendered by the commission agents and this finding of Ld. CIT(A) could not be controverted by the Ld. D.R. Hence, this judgement of Hon'ble Apex Court does not render any help to the revenue in the present case. In view of our above discussion, we do not find any reason to interfere in the order of Ld. CIT(A) on this issue. Accordingly, ground No.1 of the revenue as well as ground No.1 of the assessee's appeals is rejected.

3. Ground No.2 & 3 of the revenue's appeal and ground no.2 of the assessee's appeal are also interconnected which are in connection with the disallowance made by the A.O. u/s 14A of the Income tax Act, 1961. 3.1 Brief facts of this issue are noted by Ld. CIT(A) in para 4.1 of his order which is reproduced below:

"The 2nd, 3r4 & 4th grounds of appeal are as under. The AO has erred in law and on facts

i) in applying the. provisions of sec. 14A of the Act in disallowing an amount of Rs.3,06,48,988/-

ii) in disallowing Rs. 3,06,48,988/-under sec. 14A without appreciating that the total dividend income claimed as exempt u/s. 10(33) of the Act was only Rs. 2,02,56,516/- and

iii) Alternatively and without prejudice the said disallowance is highly exaggerated and excessive. In file facts and circumstances of the case, the said disallowance ought to have been estimated at some reasonable token figure.

I.T.A.No.1367,1677 /Ahd/208 The AO has found that the assessee had made huge investments in its subsidiary companies in the form of equity and preference shares amounting to Rs.97,74,38,092/-. The AO has also found that the assesses had taken huge borrowed for which it is paying interest and, therefore, by applying the provisions of Sec. 14A of the Act, he disallowed the interest expenditure made to the sister concerns for an amount of Rs. 2,56,29,212/-. The AO -further observed that the assessee had earned dividend income of Rs. 2,02,56,516/- and against this exempt income, the appellant has not shown any expenditure incurred for earning this exempt income. The AO has taken the following expenses as related to earning the exempt income and held that these are common expenses incurred for earning dividend income as well as taxable income, and hence, he apportioned on the ratio of .turnover of the assessee company and allocated @ 5.2% of these amounts and calculated an amount of Rs. 50,19,716/-as incurred relating to earning dividend income and disallowed the same. Thus, total disallowance made u/s. 14A was Rs. 3,06,48,988/-.

       Sr.No.               Particulars            Amount Rs. in
                                                      lakhs
          1     Director's remuneration               163.1
          2     Director's fees and traveling         67.45
          3     Staff salary of Corporate office       73.9.
          4     Audit fees  .                          122.0
          5     Building                               50.12
          6     Rent                                  278.76
          7     Communication                         210.00
                Total         .                       965.33

3.2 Out of this disallowance of Rs.3,06,48,988/- made by the A.O. u/s 14A, Ld. CIT(A) has confirmed the part disallowance for which the assessee is in appeal and deleted the balance disallowance for which the revenue is in appeal before us.

3.3 It was submitted by the Ld. A.R. before us that while working out the disallowance u/s14A, the A.O. included the amount of investment in foreign subsidiaries also but income of dividend from investment in foreign subsidiaries is taxable and, therefore, this investment in foreign 10 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 subsidiaries of Rs.59,07,18,092/- out of total investment of Rs.97,74,38,092/- cannot be considered for making disallowance u/s 14A. He further submitted that out of total disallowance of Rs.3,06,48,988/-, disallowance of Rs.2,56,29,272/- is out of interest expenditure and out of this interests expenditure, the interest considered by the A.O. in respect of investment in foreign subsidiaries is to the extent of Rs.1,63,36,353/- and only the balance amount of interest expenditure of Rs.92,92,919/- is in respect of investment in Indian subsidiaries. Regarding this disallowance of interest in respect of investment in Indian subsidiaries, it was submitted that Rule 8D is not applicable in the present year since the same is applicable from assessment year 2008-09. He also submitted that own funds of the assessee i.e. assessee's capital and reserves and surplus were to the extent of Rs.92957.20 lacs as per the balance sheet as on 31.03.2005 out of which only an amount of Rs.3800 lacs approximately was invested in Indian subsidiaries and there is no finding of the A.O. that there is any nexus between interest bearing borrowed funds and investment in Indian subsidiaries and, therefore, no disallowance is justified out of interest expenditure u/s 14A. Reliance was placed on the judgment of Hon'ble Apex Court rendered in the case of Munjal Sales as reported in 298 ITR 298 and also on the judgement of Hon'ble Bombay High Court rendered in the case of Reliance Utilities as reported in 313 ITR 340. Regarding the balance disallowance of Rs.50,19,716/- u/s 14A for administrative expenses, it was submitted that the assessee had incurred those expenses for the purpose of its business and, therefore, no disallowance is justified.

3.4 Ld. D.R. of the revenue supported the assessment order. 3.5 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. Regarding 11 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 the grounds raised by the revenue in respect of disallowance of interest expenditure made by the A.O. u/s 14A and deletion made by Ld. CIT(A), we find that no interference is called for in the order of Ld. CIT(A). We hold so because we find that with regard to the investment of Rs.5907.18 lacs in foreign subsidiaries, no disallowance can be made u/s14A because dividend income from foreign subsidiaries is taxable in India. Regarding balance investment of Rs.38 crores approximately in Indian subsidiaries, we find that interest free own funds of the assessee is many times more than this investment because interest free funds available with the assessee as on 31.03.2005 as per the balance sheet as on that date is of Rs.929.57 crores. There is no finding given by the A.O. regarding any direct nexus between interest bearing borrowed funds and investment in Indian subsidiaries. Hence, in our considered opinion, no disallowance u/s 14A can be made out of interest expenditure in the facts of the present case. Accordingly, ground No.2 & 3 of the revenue's appeal are rejected. 3.6 Regarding ground No.2 of the assessee's appeal as per which, Ld. CIT(A) has directed the A.O. to allocate directors' remuneration fee and traveling allowance toward earning dividend and to make proportionate disallowance u/s 14A of the Income tax Act, 1961, we are of the considered opinion that the A.O. should make proportionate disallowance only in respect of dividend income from Indian subsidiaries. We do not find any merit in the submissions of the assessee that no disallowance is called for out of administrative expenditure because dividend income is exempt and hence, proportionate disallowance out of administrative expenses is justified. On this aspect, we do not find any reason to interfere in the order of Ld. CIT(A). Accordingly ground No.2 of the assessee's appeal is also rejected.

I.T.A.No.1367,1677 /Ahd/208

4. Ground No.3 & 4 of the assessee's appeal are in respect of disallowance of deduction u/s 80-IB in respect of interest on FDR and ICD amounting to Rs.5,07,48,207/- as per ground No.3 and as per ground NO.4 the alternative claim is made that even if some disallowance is to be made on this account, only net interest income can be reduced form the business profit.

4.1 Brief facts of this issue till the assessment stage are noted by Ld. CIT(A) in para 5.1 of his order which is reproduced below:

"The grounds No. 5 & 6 are as under:-

The Ld. AO has erred in law and on facts in not granting deduction 'u/s. 80IB of the Act on interest on FDR and ICD amounting to Rs. 5,07,48,207/-Alternatively and without prejudice, only net interest and not the gross interest as has been -done, can be reduced from the profits of the business.

The A.O. has not granted deduction u/s. 80IB of the Act on interest income from FDRs and ICDs of Rs.5,07,48,207/-. The appellant has submitted that 'the Hon. ITAT has decided the issue in favour of the appellant in A.Y. 1999-2000. Further, it was submitted that on similar issue, the OT(A) has decided in favour of the appellant in A.TY. 2003-04 & 2004-05 and held that only net interest income should be excluded for calculation of deduction u/s. 80IB- of the Act."

4.2 Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A) but without success and now, the assessee is in further appeal before us.

4.3 It was submitted by the Ld. A.R. that interest earned on bank deposits by opening L/C has direct nexus with the activities of industrial undertaking and hence, the same qualifies for the claim of deduction u/s 80IB. Regarding the alternative claim, it was submitted that only net interest should be excluded from profits of business and not the gross interest while computing deduction u/s 80-IB of the Income tax Act, 1961. In support of this contention, reliance is placed on the Tribunal 13 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 decision in assessee's own case for the assessment year 2004-05 in I.T.A.No. 2009/Ahd/2006 dated 29.04.2009. He submitted a copy of this tribunal decision. Reliance was also placed on the decision of Hon'ble Apex Court rendered in the case of ACG Capsules Associated Pvt. Ltd. vs ACIT as reported in 343 ITR 89 (S.C.) in support of this contention that netting of interest should be allowed.

4.4 Ld. D.R. supported the order of authorities below. 4.5 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the judgement cited by Ld. A.R. We find that interest income cannot be said to be an income derived from an industrial undertaking and, therefore, Section 80-IB deduction is not allowable in respect of interest income. Regarding netting of interest income, we find that his issue is now covered by the judgment of Hon'ble Apex Court rendered in the case of ACG Associated Capsules Pvt. Ltd. (supra). In that case, it was held by the Hon'ble Court that only 90% of net interest included in the profits of business of the assessee has to be excluded under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of business. Although this judgment is in respect of deduction u/s 80HHC but we find no reason as to why the same logic should not be applied in respect of deduction u/s 80-IB of the Income tax Act, 1961. We, therefore, hold that net interest only should be considered for reducing from profits of business for computing deduction u/s 80-IB and for the purpose of computing net interest, only these expenditure, which are incurred for earning interest income should be considered and reduced from interest income. Ground No.3 of the assessee is rejected whereas ground No.4 of assessee is allowed for statistical purposes.

I.T.A.No.1367,1677 /Ahd/208

5. Ground No.4 of the revenue's appeal is regarding granting of deduction u/s 80-IB of the Income tax Act, 1961 on interest of late payment of sale proceeds from debtors amounting to Rs.1,95,79,481/-. 5.1 Ld. D.R. supported the assessment order whereas it was submitted by the Ld. A.R. that this issue is now covered in favour of the assessee by the judgement of Hon'ble Gujarat High Court rendered in the case of Nirma Industries as reported in 283 ITR 402 (Guj.) and it was also submitted that SLP preferred by the department against this judgment was rejected by the Hon'ble Apex Court.

5.2 We have considered the rival submissions and we find that this issue is now squarely covered in favour of the assessee by this judgement of Hon'ble Gujarat High Court and hence, we decline to interfere in the order of Ld. CIT(A) on this issue. Ground No.4 of the revenue is rejected.

5. Ground No.5 of the revenue's appeal is regarding granting of deduction u/s 80-IB of the Income tax Act, 1961 to the extent of 2,66,698/- in respect of duty drawback.

5.1 Brief facts of this issue are noted by Ld. CIT(A) in para 7 of his order which is reproduced below:

"7. The grounds No. 9 & 10 are against not granting deduction u/s. 80IB on duty draw back amounting to Rs. 2,66,698/- and alternatively and without prejudice, if the duty draw back is to be excluded, core spending payment of the duty may kindly be allowed to be taken out from the calculation of the profit of the business. Similar issue arose in earlier years, i.e. 2003-04 & 2004- 05, where the issue was decided-in favour of the appellant, vide CIT(A)'s order dt: 29-3-2006 & 19-06-2006 by following the decision of Hon. Gujarat High court in the -case of India Gelatine & Chemicals Ltd., 275 ITR 284. As the issue is similar, it is divided in favour of the appellant for this year also and the appellant is given relief on this point."

I.T.A.No.1367,1677 /Ahd/208 5.2 Being aggrieved, the assessee carried the matter in appeal before ld. CIT(A) who has decided this issue in favour of the assessee by following the order of his predecessor in assessee's own case for the assessment year 2003-04 and 2004-05 in which the judgment of Hon'ble Gujarat High Court rendered in the case of India Gelatine & Chemicals Ltd. as reported in 275 ITR 285 was followed. Now, revenue is in appeal before us.

5.3 It was submitted by the Ld. D.R. that this issue is now covered against the assessee by the judgement of Hon'ble Apex Court rendered in the case of Liberty India Ltd. as reported in 317 ITR 218 (S.C.) 5.4 As against this, Ld. A.R. submitted brief note on eligibility of duty drawback while computing deduction u/s 80-IB of the Income tax Act, 1961. The same is reproduced below:

"A brief note on eligibility of income on account of Duty Drawback while computing deduction u/s 80IB of the Act. Scheme of Duty Drawback.

The grant of duty drawback is governed by the Customs and Central Excise Duty Drawback Rules, 1995 (Drawback Rules) (copy at Exhibit 1).

The duty drawback is of two kinds:

(1) All Industry Rates (AIR) (2) Brand rate The AIR is a general rate notified by the Government through Duty Drawback scheme every year after assessment of average incidences of Customs and Central Excise suffered by the export product after extensive discussion with the all stake holders of industry and data collected from Customs and Central Excise department. The manner for determination of rate is given in Rule 3(2) of Drawback rules.

A plain reading of the said Rule 3(2), the following features emerge:

• The rates are determined on general analysis of industry data and not specific to any individual exporter;

I.T.A.No.1367,1677 /Ahd/208 • The schedule entry rates are standard general rates having no nexus with the actual amount of duty suffered on input and raw material used in product exported;

• The claim of drawback is to be made as per the schedule entry rate which has no correlation with actual amount of the duty paid by an individual exporter in respect of the raw material used in the product exported;

• The claim is available to whether or not exporter has in fact paid duty or not.

Thus when claim of duty drawback is made applying AIR it has no correlation with actual amount of duty paid by an individual exporter as well as will not be arithmetically equal to the custom duty or central excise duty actually paid by the exporter In contrast to above Brand Rate of duty draw back a manufacture exporter is compensated by paying the amount of Customs and Central excise duties incidence actually incurred by the exporter and suffered by product exported. For this purpose claimant has to produce documents / proof about the actual quantity of inputs utilized in the manufacture of export product along with evidence of payment of duties thereon. This scheme can be opted by the manufacturer exporter where export product is not notified under AIR or where the exporter considers the AIR duty drawback insufficient to fully neutralize the duties suffered by his export product. The Rule 6 and 7 of Duty Drawback Rules provide manner of determination and claim of duty drawback under this scheme. A perusal of the said rules reveal the following distinct features:

• Though it is called Brand Rate but in fact it is a refund of actual amount of duty paid on the inputs used in export of product. • It is not general one but is given specific to the individual exporter having direct nexus with the actual amount of duty paid by him and is arithmetically equal to actual amount of duty incurred on export product • The claim is available only if the input has been used in manufacture of product exported and has also suffered custom duty or central excise duty.

It may be noted that we have not opted for AIR Duty Draw Back but have claimed refund of actually paid duty on input used in manufacture of product exported by us by making detailed application for each export submitting evidence / proof of input consumed in product exported and amount of custom duty and central excise duty paid by us on the same. A copy of one such 17 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 sample application giving details of the duty paid is attached herewith as Exhibit 2.

Scheme of DEPB is different from scheme of Duty Drawback: Even the scheme of DEPB i.e. Duty Entitlement Pass Book Scheme wherein the exporter is given pass book containing a credit on the FOB value at rates prescribed under Export Import Policy and Handbook is also different and as a matter of fact has no nexus with the actual amount of duty paid. The credit can be used for payment of import duties while importing the goods. The DEPB itself is transferable and can be sold in open market and purchaser of DEPB can also use such credit for import of material. In almost all States Sale of DEPB is considered as sale of goods liable for Value Added Tax (VAT). Thus the case of DEPB is quite different from the Duty draw back. Copy of scheme of DEPB is annexed hereto and marked as Exhibit 3.

Thus even on this count the case of the appellant is quite different from the facts of case delt by Honourable Supreme court in the case of Liberty India as appellant has received exactly arithmetically equal amount of duty paid by it on the material actually consumed in manufacture of Export Product as refund. Thus there is recovery of cost only and no question of any profit arising from such duty drawback.

B Principal of Gross Receipt vs Income It is submitted that the deduction u/s 80IB of the Act is on income from industrial undertaking and not on gross receipt. Income is nothing but gross receipts less expenditure. The Profit as per the Profit and Loss Account, subject to certain adjustments, is the beginning point in so far as computation of eligible income is concerned. Therefore, while excluding any particular type of income from the eligible income, what has to be excluded is what is included therein. In other words, what is included is the income i.e. gross income on the credit side and gross expenditure on debit side of P & L Account and therefore if only gross receipts are excluded, leaving expenditure in the P & L Account, the profits and /or income becomes distorted. Hence only income component from the gross receipts can be excluded. Reliance can be placed on the following decisions wherein the principal of difference between gross receipt and income has been duly explained:

(i) CIT v. Govinda Choudhury And Sons 203 ITR 881 (SC)

(ii) President Industries 258 ITR 654 (Guj)

(iii) CIT v. Balchand Ajit Kumar 263 ITR 610 (MP)

(iv) CIT v. S. M. Omer 201 ITR 608 (Cal.) 18 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 In the facts of the present case, therefore, while excluding Duty Drawback from the eligible income, only income component, if any, can be excluded. However, as stated hereinabove, there is no income component embedded in the Duty Drawback in the facts of the present case as Assessee has opted for refund of duty actually paid on input used in manufacture of product.

C Effect of decision in the case of Liberty India (317 ITR 218)

1. The decision in the case of Liberty (supra) is not at all applicable to the facts of the present case since while rendering the said decision, Hon'ble the Supreme Court denied the benefit of 80IB in respect of duty drawback as it found that duty drawback was claimed under AIR and was not arithmetically equal to the actual amount of duty paid. The relevant Para 17 of the judgment Hon'ble Supreme Court is reproduced herein below for immediate reference:

"The next question is - what is duty drawback? Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944 empower Government of India to provide for repayment of customs and excise duty paid by an assessee. The refund is of the average amount of duty paid on materials of any particular class or description of goods used in the manufacture of export goods of specified class. The Rules do not envisage a refund of an amount arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cum-manufacturer. Sub-section (2) of Section 75 of the Customs Act requires the amount of drawback to be determined on a consideration of all the circumstances prevalent i n a particular trade and also based on the facts situation relevant in respect of each of various classes of goods imported..."

Thus in subject case Hon'ble Supreme Court gave a finding to above effect as the duty drawback was claimed at general AIR rates which are prescribed by Government and is not arithmetically equal to custom duty or central excise duty actually paid by an individual exporter. Contrary to the decision of Liberty (supra) the case of the Assessee is quite different in as much as in the facts of the present case, the assessee has not claimed duty drawback under AIR but has claimed the same as refund of actual amount of duty paid, to the last rupee. In that view of the matter, when actual amount of duty which was paid earlier is being refunded back to the Assessee, the decision in the case of Liberty (supra) cannot have any application whatsoever. Copy of S 75 of the Customs Act, 1962 is annexed hereto and marked as Exhibit 4.

I.T.A.No.1367,1677 /Ahd/208

2. In fact this view is also supported by the subsequent decisions of Hon'ble Supreme Court while dismissing the SLP against the Delhi High Court's decision and ITAT, Delhi bench wherein it was held that where eligible undertakings received refund of the duty actually paid then there is no income arising out of it and therefore question of excluding the said refund while working out the deduction u/s. 80IB does not arise at all. Reliance is placed on the following decisions:

Special Leave to Appeal (Civil) No. 24055 of 2009, dated 22/02/2010 (copy enclosed at Exhibit 5 hereinafter hearing both the parties, Hon'ble the Supreme Court dismissed the. SLP on merits and thereby confirmed the decision pf Delhi High Court in the case of CIT vs. Dharampal Premchand (317 ITR 353) ^herein it was held that excise duty refund was eligible ii/s 80-IB on the ground that

(a) there was a direct nexus between the refund pf excise duty and the undertaking and (b) if the proper accounting methodology was followed for the payment and refund of excise duty, the net effect on the P&L A/c was nil.

J K Aluminium Co v ITO ITA 3303 / Del/ 2010 dated 29-4-2011 (copy enclosed at Exhibit 6).

3. In any case, in the case of Liberty (supra), it was never argued before the Hon'ble the Supreme Court that for earning DEPB or Duty Drawback, the assessee has to incur expenditure and therefore, while excluding such receipt, only the income portion, if any, embedded in such receipts can be excluded and not the gross receipts. This issue of DEPB or Duty Drawback having cost and the same has to be reduced to find out profit or income from the gross receipts has been accepted and explained by Hon'ble the Supreme Court in later decisions in the following cases:

Topmann Exports V GIT (2012) 342 ITR 49(SC). the relevant extract is reproduced hereinbelow for ready reference:

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15. We may now point out the errors in the impugned judgment of the High Court. The first reason given by the High Court is that clause (iiia) of Section 28 treats profits on the sale of an import license as income chargeable to tax and when the license is sold, the entire amount is treated as profits of business under clause (iiia) of Section 28 and thus there is no justification to treat the amount which is received by an exporter on the transfer of the DEPB any differently than the profits which are made on the sale of an import license under clause (iiia) of Section 28 of the Act. In 20 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 taking the view that when the import license is sold the entire amount is treated as profits of business, the High Court has visualized a situation where the cost of acquiring the import license is nil. The cost of acquiring DEPB, on the other hand, is not nil because the person acquires it by paying customs duty on the import content of the export product and the DEPB which accrues to a person against exports has a cost element in it. Accordingly, when DEPB is sold by a person, his profit on transfer of DEPB would be the sale value of the DEPB less the face value of DEPB which represents the cost of the DEPB. The second reason given by the High Court in the impugned judgment is that under the DEPB scheme, DEPB is given at a percentage of the FOB value of the exports so as to neutralize the incidence of customs duty on the import content of the export products, but the exporter may not himself utilize the DEPB for paying customs duty but may transfer it to someone else and therefore the entire sum received on transfer of DEPB would be covered under clause (iiid) of Section 28. The High Court has failed to appreciate that DEPB represents part of the cost incurred by a person for manufacture of the export product and hence even where the DEPB is not utilized by the exporter but is transferred to another person, the DEPB continues to remain as a cost to the exporter. When, therefore, DEPB is transferred by a person, the entire sum received by him on such transfer does not become his profits. It is only the amount that he receives in excess of the DEPB which represents his profits on transfer of the DEPB.

In the facts of the present case also the assessee got refund, in form of duty draw back, of the custom duty and CVD paid on imported raw material used in the manufacturing of goods. The assessee has given voluminous charts co-relating amount of duty paid and refund received on back to back basis. Thus in the present case also if the cost of Duty Drawback is removed from the amount received, there would be nil surplus as the assessee has received exactly the same amount of duty paid by it.

4. In fact this principal of excluding only the net income, if any, and not the gross receipts has been duly explained recently by Hon'ble the Supreme Court in the context of provisions of S. 80HHC wherein the provisions of Explanation (baa) lays down exclusion of 'receipts'. Despite that, Hon'ble the Supreme Court held that what can be excluded is the profit or income and not the gross receipt. Relevant extract of the said decision are reproduced hereinbelow for ready reference:

I.T.A.No.1367,1677 /Ahd/208 ACG Associated Capsules (P.) Ltd, v. CIT [2O121 343 ITR 89 (SO XXX...

3. For appreciating the second issue, we may refer very briefly to the facts of the case. For the assessment year 2003-04, the assessee filed a return of income claiming a deduction of Rs. 34,44,24,827/-

under Section 80HHC of the Act. The Assessing Officer passed the assessment order deducting ninety per cent of the gross interest and gross rent received from the profits of business while computing the deduction under Section 80HHC and accordingly restricted the deduction under Section 80HHC to Rs. 2,36,25,053/-. The assessee filed an appeal against the assessment order before the Commissioner of Income-Tax (Appeals), who confirmed the order of the Assessing Officer excluding ninety per cent of the gross interest and gross rent received by the assessee while computing the profits of the business for the purposes of Section 80HHC. Aggrieved, the assessee filed an appeal before the Income Tax Appellate Tribunal (for short 'the Tribunal'). The Tribunal held, relying on the decision of the Delhi High Court in CIT v. Shri Ram Honda Power Equip [2007] 289 ITR 475 / 158 Taxman 474 , that netting of the interest could be allowed if the assessee is able to prove the nexus between the interest expenditure and interest income and remanded the matter to the file of the Assessing Officer. The Tribunal also remanded the issue of netting of the rent to the Assessing Officer with the direction to find out whether the assessee has paid the rent on the same flats against which rent has been received from the staff and if such rent was paid then such rent is to be reduced from the rental income for the purpose of exclusion of business income for computing the deduction under Section 80HHC. Against the order of the Tribunal, the Revenue filed an appeal before the High Court and the High Court has directed that on remand the Assessing Officer will decide the issue in accordance with the judgment of the High Court in CIT v. Asian Star Co. Ltd. [2010] 326 ITR 56 (Bom.) in which it has been held that while determining the profits of the business as defined in Explanation (baa) to Section 80HHC, ninety per cent of the gross receipts towards interest and not ninety per cent of the net receipts towards interest on fixed deposits in banks received by the assessee would be excluded for the purpose of working out the deduction under Section 80HHC of the Act.

xxx...

I.T.A.No.1367,1677 /Ahd/208

9. Explanation (baa) extracted above states that "profits of the business" means the profits of the business as computed under the head "Profits and Gains of Business or Profession" as reduced by the receipts of the nature mentioned in clauses (1) and (2) of the Explanation (baa). Thus, profits of the business of an assessee will have to be first computed under the head "Profits and Gains of Business or Profession" in accordance with provisions of Section 28 to 44D of the Act. In the computation of such profits of business, all receipts of income which are chargeable as profits and gains of business under Section 28 of the Act will have to be included. Similarly, in computation of such profits of business, different expenses which are allowable under Sections 30 to 44D have to be allowed as expenses. After including such receipts of income and after deducting such expenses, the total of the net receipts are profits of the business of the assessee computed under the head "Profits and Gains of Business or Profession" from which deductions are to made under clauses (1) and (2) of Explanation (baa).

10. Under Clause (1) of Explanation (baa), ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head "Profits and Gains of Business or Profession". The expression "included any such profits" in clause (1) of the Explanation (baa) would mean only such receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in the profits of the business as computed under the head "Profits and Gains of Business or Profession". Therefore, if any quantum of the receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature is allowed as expenses under Sections 30 to 44D of the Act and is not included in the profits of business as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of receipts cannot be reduced under Clause (1) of Explanation (baa) from the profits of the business. In other words, only ninety per cent of the net amount of any receipt of the nature mentioned in clause (1) which is actually included in the profits of the assessee is to be deducted from the profits of the assessee for determining "profits of the business" of the assessee under Explanation (baa) to Section 80HHC.

11. For this interpretation of Explanation (baa) to Section 80HHC of the Act, we rely on the judgment of the Constitution Bench of 23 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 this Court in Distributors (Baroda) (P.) Ltd. (supra). Section 80M of the Act provided for deduction in respect of certain inter corporate dividends and it provided in sub-section (1) of Section 80M that "where the gross total income of an assessee being a company includes any income by way of dividends received by it from a domestic company, 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 income by way of dividends an amount equal to" a certain percentage of the income mentioned in this Section. The Constitution Bench held that the Court must construe Section 80M on its own language and arrive at its true interpretation according to the plain natural meaning of the words used by the legislature and so construed the words "such income by way of dividends" in sub-section (1) of Section 80M must be referable not only to the category of income included in the gross total income but also to the quantum of the income so included. Similarly, Explanation (baa) has to be construed on its own language and as per the plain natural meaning of the words used in Explanation (baa), the words "receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits" will not only refer to the nature of receipts but also the quantum of receipts included in the profits of the business as computed under the head "Profits and Gains of Business or Profession" referred to in the first part of the Explanation (baa). Accordingly, if any quantum of any receipt of the nature mentioned in clause (1) of Explanation (baa) has not been included in the profits of business of an assessee as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of the receipt cannot be deducted under Explanation (baa) to Section 80HHC.

12. If we now apply Explanation (baa) as interpreted by us in this judgment to the facts of the case before us, if the rent or interest is a receipt chargeable as profits and gains of business and chargeable to tax under Section 28 of the Act, and if any quantum of the rent or interest of the assessee is allowable as an expense in accordance with Sections 30 to 44D of the Act and is not to be included in the profits of the business of the assessee as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of the receipt of rent or interest will not be deducted under clause (1) of Explanation (baa) to Section 80HHC. In other words, ninety per cent of not the gross rent or gross interest but only the net interest or net rent, which has been included in the 24 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 profits of business of the assessee as computed under the head "Profits and Gains of Business or Profession", is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of the business.

xxx...

5. Lastly, if at all it emerges that the decision of Liberty India (supra) and decisions in the case of Topman (supra) and ACG Associated (supra) have conflicting views, the assessee submits that:

(i) The decisions of Topman and ACG were rendered by a bench having headed by 3 judges whereas the decision of Liberty was rendered by a division bench, therefore a larger bench would prevail upon a division bench;

(ii) The decisions of Topman and ACG were rendered on 08/02/2012 whereas the decision of Liberty was rendered on 31/08/2009, therefore a later decision prevails upon earlier one;

(iii) If two views are possible, view in favour of the assessee should be adopted.

In view of the above discussion, the assessee most respectfully submits that even otherwise while computing the deduction u/s 80IB of the Act not only receipt of Duty Drawback should be excluded but also the amount of actual duty paid and debited to P & L Account should also be excluded. In the facts of the present case, since the assessee has only received back to back reimbursement of duty paid by it as duty drawback it is in the nature of refund of duty and therefore it does not affect the profit of the undertaking eligible for deduction u/s 80IB of the Act in any manner whatsoever, and hence no part of the said Duty Drawback can be excluded."

5.5 In rejoinder, it was submitted by the Ld. D.R. that in the case of Liberty India Ltd. (supra), the issue was decided not in respect of DEPB only but in respect of duty drawback also and on both the accounts, the issue was decided by the Hon'ble Apex Court against the assessee and in favour of revenue.

5.6 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the judgement cited by both the sides. When we go through para 16, 17 & 18 25 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 of the judgement of Hon'ble Apex Court rendered in the case of Liberty India Ltd. (supra) we find that this decision is on this basis that the rules do not envisage a refund of the amount arithmetically equal to custom duty or Central Excise duty actually paid by an individual importer cum manufacturer. It is also stated by Hon'ble Apex Court in para 17 of this judgement that sub-section (2) of Section 75 of the Customs Act requires the amount of drawback to be determined on a consideration of all the circumstances prevalent in a particular trade and also based on the facts situation relevant in respect of each of various classes of goods imported. We, therefore, feel that para 16, 17 and 18 of this judgement of Hon'ble Apex Court should be reproduced below for ready reference:

"16. 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 of 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 s 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 form section 75 of the Customs Act, 1962, hence, incentives profits are not profits derived form the eligible business under section 80-IB. They belong to the category of ancillary profits of such undertakings.

17. The next question is- what is duty drawback? Section 75 of the Customs Act, 1962, and section 37 of the Central Excise Act, 1944, empowers the Government of India to provide for repayment of customs duty and excise duty paid by an assessee. The refund is of the average amount of duty paid on materials of any particular class or description of goods used in the manufacture of export goods of specified class. The rules do not envisage a refund of an 26 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 amount arithmetically equal to customs duty or Central excise duty actually paid by an individual importer-cum-manufacturer. Sub- section (2) of section 75 of the Customs Act requires the amount of drawback to be determined on a consideration of al the circumstances prevalent in a particular trade and also based on the facts situation relevant in respect of each of various classes of goods imported. Basically, the source of the duty drawback receipt lies in section 75 of the Customs Act and section 37 of the Central Excise Act.

18. Analyzing the concept of remission of duty drawback and DEPB, we are satisfied that the remission of duty is on account of the statutory/policy provisions in the Customs Act/Scheme(s) framed by the Government of India. In the circumstances, we hold that profits derived by way of such incentives do not fall within the expression "profits derived form industrial undertaking" in section 80-IB."

5.7 Since it is held by Hon'ble Apex Court that Section 75 of Customs Act is relevant of the purpose of duty drawback, we reproduce clause (a) of sub-section (2) of Section 75 of the Customs Act 1962, which is as under:

"(a) for the payment of drawback equal to the amount of duty actually paid on the imported materials used in the manufactured or processing of the goods or carrying out any operation on the goods or as is specified in the rules as the average amount of duty paid on the materials of that class or description used in the manufacture or processing of export goods or carrying out any operation on export goods of that class or description either by manufacturers generally or by persons processing of carrying on any operation generally or by any particular manufacturer or particular person carrying on any process or other operation, and interest if any payable thereon."

5.8 We also reproduce the relevant portion of Customs and Central Excise Duties and Service Tax Drawback Rules, 1995 as per notification No.37/95 dated 26.05.1995.

I.T.A.No.1367,1677 /Ahd/208 5.9 In the beginning to the notification, it is stated that on exercise of powers conferred by Section 75 of the Customs Act 1962, Section 37 of the Central Excise Act 1944 and Section 93A read with section 75 of the Finance Act 1944 these rules are made by the Central government. Rule 6 is relevant and the same is reproduced below:

""Rule 6. Cases where amount or rate of drawback has not been determined.- (a) Where no amount or rate of drawback has been determined in respect of any goods, any manufacturers or exporter of such goods may, within sixty days form the date relevant for the applicability of the amount or rate of drawback in terms of sub-rule (3) of rule (5) apply in writing to the commissioner of Central Excise or the Commissioner of Customs and Central Excise, having jurisdiction over the manufacturing unit, of the manufacturer exporter or, of the supporting manufacturers, as the case may be, for determination of the amount or rate of drawback thereof stating all the relevant facts including the proportion in which the materials or components or inputs services are used in the production or manufacture of good and the duties paid on such materials or components or the tax paid on input services,"

5.10 We have gone through the clause (a) of sub section (2) of section 75 of the Customs Act, 1962 and we find that there are two types of duty drawback which can be allowed. The first category is that payment of duty drawback is equal to the amount of duty actually paid on an imported material used in a manufacturing or processing of goods or carrying out any operation of the goods. The second category is that as specified in the rule, average amount of duty paid on the material of that class or description used in a manufacturing or processing of export of goods or carrying out any operation of export goods of this case etc. In the first category, the duty drawback is arithmetically equal to the duty paid by the assessee on import of material used in the manufacture or processing of the goods. In the 2nd category, average amount of duty 28 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 drawback is paid without any correlation with the actual duty paid by the assessee on import. As per rule 6 of Customs, Central Excise duty and Service Tax Duty Drawback Rules 1995, where no amount or rate of drawback has been determined in respect of any goods, any exporter of such goods may within 60 days from the date of relevant of the applicability of amount apply in writing to the Commissioner of Central Excise or Commissioner of Customs and Central Excise having jurisdiction over the manufacturing unit or manufacturer exporter or the supporting manufacturer etc to determine the amount and rate of drawback thereof stating all the relevant facts etc. In the present case, the duty drawback is available to the assessee as per the first category and as per the details given by the assessee, an amount of Rs.2,72,395/- was paid by the assessee as custom duty, out of which Rs.5,697/- was deducted being @ Rs.3/kg. for 1899 Kg. being recoverable wastage and the balance amount was paid as duty drawback being Rs.2,66,698/-. Similarly, for assessment year 2006-07 also, the assessee has submitted complete details about duty drawback, as per which, duty paid by the assessee is of Rs.15,71,42,086/- and duty drawback received is Rs.15,48,64,977/-. This goes to show that in both the years, there is direct and arithmetic correlation between the duty paid by the assessee and duty drawback received by the assessee. These facts along with relevant provisions of the Customs Act 1962 and Custom and Central Excise Duty and Service Tax drawback Rules 1995 of which relevant portion is reproduced above, we find that the facts in the present case are distinguishable from the facts in the case of Liberty India (supra). In the case of Liberty India (supra), the issue was decided by the Hon'ble Apex Court against the assessee on this basis that since the rule does not envisage refund of an amount arithmetically equal to customs duty paid 29 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 by the individual exporter/manufacturer, the duty drawback and DEPB receipt of the assessee is on account of statutory policy and provisions in the Customs Act by the Government of India and hence, this profit derived by way of some incentive does not fall within the expression 'profits derived form industrial undertaking' in section 80-IB. In the present case, duty drawback received by the assessee has a direct and arithmetic correlation with the custom duty paid by the assessee and, therefore, there is no income as such on account of duty drawback received by the assessee because whatever custom duty paid by the assessee has been received back by the assessee and it leaves no income with the assessee.

5.11 The assessee has also placed reliance on the tribunal decision rendered in the case of JK Aluminium Co. Vs ITO in I.T.A.No. 3303/Del/2010 dated 29.04.2011. In that case also, the issue involved was with regard to allowability of deduction u/s 80-IB in respect of excise duty refund of Rs.5,68,41,800/- received by the assessee. The Tribunal has duly considered this judgement of Hon'ble Apex Court rendered in the case of Liberty India (supra) and the tribunal has also considered another judgement of Hon'ble Apex Court rendered in the case of CIT Vs Dharam Pal Prem Chand Ltd. as reported in 317 ITR 353 and thereafter, it was held by the Tribunal that the assessee is eligible for deduction u/s 80-IB in respect of refund of excise duty because the rules clearly envisage refund of amount arithmetically equal to excise duty paid. It was held by the tribunal in that case that there is distinction of facts as compared to the facts in the case of Liberty India (supra) because as per the facts in the case of liberty India (supra), the issue was not concerned with the refund of amount paid. We have seen that in the present case, the assessee is getting refund of custom duty paid by the assessee in the 30 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 form of duty drawback and the duty drawback relief are of two types. The first category of duty drawback is as per All India rates where the duty drawback has no correlation with the actual duty paid by the assessee and under these facts, it was held by the Hon'ble Apex Court in the case of Liberty India (supra) that the assessee is not eligible for deduction u/s 80-IB with regard to duty drawback. As per the same, duty drawback has no arithmetical correlation with actual duty paid by the assessee but in the present case actual duty paid is refunded as duty drawback and hence, the facts of the present case are distinct than the facts in the case of Liberty India (supra) and, therefore, this judgment of Hon'ble Apex Court rendered in the case of Liberty India (supra) cannot be applied in the present case because we have seen that factually, all duty drawback received by the assessee is almost arithmetically equal to the duty paid by the assessee wherein some amount for which drawback was not allowed is on this basis that the same is relatable to recoverable wastage. Under these facts, it is established by the assessee that the duty drawback received by the assessee is arithmetically equal to the duty paid by the assessee and, therefore, in the facts of the present case, we are of the considered opinion that duty drawback in the present case is nothing but refund of duty paid by the assessee and, therefore, respectfully following the Tribunal decision rendered in the case of J K Aluminium Co. (supra), we decide this issue in favour of the assessee and hold that in the facts of the present case, duty drawback received by the assessee is eligible for deduction u/s 80-IB. This ground of the assessee is allowed.

6. The next issue is regarding allowability of deduction in respect of employees contribution to PF & ESI. This issue is raised by the revenue as per ground No.6 and also by the assessee as per ground No.7. It was submitted by the Ld. A.R. that this issue is now covered in favour of the 31 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 assessee by the tribunal decision rendered in the case of Shri Om Singh Vs ITO in I.T.A.No. 1908/A/Ahd/2009 dated 18.09.2009. Respectfully following this tribunal decision, we decide this issue in favour of the assessee and accordingly ground No.6 of the revenue's appeal is rejected and ground No.7 of the assessee is allowed because the entire amount was paid prior to the due date of filing of return of income.

7. The next issue is raised by the assessee as per ground No.5 & 6 regarding set off of loss of Rs.468.34 lacs of Dhuneta Unit against profits of other eligible units. These grounds were not pressed by the assessee and accordingly rejected as not pressed.

8. The remaining grounds i.e. ground No.7 & 8 of the revenue's appeal and grounds No.8 -10 of the assessee's appeal are general and do not call for any adjudication.

9. In the result, appeal of the assessee is partly allowed and the appeal of the revenue is dismissed.

10. Now, we take up the appeals for assessment year 2006-07.

11. Ground No.1 of the revenue's appeal is regarding deletion of disallowance of Rs.23,24,72,100/- on account of sales commission paid u/s 37 of the Income tax Act, 1961. Both the sides agreed that this issue is identical to ground No.1 of the revenue's appeal in assessment year 2005-06 and the same can be decided on similar lines. In assessment year 2005-06, this issue was decided by us in favour of the assessee and accordingly in the present year also, this issue is decided in favour of the assessee. Ground No.1 of the revenue's appeal is rejected.

12. The next issue is regarding disallowance made by the A.O. u/s 14A out of which Ld. CIT(A) has deleted disallowance of Rs.1,23,21,379/- on account of interest expenses but confirmed the disallowance partly in respect of director's remuneration, director's fees and traveling 32 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 expenditure towards earning of dividend income. Regarding this issue also, both the sides agreed that this issue is identical to grounds No.2 &3 of the revenue's appeal and ground No.2 of the assessee's appeal in assessment year 2005-06. In that year also, the ground of revenue as well as ground of the assessee were rejected. Accordingly, in this year also, ground no.2 of the revenue as well as ground n.1 of the assessee's appeal are rejected.

13. The next issue is regarding allowability of deduction u/s 43B of Rs.7,12,618/- in respect of employees contribution to PF & ESI. Both the sides agreed that in this year also, the entire amount was paid prior to the due date of filing of return of income and hence, this issue is identical to ground No.6 of the revenue's appeal in assessment year 2005-06. In that year, this issue was decided by us in favour of the assessee. Accordingly in the present year also, this issue is decided in favour of the assessee. Ground No.3 of the revenue is also rejected.

14. The next issue is regarding the action of the A.O. in not reducing the conditional additional amount of Rs.20 crores added in computation of income to cover any error, omission etc. The same is as per ground No.2 and 3 of the assessee's appeal whereas revenue has raised this issue as per ground No.4 because Ld. CIT(A) has directed the A.O. to allow deduction u/s 80-IB of the Income tax Act, 1961 of Rs.19,16,20,416/- out of additional undisclosed income of Rs.20 crores during the survey u/s 133A of the Income tax Act, 1961.

15. Regarding assessee's ground No.2 & 3, it was submitted by the Ld. A.R. that this issue is directly and squarely covered in favour of the assessee by the tribunal decision in group case in I.T.A.No. 3761- 3762/Ahd/2008, I.T.A.No. 1368 and 1629/Ahd/2008 and he submitted copies of both these tribunal decisions. The relevant para 15 of this 33 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 tribunal decision rendered in the case of Suzlon Infra Structure vs ACIT in it 3761-3762/Ahd/2008 is reproduced below:

"15. In view of the above facts and case laws referred by both the sides and discussed above, we find that the assessee- company was subjected to survey action u/s 133A of the Act on 05.04.2006 and during the course of survey action, the department found many documents, books of account, records on electronic media and other materials, which were impounded. There was not a single piece of incriminating paper or document or evidence of any nature were found, which suggests that unaccounted/undisclosed income remains hidden or not likely to be disclosed to the Department. The assessee disclosed additional income of Rs.7 crores with the condition that the assessee don't want to engage in long drawn protected litigation and want to buy mental peace and to maintain cordial relation with the Department and also to cover any likely errors, omissions, disallowances, claims etc. even the A.O. could not find out any discrepancy in the impounded books of account, loose paper, documents, registers, records on electronic media such s CD, Hard disk, Floppy disk etc. The A.O. has accepted the voluntary disclosure without pointing out any mistake in the impounded documents. Specifically there is no income for which the assessee has made voluntary disclosure and the department also could not point out any discrepancy in the books of account and the impounded materials. The voluntary disclosure was made during the course of posts survey proceedings, when the assessee company filed letters dated 21.06.2006 and 19.06.2006, even though the assessee was not supplied the copies of impounded materials till the finalization of assessment. Even the assessee vide letter dated 12.12.2006 required the department to provide photo copies of impounded materials but the impounded material was not supplied and disclosure was taken from the assessee company. From the assessment order it is very clear that the very basis of acceptance of disclosure was that the assessee has made disclosure vide letter dated 19th June and 21st June, 2006 and paid taxes accordingly. There is no discussion in the assessment order about the incriminating materials found and impounded during the course of survey which indicate that there is undisclosed or unaccounted income emerging out of the same. In the absence of the same, the assessee has specifically retracted the voluntary disclosure during the course of assessment proceedings vide letter dated 29th February and 17th March, 2008. The Hon'ble Apex Court in the 34 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 case of Shelly Products (supra) has very categorically recorded a finding that similarly, if he has by mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted form payment of income tax, or is not income within the contemplation of law, he may likewise bring this to the notice of the assessing authority, which if satisfied, may grant him relief and refund the tax paid in excess, if any. Such matters can be brought to the notice of the concerned authority in a case when refund is under and payable and the authority concerned on being satisfied, shall grant appropriate relief. In the present case also, the assessee has specifically required the A.O. and the CIT(A), during the course of proceedings before the respective authorities, that there is no unaccounted or undisclosed income found during the course of survey or from the impounded material and the surrender was subject to the condition that the disclosure is made to cover any errors, omissions, discrepancy that may be found in any manner based on any entries, notes, scribbling, notings etc. in the books of account, other documents, loose papers, transactions etc., forming part of impounded materials or identified from any other source, records etc., in the hands of the company or any other associated concern/person etc. The assessee has very categorically made these disclosures vide letter dated 19th June, 2006 stating that the above disclosure may kindly be considered on logical and judicial interpretation of the definition of Income under the Act and as per the normally accepted, interpreted, implemented and understood principals of income in commercial parlance as also based on the judicial pronouncements of various authorities on the subject matter. It may be clarified that the above referred disclosure is made that the above referred disclosure is made with the condition that no penalty proceedings shall be initiated. In view of the above facts and circumstances, now it is to be discussed, whether the admission made by the assessee company in the given facts and circumstances, binds the assessee or not. We find that the Hon'ble Apex Court has occasioned to deal with the issue of admission in the case of Chikkam Koteswara Rao v. Chikkam Subetan AIR (1971) (S.C.) 1542, wherein the Hon'ble Apex Court has stated that an admission, however, bind the person making it only in so far as facts are concerned but an admission is not the conclusive proof of the matter admitted, though it may, in certain circumstances, operate as estoppel. But in such cases, there should be no doubt or ambiguity about the alleged admission. However, an admission or acquiescence on the part of the assessee cannot be 35 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 the foundation of assessment where the income is returned under an erroneous impression or misconception of law. I is always open to the assessee to demonstrate and satisfied the authority concern that a particular income was not taxable in his hand and that it was returned under erroneous impression in the present case before us, the assessee has proved that the disclosure made was neither the undisclosed/unaccounted income of the assessee company and even not a single piece of incriminating paper or document or evidence of any nature were found form the impounded materials.

Even the A.O. has made addition just on the basis statement recorded during the post survey proceedings u/s 133A of the Act. There is no iota of evidence, which suggest that there is unaccounted/undisclosed income emerging tout of the incriminating documents impounded during the course of survey. There is nothing on record which could co-relate such additional income/disclosure offered by the assessee company during the course of survey with any other discrepancy. On these facts and circumstances, we allow the claim of the assessee."

16. From the decision in the case of Suzlon infrastructure (supra), we find that in that case also, the issue was regarding the reducing of conditional additional amount of R.700 lacs added in the computation of income to cover any error, omission, discrepancy etc. made in reference to the All India Survey Action. Hence, it is seen that the facts in the present case are identical and, therefore, by respectfully following this tribunal decision, we hold that in the present case also, the additional declaration made by the assessee cannot be added to the total income because in the present case also, there is no iota of evidence which suggests that there is unaccounted or undisclosed income emerging out of incriminating documents impounded during the course of survey and the addition was made by the A.O. solely on the basis of the statement in the course of survey as in that case. Accordingly, grounds No.2 & 3 of the assessee's appeal are allowed.

I.T.A.No.1367,1677 /Ahd/208

17. Regarding the next ground No.4 of the revenue's appeal, we feel that this has become infructuous because since no addition is made in respect of additional amount of Rs.20 crores, on account of conditional disclosure, there is no ground to allow any additional deduction u/s 80-IB of the Income tax Act, 1961. Ground No.4 of the revenue's appeal is allowed.

18. The next issue is regarding allowability of deduction u/s 80-IB in respect of interest on FDR and ICD. This issue has been raised by the assessee as per ground No.4 and alternative claim is raised as ground no.5 as per which claim is that only net interest can be reduced form the profits of business.

19. Both the sides agreed that these grounds are identical to grounds No.3 & 4 of the assessee's appeal in assessment year 2005-06 and the same can be decided on similar lines. In that year, we have rejected the ground No.3 of the assessee's appeal by holding that deduction u/s 80-IB is not allowable in respect of interest income but only net interest income has to be reduced form business profit. Accordingly, in the present year also, we reject ground No.4 of the assessee and regarding ground No.5, we hold that only net interest income has to be reduced form profits of business for the purpose of computation of deduction allowable to the assessee u/s 80-IB of the Income tax Act, 1961. We also direct the A.O. that while computing net interest income, only those expenses should be considered which are incurred for earning interest income. Ground No.5 of the assessee's appeal is allowed for statistical purposes.

20. Ground No.5 of the revenue's appeal is regarding allowability of deduction u/s 80-IB in respect of duty drawback received by the assessee of Rs.15,48,64,977/-. Both the sides agreed that this issue is identical to ground No.5 of the revenue's appeal in assessment year 2005-06 and the 37 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 same can be decided on similar lines. In that year, this issue was decided by us in favour of the assessee and accordingly in the present year also, this issue is decided in favour of the assessee. Ground No.5 of the revenue's appeal is rejected.

21. Ground No.6 of the revenue's appeal is regarding set off of loss of Rs.4,68,34,166/- of Dhuneta unit against the profits of other eligible units. It is submitted by the Ld. A.R. that this issue was raised by the assessee in assessment year 2005-06 also as per ground No.5 & 6 regarding set off of the same loss. It is submitted that in that year, this ground was not pressed by the assessee and, therefore, the loss was set off in that year and hence, there is no question of any further set off in the present year.

22. Ld. D.R. supported the orders of authorities below.

23. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that the amount of loss for which set off is in dispute is the same in assessment year 2005-06 and assessment year 2006-07. In assessment year 2005-06, this ground was not pressed by the Ld. A.R. and accordingly rejected as not pressed. Hence, the loss of Dhuneta unit stands set off against profit of other eligible units in that year and therefore, there is no question of further set off in the present year if the entire amount of loss is set off in that year. This is not coming out form the record as to what was the actual amount of loss of Dhuneta unit and how much out of this was set off in assessment year 2005-06. Hence, we set aside the order of Ld. CIT(A) on this issue and restore the matter back to the file of the A.O. for a fresh decision. The A.O. should find out what was the actual amount of brought forward loss of Dhuneta unit in assessment year 2005-06 and how much loss out of this was set off in that 38 I.T.A.No.3911,4358Ahd/2007 I.T.A.No.1367,1677 /Ahd/208 year and if there is any brought forward loss remaining thereafter, only such loss can be set off in the present year against the profits of other eligible units but if the entire amount of such brought forward loss was set off in assessment year 2005-06 then no further set off of loss can be made in the present year. This ground of the revenue's appeal is allowed for statistical purposes.

24. Remaining grounds no.7 & 8 of the revenue's appeal and grounds No.6, 7 & 8 of assessee's appeal are general for which no adjudication is called for.

25. In the result, appeal of the revenue is partly allowed for statistical proposes whereas appeal of the assessee is partly allowed.

26. In the combined result, appeal of the revenue in assessment year 2005-06 is dismissed and for assessment year 2006-07 is partly allowed for statistical purposes and both the appeals of the assessee are partly allowed.

27. Order pronounced in the open court on the date mentioned hereinabove.

        Sd./-                                         Sd./-
(KUL BHARAT)                                   (A. K. GARODIA)
JUDICIAL MEMBER                                ACCOUNTANT MEMBER
Sp

Copy of the Order forwarded to:
  1.     The applicant
  2.     The Respondent
  3.     The CIT Concerned
  4.     The Ld. CIT (Appeals)
  5.     The DR, Ahmedabad                            By order
  6.     The Guard File
                                                      AR,ITAT,Ahmedabad
      1. Date of dictation.........19.09.12

2. Date on which the typed draft is placed before the Dictating Member......20.09.12....Other Member ............

I.T.A.No.1367,1677 /Ahd/208

3. Date on which the approved draft comes to the Sr. P.S./P.S.

4. Date on which the fair order is placed before the Dictating Member for pronouncement ......21/09/2012

5. Date on which the fair order comes back to the Sr. P.S./P.S.21/9

6. Date on which the file goes to the Bench Clerk ...21/09/2012

7. Date on which the file goes to the Head Clerk .......................

8. The date on which the file goes to the Assistant Registrar for signature on the order .........................

9. Date of Despatch of the order. ......................