TMI Blog2009 (11) TMI 619X X X X Extracts X X X X X X X X Extracts X X X X ..... According to the assessee(s), DEPB credit/duty drawback receipt reduces the value of purchases (cost neutralization), hence, it comes within first degree source as it increases the net profit proportionately - Supreme Court, in the case of Liberty India (2009 -TMI - 34471 - SUPREME COURT ) - held that the incentives under ss. 80-IA and 80-IB of the Act, must be from the generation of profits (operation of profits 'derived from the industrial undertaking) - It was, further, held that the words "derived from" as appearing under s. 80-IB of the Act, are narrower in connotation as compared to the words "attributable to". By using the expression "derived from", Parliament intended to cover sources not beyond the first degree nexus or source whether the income was 'derived from' industrial undertaking, as against income from other sources irrespective of the question whether such source was inextricably connected with the business activity of the assessee - the expression "derived from" has been judicially defined by the Hon'ble Supreme Court, having regard to the text and context of the statutory provisions of s. 80-IB of the Act. In view of this, expression "derived from" cannot emb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not derived from the industrial undertaking and thus was not eligible for claim of deduction under s. 80-IB of the IT Act, 1961. It is prayed that the deduction under s. 80-IB may be allowed at Rs. 2,65,19,672 as claimed. 6. That on facts and in law the learned CIT(A) erred in upholding the levy of interest of Rs. 31,05,347 under s. 234B of the IT Act, 1961, No interest under s. 234B of the IT Act, 1961 was called for and the learned CIT(A) should have deleted the same. Alternatively interest charged under s. 234B is very high and excessive. 7. That the appellant prays for leave to add, alter, amend and/or vary the grounds of appeal at or before the time of hearing of the appeal. 8. That the appellant craves leave and sanction to file additional evidence, if so, required for proper prosecution of the case, based on facts and circumstances, which has not been or could not be adduced or filed before the lower authorities either because proper and sufficient opportunity/time was not provided or because it was not solicited or its need was not provided or because its need was appreciated." 2.1 The additional grounds raised by the assessee vide letter dt. 29th June, 2009 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt not liable to tax under the provisions of the IT Act, 1961 ('the Act'). 2. That the CIT(A) erred on facts and in law in holding that excise duty paid is debited to the manufacturing/trading account without appreciating that excise duty paid and refunded by the Central Excise Department is debited to the central excise duty PLA account." 4. The grounds of appeal and additional grounds of appeal raised by the assessee in ITA No. 305/Asr/2009, in the case of Ravenbhel Healthcare (P) Ltd., Jammu, are similar to the grounds of appeal as raised in ITA No. 255/Asr/2009 in the case of Shree Balaji Alloys, Kathua and in ITA No. 209/Asr/2009, in the case of M/s Pee Ell Alloys Unit-II, Jammu. Therefore, we do not consider it essential to reproduce the same. 5. At the outset, it is pertinent to mention that the learned Authorised Representative, for the assessee, Shri Ajay Vohra stated that the arguments, contentions and submissions made in the appeal, in the case of Shree Balaji Alloys, Kathua, in ITA No. 255/Asr/2009, for the asst. yr. 2005-06, are also applicable to the appeals filed in the case of M/s Pee Ell Alloys Unit-II, Jammu, in ITA No. 209/Asr/2009 and Revenbhel Healthc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritten submission that such exemption was granted for the purpose of industrial development of the State, in terms of the Memorandum No. 1(13)/2000-NER dt. 14th June, 2002. It was, further, argued that in the return of income, the impugned receipts were not claimed as a capital receipt and were included in the taxable profits of the eligible industrial undertaking. The learned counsel for the assessee, Shri Ajay Vohra contended that the issue of taxability of excise duty refund and interest subsidy, under the provisions of the Act is purely a legal issue and is raised by the assessee, as advised of the correct position of law and the omission to raise the same earlier is neither wilful nor deliberate. The learned counsel placed reliance for admission of additional grounds on the decision of the Hon'ble Supreme Court, in the case of National Thermal Power Co. Ltd. vs. CIT (1999) 157 CTR (SC) 249 : (1998) 229 ITR 383 (SC). 7.1 The learned counsel in the written submission referred to the impugned memorandum dt. 14th June, 2002, to substantiate his contention that the excise duty refund and interest subsidy, are capital receipts. To support his contention, the learned counsel, for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Siel Cars India Ltd. (ITA No. 5577/Del/2004) (Delhi Bench); (7) Dy. CIT vs. Reliance Industries Ltd. (2004) 82 TTJ (Mumbai)(SB) 765 : (2004) 88 ITD 273 (Mumbai)(SB). The learned counsel for the assessee also placed reliance on the Circular No. 142, dt. 1st Aug., 1974. 7.4 It was contended by him that in view of the avowed object of the schemes applicable to the State of J K, to promote industrialization of the backward areas, generation of employment and overall development of the State of J K, such incentives in the form of excise duty and interest subsidy are clearly, in the nature of capital receipts and, hence, not chargeable to tax. It was argued that the learned CIT(A), has misconstrued the decision of the Hon'ble Supreme Court. in the case of Sahney Steel Press Works Ltd., while holding that such incentives are revenue receipts, because the same were received, after the commencement of commercial operations. To rebut the findings of the learned CIT(A), the learned counsel for the assessee extensively quoted and relied upon the decision of the Hon'ble Supreme Court, in the case of Sahney Steel Press Works Ltd. Finally, it was contended by the learned counsel that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P); (ii) Abhishek Industries Ltd. vs. CIT (2006) 206 CTR (P H) 450 : (2007) 290 ITR 655 (P H); (iii) Dr. (Miss) Chandrawati vs. CIT (2007) 211 CTR (All) 20 : (2007) 164 Taxman 24 (All). 8.1 The learned Departmental Representative, further, submitted that the complete change in the complexion of the matter is not permissible. To support his contention, he relied on the decision of the Tribunal, Special Bench, Mumbai, in the case of ICICI Bank Ltd. vs. Dy. CIT (2003) 81 TTJ (Mumbai)(SB) 37 : (2003) 87 ITD 537 (Mumbai)(SB). As far as admission of additional ground in respect of interest subsidy of Rs. 2,10,695 is concerned, the learned Departmental Representative submitted that the AO dealt this issue at p. 5 of the assessment order and held that the issue is covered by the decision of the Tribunal, Amritsar Bench, in the case of Jai Saraswati Flour Mills, for the asst. yr. 2001-02, wherein it was held to be not derived from an industrial undertaking and, hence, deduction under s. 80-IB was not allowed. It was also contended by the learned Departmental Representative that in the grounds of appeal before the learned CIT(A), in Form No. 35, the assessee did not include this as a g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further, pointed out by the learned Departmental Representative, that the decisions, in the cases of CIT vs. Ponni Sugars Chemicals Ltd., CIT vs. Ruby Rubber Works Ltd., Kalpetta Estates Ltd. vs. CIT, CIT vs. Balarampur Chini Mills Ltd., Dy. CIT vs. Reliance Industries Ltd. and Honda Siel Cars India Ltd. vs. Asstt. CIT, have merely followed the fundamental norms and the purpose tests as laid down by the Hon'ble Supreme Court, in the case of Sahney Steel Press Works Ltd. Further, all these cases quoted and relied upon by the learned counsel, for the assessee, support the case of the Revenue. Therefore, none of the case laws renders any assistance to the case of the present assessee. These case laws clearly point out that in the light of 'purpose test' as laid down by the Hon'ble Supreme Court, in the case of Sahney Steel Press Works Ltd., the impugned receipts are revenue in nature. 10. In the rejoinder or rebuttal, the learned counsel for the assessee stated that it is settled law that there is no estoppel in law and the assessee is entitled to resile from the position wrongly taken while filing the return of income. It was argued that the objective or the assessment is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of refund of excise duty is a fundamental issue, which goes to the roots of the matter and, hence, the same must be decided, for the purpose of determining the correct tax liability of the assessee, as held by the Hon'ble Supreme Court, in the case of NTPC Ltd. vs. CIT. It was, further, submitted by the learned counsel. for the assessee that the Hon'ble Supreme Court, in the case of NTPC Ltd. vs. CIT, followed the decision of Three Judges Bench of the Hon'ble Supreme Court, in the case of Jute Corporation of India Ltd. vs. CIT. In that case, the Hon'ble Supreme Court, distinguished the earlier decision of the two Judges Bench of the Supreme Court, in the case of Addl. CIT vs. Gurjargravures (P) Ltd. which has been heavily relied upon the learned Departmental Representative, in the present case. It was highlighted by the learned counsel, that their Lordships in the case of Jute Corporation of India Ltd. held in clear words that there appears to be no reason to justify curtailment of power of the AAC, in entertaining additional ground of appeal raised by the assessee. Their Lordships, further, observed that the decision of Addl. CIT vs. Gurjargravures (P) Ltd. was based on spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal Representative, on the decision of Maruti Udyog Ltd. vs. ITAT, that in case the Hon'ble Tribunal admits the additional grounds of appeal, in the present case, then a prior separate order is required to be passed by the Tribunal, adjudicating the admission of additional ground of appeal. It was, further, contended that such contention of the Departmental Representative is wholly misplaced, as the Hon'ble Delhi High Court, in the given case held that the Tribunal is required to indicate the reasons, for admitting the additional grounds of appeal and then take up the appeal for disposal. No requirement has been prescribed in the said decision, for passing prior separate order, on admission of additional ground. In view of the above, the additional grounds raised by the assessee being purely a legal issue, which has to be decided on the basis of facts available on record, needs to be adjudicated and decided on merits. 10.7 It was pointed out by the learned counsel for the assessee that Sit the stage of admission of additional ground of appeal, the issue of discharging of burden, in respect of particular income, being exempt is not at all relevant. The learned counsel, for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , paper books filed by the parties and also the relevant records. It is an undisputed fact that the impugned office memorandum dt. 14th June, 2002, Notification Nos. 56 of 2002-CE and 57 of 2002-CE both dt. 14th Nov., 2002 and various circulars and clarifications connected with the scheme, introduced in the State of J K, for the purpose of its development, were available on the relevant records, before the AO and the CIT(A). Both the AO and the CIT(A) had considered such scheme and gave their respective findings, after appreciation of the same. The reliance placed by the learned counsel, for the assessee, for admission of additional ground, on the decisions of Hon'ble Supreme Court, in the cases of National Thermal Power Co. Ltd. and Jute Corporation of India Ltd., clearly covers the fact situation of the present case. The contention of the learned counsel for the assessee that the additional ground of appeal is purely a legal issue and the facts of the issue in question are already available on record, in the form of relevant notifications and scheme remains unrebutted by the Revenue. Consequently, in view of the submissions of the learned counsel for the assessee, we are of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncentive, aid or subsidy is given to set up the industry, then only it can be said to be a capital receipt. Following this principle sales-tax refunds were considered to be revenue receipt. Sales-tax was first required to be paid to the Government. Then 10 per cent of the same was refunded under the scheme in the same manner as in the case of the eligible manufacturers of J K where 100 per cent of excise duty paid in cash is refunded. This refund was held to be revenue receipt. The relevant paras of the above-referred judgment are reproduced below: 'By no stretch of imagination can the subsidies whether by way of refund of sales-tax on relief of electricity or water charges be treated as an aid to the selling up the industry of assessee. As we have seen earlier, the payments were to be made only if any when the assessee commenced its production. The said payments were made for a period of five years calculated from the date of commencement of production in assessee's factory. The subsidies are operational and not capital subsidies......... ...........If any subsidy is given, the character of the subsidy in the hands of the recipient-whether revenue or capital-will have to be de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Hon'ble Supreme Court, in the case of Sahney Steel Press Works Ltd., the learned CIT(A), in the last para of the above reproduced extract has categorically held that following the law as laid down by the Hon'ble Supreme Court, in the above case, it has to be inferred that the refund of central excise duty is a revenue receipt, as this incentive is given by the Government, which is available only after the commencement of the production, in the course of carrying on the business. In view of this, the contention of the Revenue that the learned CIT(A), has not considered the issue raised by the assessee, in the additional grounds is without substance and factually incorrect. Consequently, the decision quoted and relied upon by the learned Departmental Representative, in the case of Addl. CIT vs. Gurjargravures (P) Ltd. is also not applicable to the facts of the present case, as the learned CIT(A), has clearly referred to and considered the decision of the Hon'ble Supreme Court, in the case of Sahney Steel Press Works Ltd. and given categorical finding that the excise duty refund is a revenue receipt. In view of the above discussions, it is evident that the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l grounds require no further enquiry, into the facts for adjudication thereof, as the relevant and material facts are already on record. The AO disallowed the claim of the assessee after considering the said scheme. Similarly, the learned CIT(A), extensively referred to and appreciated various notifications, clarifications and Government memorandum relevant for the State of J K and recorded his findings thereon. The learned CIT(A), considered the applicability of the landmark decision of the Hon'ble Supreme Court, in the case of Sahney Steel Press Works Ltd. and held that the excise duty refund is revenue receipt. The learned CIT(A), also reproduced the relevant and operative part of the said decision of the Hon'ble Supreme Court and after consideration of the same recorded his finding. Thus, there is no legal and factual merit, in the contention of the Revenue that the issue has not been considered by the CIT(A). As CIT(A) is superior IT authority to the AO, as per s. 116 of the Act, including in the discharge of statutory functions and he had considered the issue in question, by following the decision of the Hon'ble Supreme Court, in the case of Sahney Steel Press Works Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment specified was Rs. 4 crores for new units and Rs. 2 crores for expansion units. (iii) Increase in the free sale sugar quota depended upon increase in the production capacity. In other words, the extent of the increase of free sale sugar quota depended upon the increase in the production capacity. (iv) The benefit of the scheme had to be utilized only for repayment of term loans. On the basis of analysis of the Scheme, the Hon'ble Supreme Court held that the subsidy given was of capital account, as the loan was given to make repayment and incentive was given for utilisation of the same for repayment of loans taken by the assessee, to set up new unit or expansion or substantial expansion of existing unit. (ii) In the case of CIT vs. Ruby Rubber Works Ltd., the Hon'ble Kerala High Court held that the subsidy was received for replanting rubber trees and the subsidy was not given for upkeep or maintenance of mature or immature rubber plants. The subsidy received was used to acquire an asset by replanting high yield variety of rubber trees and, hence, the same is not a revenue receipt. Further, the Hon'ble Kerala High Court in the case of CIT vs. Ruby Rubber Works Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is case is that the incentive has been received by the assessee for payment of the loan, which was taken for expansion of plant and machinery-a capital asset". (v) The learned counsel for the assessee placed reliance on the decision of Tribunal, Special Bench, Mumbai, (2004) 82 TTJ (Mumbai)(SB) 765 : (2004) 88 ITD 273 (Mumbai)(SB), wherein the Hon'ble Special Bench held that if the subsidy is given for the setting up or expansion of the industry in a backward area, it will be capital, irrespective of the modality or the source of funds through or from which it is given. The relevant part of the decision is reproduced hereunder: "The question for consideration was whether the Tribunal in the case of the assessee for the asst. yr. 1985-86, viz. Reliance Industries Ltd. case had correctly appreciated and interpreted the ratio of the decision of the Supreme Court in Sahney Steel Press Works Ltd.'s case. On a careful reading of the order of the Tribunal in the case of the assessee, it appeared that the ratio of the judgment in Sahney Steel Press Works Ltd.'s case had been correctly interpreted and appreciated by the Bench." (vi) The learned counsel for the assessee placed reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not get any specific benefit in its production or its business per se. This is because the land does not belong to the assessee but is a leasehold land and all that the assessee would benefit from the incentive is the reduction in the premium payable/paid for the said land. It does not assist the assessee by financial assistance in the test of the raw materials, subsidies in the taxes, or deferred revenue benefits. This being so, obviously the incentive as received by the assessee was not a package given to the assessee to run more profitably from the date, of commencement of production for any period of time nor was it a helping hand provided to the assessee during the early days to enable them to a competitive on a level with other established industries. In the present case it is noticed that this is an incentive which was given by the Government Department with the idea that by its use men might be kept in employment and was simply to enable them to carry out the work upon which they were engaged with the idea that by doing so people might be employed. It is noticed that the incentive is an amount paid by the Government with the expressed purpose in line with its industrial p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r revenue or capital-will have to be determined, having regard to the material. However, if the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. But if monies are given to the assessee for assisting him in carrying out the business operations and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade. A notification was issued by the Andhra Pradesh Government that certain facilities and incentives were to be given to all the new industrial undertakings which commenced production or after 1st Jan., 1969, with investment capital (excluding working capital) not exceeding Rs. 5 crores. The incentives were to be allowed for a period of five years from the date of commencement of production. Concession was also available for subsequent expansion of 50 per cent and above of existing capacities, provided, in each case, the expansion was located in a city or town or Panchayat area other than that in which the existing unit was located. The salient features of the scheme formulated by the Andhr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly." 11.7 The assessee also placed reliance, on the decision of Hon'ble Bombay High Court, in the case of Sadichha Chitra vs. CIT, wherein subsidy released, to assist the assessee, to acquire a new capital asset was held to be a capital receipt on the ground that scheme of the subsidy had been formulated to assist the assessee, in acquiring asset without any objective of supplementing the trade receipts. 11.8 The learned counsel for the assessee placed reliance, on the decision of the Hon'ble Delhi High Court, in the case of CIT vs. National Co-operative Consumers' Federation Ltd., wherein the Hon'ble High Court, followed the view taken by the Hon'ble Calcutta High Court, in the case of Balarampur Chini Mills Ltd. It was also pointed out by the learned counsel that the Hon'ble Madras High Court in the case of CIT vs. Madurantakam Co-operative Sugar Mills Ltd., has taken the similar view. Similarly, the learned counsel placed reliance on the decisions of the Benches of the Tribunal, wherein the subsidy of similar nature was held as being capital receipt: (1) Vishnu Sugar Mills Ltd. vs. Dy. CIT; (2) Addl. CIT vs. Chodavaram Co-op. Sugars Ltd.; (3) Modi Industries Ltd. vs. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cific purpose for acquisition of assets. The assessee is free to utilise such incentives, which are recurring in nature. The incentives are neither given to acquire capital asset or to complete any project. It is clearly laid in the said scheme that such incentives can be given only after commencement of commercial production. In the case laws, relied upon by the assessee as discussed above, incentives were given for acquiring capital assets or for setting up the industry. The incentives were specifically marked for acquisition of assets or payment of loan taken for setting up the industry. Consequently, in view of diametrically opposite fact situation of the case laws relied upon by the assessee vis-a-vis the facts obtaining in the present case, the ratio of the said decisions are not applicable, to the instant cases. 11.13 In view of the above discussions, none of the case laws relied upon by the learned counsel for the assessee is applicable to the fact situation of the present case. It is pertinent to mention here that a decision of the Court is applicable to that case itself unless it is clearly demonstrated that there is similarity of the facts. As is evident, in the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lping the growth of industries and not for supplementing their profits. Under the scheme, the quantum of subsidy is determined with reference to the fixed capital and not the profits. The working capital has been specifically excluded from the computation of fixed capital for this purpose. One of the conditions for the grant of the subsidy is that the undertaking must remain in production at least for a period of five years after it goes into production. Since the subsidy is intended to be a contribution towards capital outlay of the industrial unit, the Board are advised that such subsidy can be regarded as being in the nature of capital receipt in the hands of the recipient." Circular No. 142 [F. No. 204/25/74-IT (A-II)], dt. 1st Aug., 1974. The circular has been analysed by the Hon'ble Supreme Court, in the cases of CIT vs. Sahney Steel Press Works Ltd., CIT vs. Malayalam Plantations Ltd. (1987) 62 CTR (Ker) 109 : (1987) 168 1TR 63 (Ker) and U.P. State Handloom Corporation Ltd. vs. Dy. CIT (1993) 45 TTJ (All) 34 : (1992) 42 ITD 436 (All) and the circular has been held to be applicable, in the context of that particular scheme. The said circular of the Board does not in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Any excess or shortfall in case of refund allowed on provisional basis may be adjusted in the subsequent refund claims. Considering the fact that verification of refund claims basically involves checking of duty paid in cash, in most cases, it should be possible to allow refund by the 15th of the subsequent month." "The assessee is thus under legal obligation to discharge his liability to pay excise duty on excisable goods, which is collected or to have been collected from the customers as per s. 12B of the Central Excise Act, 1944 at specified rates. There is thus no exemption from the payment of such duty already collected by the assessee to the Government. However the whole scheme is so designed that whatever amount of duty is collected from the customers and paid to the Government by the assessee, is refunded back to him in the form of an area-based incentive in the form of refund, even though the incidence of the said duty was not borne by the assessee but by the customers. This results in additional financial advantage to the assessee." 11.17 The learned Departmental Representative, further, placed reliance on the various decisions quoted and relied upon by the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 3CB, at p. 54 of the Departmental paper book Vol. 1 (Col. 26), the assessee has claimed deduction under Chapter VI-A-under s. 80-IB at Rs. 2,64,44,406. At p. 59 of the paper book-Annexure to effect under s. 145A, the profit as per P L a/c is shown at Rs. 2,64,44,406. The treatment so far given to these receipts by the assessee, in its accounts shows such receipts as its trading profits. This factum is, further, demonstrated by the following facts: 1. Audit report in Form No. 10CCB. 2. Audit report in Form 3CB. 3. Annexure to effect under s. 145A-Page 59. 11.20 The learned Departmental Representative, further, contended that the arguments of the assessee that the memorandum, dt. 14th June, 2002, of the Government of India, decides the purposes of incentives which include generation of employment is grossly misplaced. The memorandum offers a bouquet of incentives, with mixed purposes underlying therein. The purposes of each such incentive requires to be judged in the context of each one of them and with reference to the grantee as to how such scheme has helped the grantee. Some of the incentives available by the notification are clearly in the capital field but other ones ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the central excise duty, in the sale invoices issued to its customers, payment of the sale consideration (inclusive of excise duty) by the customers to the assessee, payment thereof subject to certain adjustments and credits by the assessee to the Central Excise Department and subsequent refund thereof by the Department to the assessee definitely goes to the revenue side of the accounts, as held in the following cases: (i) Chowringhee Sales Bureau (P) Ltd. vs. CIT; (ii) Sinclair Murray Co. (P) Ltd. vs. CIT; (iii) CIT vs. Saraswati Industrial Syndicate Ltd. (1973) 91 ITR 501 (P H); (iv) CIT vs. Thirumalaiswamy Naidu Sons; 11.22 It was, further, contended by the learned Departmental Representative, that nature of receipt is fixed once for all and its taxability is fixed with reference to its character at the moment it was received and would not change merely because the recipient treated it differently. This principle has been laid down by the Hon'ble Delhi High Court, in the case of CIT vs. Motor General Finance Ltd. (1974) 94 ITR 582 (Del). Their Lordships held in the said decision that the nature of receipt is fixed once for all when it is received. Subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excise duty has gone to add to the profits of the assessee and ultimately that profit has found its way to increase the capital of the partners to whom this additional profit has been allocated. This conduct of the assessee proves that this incentive has gone to increase their profits and would, thus, be of revenue in nature. 11.24 The learned Departmental Representative, further placed reliance, to support his contention, on the decision of the Hon'ble Supreme Court, in the case of Sahney Steel Press Works Ltd. vs. CIT and Hon'ble Punjab Haryana High Court, in the case of Abhishek Industries Ltd. vs. CIT. 12. We have heard both the parties and carefully perused and considered the written submissions including the case laws therein and the submissions made in the course of appellate proceedings by the parties, facts of the case, paper books filed by the parties and also the relevant records. The core question before us is whether the refund of excise duty amounting to Rs. 2,73,25,405, and interest subsidy amounting to Rs. 2,10,695 is capital receipt, not liable to tax under the provisions of the Act, as contended in the additional grounds of appeal. A careful perusal and an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcial production has commenced. Further, the availability of such incentives would be limited to a period of 10 years, from the date of commencement of commercial production. The incentives were recurring in nature. 12.2 A bare perusal of the fact-situation of the present case clearly reveals that the assessee-firm had already set up an industrial undertaking, in Kathua, State of J K, as admitted by the assessee itself, in the written submission. Therefore, it is undisputed fact that the assessee-firm had already established an undertaking and the said unit was eligible for such incentives, for a period of 10 years, from the date of commencement of commercial production. In this context, it would be relevant to reproduce the extract of the written submission filed by the assessee, hereunder: "The appellant is a partnership concern, which had put up an industrial undertaking in Kathua in the State of J K, engaged in the business of manufacture of aluminium alloy and zinc alloy ingots. The appellant filed its IT return for the period ending 31st March, 2005 relevant for the asst. yr. 2005-06 on 29th March, 2006 declaring nil income after claiming deduction of Rs. 2,65,19,672 unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly adds to the manufacturing/production cost and this cost has to be paid as duty at the time of removal of goods, irrespective of whether the same is included in the sale price or not. The refund of the excise duty under central excise Notification No. 56 of 2002, paid by the manufacturer is provided just to reduce the cost of production. This refund simply reduces the amount already spent by the manufacturer and such refund cannot be excluded for the purpose or working out the deduction under s. 80-IB of the Act. It was also submitted before the learned CIT(A), that being exempt from excise duty, the object of the excise duty refund scheme is to reimburse manufacturer for excise duty paid on the removal of goods produced/manufactured by the assessee. Excise duties raised the cost of production in industries and thereby affect the competitiveness of industry. Therefore, industries in the backward States like J K need to be assisted for neutralizing the escalation in their costs, attributable to such excise duties. Excise duty refund is, therefore, intended to reduce the cost of production. Hence, excise duty is an integral part of the pricing of the goods and therefore, excise dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of investment in capital such subsidy cannot be considered to have been received by the assessee on revenue account. 12.7.2 It was further contended by Mr. Ganesh that grant of subsidy was on the basis of refund of sales-tax on raw materials, machinery and finished goods already paid for by the assessee. These subsidies would be enjoyed by the assessee for a period of 5 years and were of capital nature. The object of granting refund of sales-tax was that the assessee could set up new business or expand substantially his existing business. 12.7.3 The contention of Mr. Ganesh that the subsidies were of capital nature and were given for the purpose of stimulating the setting up and expansion of industries in the State cannot be upheld, because of the subsidy scheme itself. No financial assistance was granted to the assessee for setting up of the industry. It is only when the assessee had set up its industry and commenced production that various incentives were given for the limited period of five years. It appears that the endeavour of the State was to provide the newly set up industries a helping hand for five years to enable them to be viable and competitive. Sales-tax refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court, on the issue of ascertaining the true nature of incentives and subsidy, the said 'purpose test' was reiterated and followed, by the Hon'ble Supreme Court and High Courts and there has not been any dilution or deviation therefrom. 12.10 The core question before us is whether incentives/subsidy as provided in the said scheme are granted to set up the new industry or to purchase capital asset or to purchase machinery or for completion of project. If answer is in affirmative then such fiscal incentives are capital in nature. However, where such incentives conferred, on the recipient or were grantee were for assisting, in carrying on the business operation more profitably and competitively, on the condition precedent of post commencement of commercial production, then the nature of such incentives would be patently, revenue in nature. In view of this, such receipts would be trade receipt or supplementary receipts and following the fundamental rule of the 'purpose test', as laid down by the Hon'ble Supreme Court, in the case of Sahney Steel Press Works Ltd., such receipts can only be revenue receipts. 12.11 It is essential to highlight that the Hon'ble Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower subsidy, purchase, tax subsidy and sales-tax subsidy have all been considered by various High Courts as revenue receipts taxable, in the hands of the recipient. 12.15 The leading and landmark case on the subject is that of Sahney Steel Press Works Ltd. decided by the Supreme Court, in 1997. In a well considered ruling, the apex Court observed that payments from public funds to assist companies in carrying on trade or business are revenue receipts. In that case, refund of sales-tax, subsidies on power consumed and exemption from payment of water charges, etc. were considered by the Court as amounts received by way of production incentives. They were operational subsidies and not capital subsidies. They were, therefore, revenue in nature. 12.16 In the case before the Court, the Andhra Pradesh Government issued a notification, authorising payment of subsidies to assist new industries, at the commencement of business, to carry on their business. These were considered supplementary trading receipts. The company was barred from using the money for distribution of dividends to shareholders. But it was otherwise free to use the money in its business entirely as it Liked and was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital nature. It upheld the view of the Madras High Court in this regard. 12.20 The fact situation of the present case is squarely covered by the ratio of the decision of the Hon'ble Supreme Court, in the case of Sahney Steel Press Works Ltd. vs. CIT. As discussed earlier, the incentive in the form of excise duty refund and interest subsidy are granted year after year (on recurring basis), for a period of 10 years, from the date of commencement of commercial production. It is, further, mentioned that such incentives are not given to the grantee, i.e. the present assessee for the purpose of setting up industrial unit, as the same had already been set up by the assessee or for bringing into existence any new capital asset or for the purchase/acquisition of capital asset. The assessee is free to utilise such incentive as per its volition. Further, consistent treatment given by the assessee to such receipts as revenue receipts for the purpose of claiming deduction under s. 80-IB of the Act, cannot altogether be ignored but must be seen in the light of entirety of circumstances and facts of this case. The said incentives are given for easy market accessibility and to run the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsidy, the AO relied on the decision of the Tribunal, Amritsar Bench, in the case of Jai Saraswati Flour Mills, for the asst. yr. 2001-02, and disallowed the claim of the assessee. 13.2 The learned CIT(A), in his detailed and well reasoned order, passed after an examination of the impugned scheme operative in the State of J K, submissions made by the assessee and considering various case laws, adjudicated the issue, in favour of the Revenue and upheld the findings of the AO. The learned CIT(A), had discussed and relied on the decision of the Hon'ble Supreme Court, in the case of Sahney Steel Press Works Ltd. and given clear finding that the 'excise duty' is a revenue receipt, as this incentive was given as an operational incentive by the Government, which was available only after commencement of, commercial production, in the course, of carrying on the business. The findings given by his learned CIT(A), in the impugned appellate order are reproduced hereunder: "I have carefully considered the facts and circumstances of the case, written submissions of the Authorised Representative of the appellant, remand report of the AO and the assessment order. Considering the totality of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reducing the excise duty paid at the time of purchase of raw material (Cenvat) as reduced from the excise duty collected from its customers, is paid back to the manufacturer by the Central Excise Department. The said paid back excise duty is not supposed to be given back to its customers by the manufacturer. It is the contention of the appellant that it is the reimbursement of expenses already debited to the P L a/c by including the same in the excise duty account and that the same is not a fresh source of income to the appellant. It has been submitted that the excise duty refund has a direct nexus with the activities of the appellant's undertaking. It has been contended that the excise duty refund partakes the same character as that of the amount of expenses of the industrial undertaking and that the same is neither a new source of income nor an income which is distinct from the industrial undertaking whose income is deductible under s. 80-IB of the IT Act, 1961. The main arguments on the issue are that the receipt of refund of excise duty is not an income, that payment and refund is not on account of excise duty but it is merely a creation of debt with Central Excise Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction for the first five years and 25 per cent (30 per cent in case the industrial unit is of a company) for the next five years. In fact the sum and substance of the submission is as to whether that part of gross total income of an eligible industrial undertaking in the State of J K, which is attributable to the fiscal incentive received by such industrial undertaking in the form of refund of Central excise duty would be eligible for deduction under s. 80-IB(4) of the IT Act, 1961 or not. Mainly, the submissions are- (i) The receipt of refund of central excise duty is not income of the eligible manufacturer, (ii) The payment made to Central Excise Department and refund of the same to the industrial undertaking is not on account of payment of excise duty but is merely a creation of debt with Central Excise Department and repayment of the same by the Government to give effect to exemption notification of the Government, and (iii) The refund of central excise duty has no impact in the profit and loss account etc, and thus no disallowance can be made on this account under s. 80-IB of the IT Act, 1961 etc. The basic purpose of granting fiscal incentives is to attract inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statement filed along with details of excise duty paid. The excise duty which is collected by the manufacturer from the customer and paid to the Central Government when refunded to the manufacturer, is not required to be passed on to the customer from which the same was collected but the same is allowed to be retained by the manufacturer in relaxation of provisions of s. 11B of the Central Excise Act. At the same time, the customer is also entitled to claim the full, Cenvat credit for duty so paid by him to the manufacturer for onward payment to the Government in accordance with s. 3 of Central Excise Act, 1944 even though the duty so paid is refunded to the manufacturer by the Government. There is a Notification No. 39 of 2002-CE(NT) dt. 14th Nov., 2002 issued by the Government in this regard. Thus, there is double credit for the same payment, as such. The amount of excise duty refunded by the Central Government to the manufacturer is the cost of fiscal incentive, which is borne by the Government out of its exchequer, in addition to the amount of revenue forgone on account of allowance of Cenvat credit to the buyer of the goods in respect of the same payment of the excise d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s actually due to be paid, the same may get refunded. This refund of duty may be claimed by the manufacturer, who had paid the duty but actually the manufacturer pays the duty after collecting it from his customers. Therefore, when refund of excise duty is received and retained by the manufacturer, it results in undeserving profits to the manufacturer leading to his unjust enrichment. Therefore. s. 11B of the Central Excise Act, 1944, puts a legal bar on such unjust enrichment. For ready reference, the same is reproduced below: Sec. 11B. Claim or refund of duty-(1) Any person claiming refund of any duty of excise may make an application for refund of such duty to the (Asstt. CCE or Dy. CCE) before the expiry of (one year) from the relevant date (in such form and manner) as may be prescribed and the application shall be accompanied by such documentary or other evidence (including the documents referred to in s. 12A) as the applicant may furnish to establish that the amount of duty of excise in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such duty had not been passed on by him to any other person: Provided that where an applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty by the manufacturer, but is basically designed to give effect to the exemption, and accordingly provisions of s. 11B of the Central Excise Act, 1944 would not apply in the case of these notifications. Thus, CBEC circular further clarifies that the refund is on account of regular payment of excise duty, which is refunded in due course of incentive to the manufacturer and thus adds to the profit of the manufacturer. This circular further elaborates the provisions of Notification No. 39/2202-CE(NT) dt. 14th Nov., 2002; whereby r. 10 of the Cenvat Credit Rules, 2002 has been amended and the buyer (customer of the goods has also been allowed to avail Cenvat credit of the input goods in spite of the fact that the excise paid by the manufacturer is refunded back to the manufacturer. This benefit is otherwise not available on such input goods which are declared exempt or on which excise duty is paid at nil rate. The contention raised by the manufacturers that the amount paid to the Central Excise Department is merely a creating of debt with Excise Department in view Of the exemption granted vide Notification Nos. 56 and 57 of 2002 is also not tenable for the following reasons- (i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of incentive to the manufacturer and not to exempt the excisable goods from payment of Central Excise per se. For ready reference the relevant para of the Notification No. 56 of 2002 is reproduced below: 'In exercise of the powers conferred by sub-s. (1) of s. 5A of the Central Excise Act, 1944.......... the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the goods.......... from so much of the duty of excise or additional duty of excise...... as is equivalent to the amount of duty paid by the manufacturer of goods, other than the amount of duty paid by utilisation of Cenvat credit under the Cenvat credit Rules, 2002.' Therefore, the above underlined words i.e., 'as is equivalent to the amount of duty paid by the manufacturer of goods' confirms that the amount of exemption from excise duty is to the extent of the excise duty already paid by the manufacturer. This means that first the manufacturer will pay the duty after collecting it from his buyers. Once it has been paid then the same is refunded back as an incentive. It is evident from the above referred notification that the basic intention and purpose of the notificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to have been collected from the buyers (as per s. 12B of the Central Excise Act, 1944) at specified rates as per provisions of the Central Excise Act, 1944. As already mentioned above, there is no exemption from the payment of such duty collected by the manufacturer to the Government. However, the whole scheme has been so designed that whatever amount of excise duty is collected from the buyer and paid to Government by the appellant, is refunded back to the manufacturer by way of an area based incentive in the form of refund, even though the incidence said excise duty was not borne by the manufacturer but by the customers. This results in additional financial advantage to the manufacturer'. The whole impact of the Notification Nos. 56 and 57 is such that the amount equivalent to the excise duty which the assessee was otherwise liable to pay to the Government and which it has already paid, gets refunded pursuant to Industrial Promotion Scheme of the Government. This does not happen in normal cases which are not availing benefit under Notifications 56 and 57 both dt. 14th Nov., 2002. This implies that it is due to the Notifications Nos. 56 and 57; that the assessee received the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs. J.B. Exports Ltd. [IT Appeal No. 519 of 2005, reported at (2006) 201 CTR (Del) 30-Ed.] (vi) Liberty India vs. CIT (2007) 207 CTR (P H) 243 : (2007) 293 ITR 520 (P H); (vii) Nahar Exports Ltd. vs. CIT (2006) 204 CTR (P H) 464 : (2007) 288 ITR 494 (P H); 14. The learned counsel for the assessee contended that the excise duty refund and interest subsidy are eligible for deduction under s. 80-IB of the Act, if the same are held as revenue receipts. The learned counsel for the assessee placed reliance on the decision of Hon'ble Delhi High Court, in the case of CIT vs. Dharam Pal Prem Chand Ltd. (2009) 221 CTR (Del) 133 : (2008) 16 DTR (Del) 130. The learned counsel for the assessee also placed reliance on the decision of Hon'ble Madhya Pradesh High Court, in the case of CIT vs. Siddharth Tubes Ltd. (2008) 296 ITR 221 (MP) and the decision of Tribunal, Jaipur Bench, in the case of Suresh Kumar Bajoria vs. ITO (2008) 113 TTJ (Jp) 364 : (2008) 1 DTR (Jp)(Trib) 359. 14.1 The learned counsel for the assessee further submitted as under: "(i) The lower authorities have, totally misconstrued the aforesaid notification issued by the excise authority to the industrial unit set u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction under s. 80-IB of the Act. The appellant has not taken any stand contrary to law laid down by the Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. vs. CIT 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC) and other decisions referred by the CIT(A). (vii) The observations of the CIT(A) on pp. 18 to 24 that excise duty collected from buyers is not income "derived from" the industrial undertaking is, it is respectfully submitted, fallacious. The appellant it is respectfully submitted, fails to appreciate as to how it can be held that excise duty, which is an inextricable and vital part of the manufacture/production of good eligible for deduction under s. 80-IB of the Act, could be held to be income not 'derived from' the eligible industrial undertaking. As explained hereinabove, excise duty is a direct charge on manufacture/production of goods and without excise duty it is not at all permissible in law to clear the manufactured goods. Therefore, levy and collection of excise duty clearly has inextricable and first degree nexus with the manufacture/production of goods. The amount received towards excise duty has to be, as a necessary corollary, treated as income 'derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for deduction under s. 80-IB of the Act. It will be kindly appreciated that the facts in the case of the appellant are poles apart from the facts before the Supreme Court in the aforesaid case. The issue in the present appeal is the excise duty recovered and retained by the eligible undertaking, which can, by no stretch of imagination, be characterised as ancillary profits of the appellant. It would be further appreciated that the appellant's industrial undertaking is a unit exempted from payment of excise duty and is, therefore, not at all required to pay such excise duty. However, to ensure control on various units, the State Government has framed a mechanism in which every such exempted unit is first required to pay the excise duty and then claim refund of the same. (d) Further, while analyzing the concept of duty drawback, the Supreme Court have observed that in case of duty drawback the refund of excise or custom duty is the average amount of duty paid on material 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 the custom duty or Central ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC); (v) CIT vs. Orissa Cement Ltd.; 14.6 In the ultimate analysis, the learned counsel for the assessee contended that the learned CIT(A), erred in holding that the refund of excise duty is not liable for deduction under s. 80-IB of the Act. 15. The learned Departmental Representative, on the other hand, contended that the decision of the Hon'ble Delhi High Court, in the case of Dharam Pal Prem Chand Ltd. is not applicable to the facts of the present case. It was contended by the learned Departmental Representative that the issue is covered by the decision of the Hon'ble Supreme Court, in the case of Liberty India vs. CIT (2009) 225 CTR (SC) 233 : (2009) 28 DTR (SC) 73 : (2009) TIOL-100-SC-IT and the contention of the assessee that the same is not applicable to his case is not factually and legally tenable. The relevant submission of the learned Departmental Representative is reproduced hereunder: "(A) On accounting entries as observed by Hon'ble High Court of Delhi in the case of CIT vs. Dharam Pal Prem Chand Ltd. (2009) 221 CTR (Del) 133 : (2008) 16 DTR (Del) 130: Relevant part of the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be kept in mind. The finding of the authorities below is, that the, refund of excise duty is pivoted on the manufacturing activity carried on by the assessee. Once such a finding of fact has been returned we need not go further and examine the immediate and proximate source of refund of excise duty. In other words, as to whether there was direct nexus between the refund of excise duty and industrial activity. As a matter of fact, in the questions proposed by the Revenue, there is no specific question, that this finding of the authorities below is perverse. There is of course a very broad based and general question that the order passed by the Tribunal is perverse in law and on facts. According to us, such a question is vague. A perusal of the grounds of appeal would substantiate this aspect of the matter. There is no ground taken by the Revenue whereby the substantial findings of fact have been challenged by the Revenue as being perverse. 5.1 An important aspect of the matter which clearly distinguishes the instant case from the facts of the other cases cited before us is, that the net effect of the accounting methodology employed by the assessee was that it did not, in sum a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. That is the reason why the concept of 'segment reporting' stands introduced in the Indian Accounting Standards (IAS) by the ICAI. 3. Sec. 80-IB/80-IA are the Code by themselves as they contain both substantive as well as procedural provisions. Sec. 80-IB provides for allowing of deduction in respect of profits and gains derived from the eligible business. The words "derived from" are narrower in connotation as compared to the words 'attributable to'. In other words, by using the expression 'derived from', Parliament intended to cover sources not beyond the first degree. 4. Sub-s. (13) of s. 80-IB provides for applicability of the provisions of sub-s. (5) and sub-ss. (7) to (12) of s. 80-IA, so far as may be, applicable to the eligible business under s. 80-IB. These two sections have a common scheme. On perusal of sub-s. (5) of s. 80-IA, it is noticed that it provides for manner of computation of profits of an eligible business. Accordingly, such profits are to be computed as if such eligible business is the only source of income of the assessee. Therefore, the devices adopted to reduce or inflate the profits of eligible business has got to be rejected in view of the overridi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng but the duty drawback scheme of the Central Government where under the duty drawback entitlement became available. According to the learned counsel, duty drawback, therefore, would stand on the same footing as import entitlements and could not be said to be derived from industrial undertaking. Reliance was also placed on the judgment of this Court in Pandian Chemicals Ltd. vs. CIT (2003) 183 CTR (SC) 99 : (2003) 262 ITR 278 (SC) : 2003-TIOL-51-SC-IT. According to the learned counsel, duty drawback was a matter of policy; hence, the proximate and immediate source of duty drawback cannot be industrial undertaking. On interpretation of s. 80-IB, learned senior counsel submitted that what was relevant for s. 80-IB (1) was profits derived from an eligible business. According to the learned counsel, various - eligible businesses are enumerated in sub-ss. (3) to (11) of s. 80-IB. A perusal of sub-ss. (3), (4) and (5) would also show that eligible business under those provisions means certain specific undertakings. In contrast, sub-ss. (6) and (7) cover the business of a ship, hotel etc. Thus, for all practical purposes, according to the learned counsel, the section has used the words ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ludes element of profit over the cost of production plus central excise duty depending upon the manner in which it is accounted for by the assessee in its accounts. It was, further pointed out that central excise duty included has no profit involved in it, as it has to be paid to the Government. If assessee accepts this, then central excise duty included in sale price on which deduction is claimed is revenue receipt. The question remains whether it is derived from the industrial undertaking and in his opinion, it falls beyond the purview from the expression "derived from". As the excise duty has no element of profit embedded in it and it does not have 'first degree' or 'proximate source' of profit from the industrial undertaking but represent refund from the Central Excise Department which is nothing but remote source of profit, which calls beyond the purview of expression derived from the industrial undertaking. 15.3 The learned Departmental Representative also submitted that there is fundamental difference between the schemes operative, in Himachal Pradesh and the State of J K. The learned Departmental Representative, on the applicability of the decision in the case of CIT vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that the contention of the learned Authorised Representative for the assessee that the incentive provisions should be interpreted liberally is misplaced, in view of the decision of the Hon'ble Supreme Court, in the case of Novopan India Ltd vs. CCE 1994 Suppl (3) SCR 549. 15.6 Finally, it was argued by the learned Departmental Representative that the submissions filed by the assessee against the decision of the learned CIT(A), lacks in merits that is (1) on the capital nature of the receipt of refund of central excise duty and interest subsidy as contained in the additional ground, and (2) on the issue of the profits resulting from the receipt of refund of central excise duty being claimed as eligible for deduction under s. 80-IB of the Act. 16. We have heard both the parties, considered the rival submissions with reference to facts, evidence and material placed on record. We have also considered the case laws relied upon by the parties to support their respective contentions. The learned counsel for the assessee placed reliance, on the decision of Hon'ble Delhi High Court, in the case of CIT vs. Dharam Pal Prem Chand Ltd. The learned counsel for the assessee contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the first time to appreciate submissions which have no factual foundation. Secondly, what is important to note is that the assessee as mentioned hereinabove is in the business of manufacturing chewing tobacco and kiwam. These goods by themselves are not inputs for any other goods and hence, the apprehension of the Revenue that the assessee would claim a benefit of Notification No. 48 of 1999 has no substance." Para 4.8 6f the said decision deals with the issue in question and the same is also reproduced hereunder: "4.8 To our mind, the procedure for granting of exemption is, as indicated above, that the, assessee in the first instance, pays the excise duty from its current account. The statement with respect to clearances made, is submitted with the concerned central excise authorities by the 7th of the succeeding month. The central excise authorities after verifying the claim of the assessee are required to grant refund of excise duty paid from the current account during the month under consideration to the manufacturer/assessee by the 15th of the succeeding month. The notifications further provided that in the event it was not possible for the concerned authorities to verify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, incorrect entries in the accounts. 16.5 In the present case, firstly, the assessee collects the excise duty from the customers and after collection it makes the payment, to the Excise Department. In the third step, the Excise Department refunds the excise duty to the assessee. In view of this, there is no question of self-cancellation of accounting entries, as contended by the learned counsel for the assessee, based on the specific fact-situation of the decision of Hon'ble Delhi High Court quoted and relied upon by the assessee, in the case of Dharam Pal Prem Chand Ltd. In the present case, three steps are involved in the entire procedure viz. collection of excise duty from the customers, payment to the Excise Department and finally refund of the excise duty by the Excise Department to the assessee. In view of this, this refund swells the profit of the assessee. However, such receipts have no first generation nexus or source, which is essential for any profit to be treated as 'derived from', as explained by the Hon'ble Supreme Court in the case of Liberty India vs. CIT in Civil Appeal 2009 (arising out of Special Leave Petn. (Case) No. 5827 of 2007, dt. 31st Aug., 2009. 16.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the said industrial undertaking." 17. We have carefully perused and considered the findings of the learned CIT(A), and found that the same have been recorded after extensive detailed analysis of the scheme, Government memorandum etc. The learned CIT(A) has dealt with the issue in a detailed manner and the said findings of the learned CIT(A) are speaking and well reasoned in nature. These findings extracted from the impugned order and as reproduced hereinabove are materially different from finding given by the CIT(A), in the case of Dharam Pal Prem Chand Ltd. 17.1 As far as second issue raised by the assessee, based on the decision of the Hon'ble Delhi High Court, in the case of Dharam Pal Prem Chand Ltd., regarding wider scope of language in s. 80-IB, as compared to the language of ss. 80HH and 80-I etc., is concerned, it is respectfully submitted that the Hon'ble Supreme Court, in the case of Liberty India, after examination of the legal and statutory provisions and considering the various case laws, demolished the contention of the assessee, in para 15 of the said judgment. After detailed analysis and appreciation of the statutory provisions and judicial findings, on the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable to the fact-situation of the present case. The decision of the Hon'ble Supreme Court in the case of Liberty India, saps the life blood of such case laws, as is evident from the ensuing discussions. We have carefully perused the decision of the Hon'ble Madhya Pradesh High Court in the case of CIT vs. Siddharth Tubes Ltd. and with utmost respect, we submit that this decision is not applicable to the facts of the present case, as the refund of excise duty has not been generated by any scheme as is evident from the facts of the case. In the present case, excise duty refund sprouts from the scheme of the Government of India. Hence, the ratio of the said decision is not applicable to the facts of the present case, as the facts are materially different and distinguishable. Further, the assessee placed reliance on the decision of the Tribunal Jaipur Bench 'A' in the case of Suresh Kumar Bajoria vs. ITO. Respectfully, we submit that the facts of the case relied upon by the assessee are materially different and distinguishable, in view of the findings of the CIT(A), in the present case, as discussed earlier. It is further, mentioned that the assessee has given a list of cases, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... need to examine what these provisions prescribe for 'computation of profits of the eligible business.' It is evident that s. 80-IB provides for allowing of deduction in respect of profits and gains derived from the eligible business. The words 'derived from' is narrower in connotation as compared to the words 'attributable to'. In other words, by using the expression 'derived from', Parliament intended to cover sources not beyond the first degree. In the present batch of cases, the controversy which arises for determination is: whether the DEPB credit/duty drawback receipt comes within the first degree sources? According to the assessee(s), DEPB credit/duty drawback receipt reduces the value of purchases (cost neutralization), hence, it comes within first degree source as it increases the net profit proportionately. On the other hand, according to the Department, DEPB credit/duty drawback receipt do not come within first degree source as the said incentives flow from incentive schemes enacted by the Government of India or from s. 75 of the Customs Act, 1962. Hence, according to the Department, in the present cases, the first degree source is the incentive scheme/provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made in freely convertible currency. Credit is available only against the export product and at rates specified by DGFT for import of raw materials, components etc. DEPB credit under the scheme has to be calculated by taking into account the deemed import content of the export product as per basic customs duty and special additional duty payable on such deemed imports. Therefore, in our view DEPB/duty drawback are incentives which flow from the Schemes framed by Central Government or from s. 75 of the Customs Act, 1962, hence, incentives profits are not profits derived from the eligible business under s. 80-IB. They belong to the category of ancillary profits of such undertakings. 17. The next question is-what is duty drawback? Sec. 75 of the Customs Act, 1962 and s. 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 as refund of an amount arithmetically equal to customs duty or central excise duty act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of rebates, duty drawback, DEPB benefit etc. Profit generation could be on account of cost cutting, cost rationalization, business restructuring, tax planning on sundry balances being written back, liquidation of current assets etc. Therefore, we are of the view that duty drawback, DEPB benefits, rebates etc. cannot be credited against the cost of manufacture of goods debited in the P L a/c for purposes of s. 80-IA/80-IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking. 23. We are of the view that Department has correctly applied AS-2 as could be seen from the following illustration: -------------------------------------------------------- Expenditure Amount Income Amount -------------------------------------------------------- Opening stock 100 Sales 1,000 Purchases (including Duty drawback customs duty paid) 500 received 100 Manufacturing Closing stock 200 overheads 300 Administrative, selling distribution expenses 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as contemplated by the Hon'ble Supreme Court, in the phrase 'first degree nexus', in the case of Liberty India. In a nutshell, direct, immediate and proximate cause is vital and fundamental to include, any profit under the statutory expression 'derived from', which is eligible for deduction under s. 80-IB of the Act. 17.6 The Hon'ble Supreme Court, in the case of Liberty India categorically held that to be eligible for deduction under s. 80-IB of the Act, there must exist direct nexus between the profits and industrial undertaking. The duty drawback does not represent such direct nexus and, hence, the same cannot be said as profit derived from the industrial undertaking. In the present case, the source of excise duty and interest subsidy is not the industrial undertaking, but the scheme of the Central Government and, hence, such receipts do not fall in the category of first degree source or nexus, as held by the Hon'ble Supreme Court, in the said decision, while considering and adjudicating eligibility of deduction under s. 80-IB of the Act. The Hon'ble Supreme Court analysed the scheme of incentives, as contemplated under Chapter VI-A of the Act and observed that the form of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee between the income from duty drawback or import entitlements, which were the subject-matter of the decision of the Supreme Court, in the cases of Sterling Food and Pandian Chemicals, cannot be accepted as relevant distinction, as the core question before the Court was that such income was 'derived from' the specified business, which reasoning is fully applicable to the facts of the present case. The Hon'ble Supreme Court, in plethora of decisions consistently upheld the similar view, in the light of both the skin and the soul of the statutory provisions. Thus, the interpretation of the Hon'ble Supreme Court, in the light of the Deha and Dehi of the relevant statutory provisions is applicable to the incentives provisions of ss. 80-I, 80-IA and 80-IB of the Act. 17.8 In the course of present appellate proceedings, the learned counsel for the assessee contended while arguing his case on the nature of such receipts that the excise duty refund is form of subsidy. The Hon'ble Himachal Pradesh High Court, while dealing with transport subsidy in the case of CIT vs. Kiran Enterprises (2009) 32 DTR (HP) 111 : 2009-YIOL-577-HC-HP-IT, dt. 6th Oct., 2009, followed the decision of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussed above. Thus, judicially defined expression "derived from" is not ambiguous in text, context and meaning. 17.11 The legislative intent is discernible from the words employed in the relevant statutory provisions. Primarily language employed is the determinative factor of legislative intention, as it is found in the words used by the legislature itself. The expression 'derived from' is employed by the legislature in preference to the expression 'attributable to'. These expressions undisputedly carry different connotation and scope. Thus, the expression "derived from" has been judicially defined by the Hon'ble Supreme Court, having regard to the text and context of the statutory provisions of s. 80-IB of the Act. In view of this, expression "derived from" cannot embrace incidental income such as excise duty refund and interest subsidy, as the same do not have first degree nexus with the 'operational profit' derived from the industrial undertaking itself. 18. Having regard to the above legal and factual discussions, we are of the considered opinion that the impugned receipts are duty covered by the decision of the Hon'ble Supreme Court, in the case of Liberty India. Conse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder s. 80-IB of the IT Act 1961. 2. That the learned CIT(A) has erred in not appreciating the findings of the AO regarding the assessee's attempt of passing on the normal trade discount in the shape of credit notes and claiming it as excise duty benefit passed on to the customers. 3. That the learned CIT(A) has erred in not appreciating the fact that the excise duty charged by the manufacturer belong to the Central Excise Department and is to be paid in its entirety to the said Department and no part of this collection can be passed on to the customers. 4. That the appellant carves leave to add or amend or alter the ground of appeal before the appeal is heard." 22.1 In the course of present appellate proceedings, the learned Departmental Representative, stated that the CIT(A), erred in directing the AO, to reduce the amount to Rs. 8,14,374 out of total excise duty refund of Rs. 37,65,184, for the purpose of making disallowance under s. 80-IB of the Act. He, further, relied on the order of the AO. 22.2 The learned counsel for the assessee, on the other hand, relied on the order of the CIT(A) and reiterated that the submissions made before the authorities below. He prayed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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