TMI Blog2014 (8) TMI 762X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(A) is set aside and the assessee is not eligible for deduction u/s 80-IB in respect of interest on FDR and Sales Tax incentive – Decided in favour of Revenue. - ITA No.179/PNJ/2014 - - - Dated:- 14-8-2014 - Shri P. K. Bansal And Shri D. T. Garasia,JJ. For the Appellant : Shri B. Barthakur, Ld. DR For the Respondent : Shri Sham J. Kamat, CA Shri Chinmay S. Kamat, CA ORDER Per: D. T. Garasia This appeal has been filed by the department against the order of CIT(A)- Panaji, dated 14.02.2014 for the Assessment Year 2009-10. 2. The grounds are raised by the department which read as under: 1. The order of Ld.CIT(A) has erred in holding that blending and bottling amounts to manufacture in terms of section 80IB(2)(iii). 2. The Ld CIT(A) has erred in not considering that sales tax incentive is in the nature of duty draw back and the Supreme Court decision in the case of Liberty India Vs. CIT squarely applies to the facts of the assessee s case as sales tax incentive is incentive profit and the same is not eligible for 80IB benefit. 2.1. Ground No. 1:- The assessee company is engaged in the business of Blending and Bottling of IMFL. The assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant for earlier years. The Hon ble ITAT decided the issue for A.Yr. 2003-04 to 2005-06 in ITA Nos 111,112 and 113/PNJ/2008 with the following concluding remarks: We have carefully considered the rival submissions and perused the record. Though having regard to the spirited arguments advanced by both the parties eloquently on the issue, depicting their specialized knowledge on the process followed in conversion of pure alcohol liquor into IMFL meant for human consumption under particular brand names, it may not be necessary for us to dwell into each aspect in detail having regard to the fact that all the contentions were referred to in the order passed by the learned CIT(A) since the view taken by the learned CIT(A) is in consonance with the view taken by the Hon ble Madras High Court and in the absence of a contrary decision of any other High Court, we are bound by the aforecited decision and thus we confirm the order of the learned CIT(A) and dismiss the appeal filed by the Revenue. In view of the fact that the Hon ble ITAT has decided this issue in favour of the appellant, A.O. is directed to allow the claim of deduction u/s 80IB to the appellant. This grounds of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incentive of ₹ 4,58,64,698/- from the Commercial Tax Department as VATD-NPV-CPS2005 appearing in the Profit and Loss account under the head other income. The assessee claimed 80IB benefit on the above income treating them as income derived from industrial undertaking. The Assessing Officer was of the view that sales tax incentive is not a profit of industry and it was disallowed by observing as under: In the light of the above discussion, the sales tax incentive is in the nature of duty draw back and the Supreme Court decision in the case of Liberty India Vs. CIT squarely applies to the facts of the assessee s case. Sales tax incentive is incentive profit and the same is not eligible for 801B benefit in view of the Supreme Court decision referred above, in which it held that incentive profits are not profits derived from the eligible business u/s.80IB. Accordingly, sales tax incentive is to be reduced from the gross total income for computing the deduction u/s.80IB which was not done at the time of assessment. Hence, it is requested that the Hon ble CIT(A) may enhance the addition in the assessment order of the above said amount as income from other sources. 3.1. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Tribunal has taken the view following the decision of Hon ble Supreme Court in the case of Liberty of India vs. CIT reported in 317 ITR 218 wherein the Hon ble Supreme Court has taken the view against the assessee although in respect of DEPB/ Duty Drawback benefit, but the principle laid down by the Hon ble Supreme Court is applicable to the case of the assessee. Therefore, the assessment must be enhanced and CIT(A) is not justified in deleting the same. 3.3 Learned AR submitted before us that the assessee has received sales tax incentive from the Commercial Tax Department. The assessee has claimed this incentive as income derived from industrial undertaking but the in the case of Liberty India vs. CIT reported in 317 ITR 218(SC) wherein the Hon ble Supreme Court has held that duty drawback is refund of excise duty already paid hence, it reduces the cost of production and therefore this source is covered within the first degree and hence, it is eligible for 80I deduction. The Supreme Court held that the immediate source of income for the duty drawback is the government policy and not the industrial undertaking. Therefore, this issue in controversy where assessee received t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government of India to provide for repayment of customs duty and 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 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 and not in the Undertaking. ii. Liberty India decision was on account of cost of manufacture and not on account of sales turnover iii. Duty drawback, rebate, etc., (resulting from cost of manufacture) should not be treated as adjustment (credited) to the cost of purchase or manufacture of goods. jv. As a corollary the rebate etc., resulting from sale should not be debited to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ast the accounts on INCLUSIVE basis and attached the same to this reply in which the three columns showing 1) the EXCLUSIVE method figures, 2) the adjustments necessary to make the accounts on INCLUSIVE method figures and 3) the resultant figures following INCLUSIVE method are shown. Your Honour will see that in this computation the amount of GVATD-NPVCPS2005 which has been taken as incentive by the AO does not appear at all. Hence there is no question of non-granting of deduction under Section 801B on the alleged basis of such non-existent imaginary incentive being of second degree nature. 7 The Respondent submits that the issue raised by the AO is covered in favour of the Respondent by [2012] 24 taxmann.com 86 (Delhi) ITAT, DELHI BENCH A in Aroma Chemicals a copy of which judgement is annexed hereto. Paragraph 6.3 thereof reads: 6.3 In the instant case before us, not only that the learned Departmental Representative did not demonstrate before us as to how the schemes relating to DEPB and duty drawback on one hand and Cenvat on the other, are similar, as observed by AO/CIT(A), she did not even dispute the facts that net impact of entries made by the assessee in the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ATD NPV CPS2005 is treated as income by itself the same has a first degree connection with the Industrial undertaking, as the same is the turnover of the sale proceeds of the Undertaking. Nothing is received by the Respondent from the State as incentive but only a part of the receipts in the nature of sales proceeds received from the customers. It is very important to note that the GVATD NPV-CPS 2005 scheme for the purposes of charging FULL VAT is not dependent upon any contingency or conditions, as far as the assessee is concerned, like export or the like, as is the case in Duty Draw Back. It is also necessary to mention that even if the Respondent had given composite bills (without showing the VAT separately in the invoice)of sale proceeds, the Respondent will be still entitled to pay 25% of the VAT calculated backwards for splitting the gross sales proceeds between NET SALES and VAT. Hence the VAT collected is nothing but a part of the gross sales proceeds and has a first degree connection with the Industrial Undertaking and is a revenue DERIVED FROM such undertaking. 13 In Tuticorin Alkalies 227 ITR 172 SC it is held that Principles of accountancy do not override provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me tax computation the Respondent has followed the above to the letter and spirit. 15 It is therefore prayed that the issue may be decided in favour of the Respondent by sustaining the order of the first appellate order. 3.4. We have heard the rival contention of both the parties. Looking to the facts and circumstances of the case, we find that the assessee has received sales tax incentive of ₹ 4,58,64,698/- from the Commercial Tax Department as VATD-NPV-CPS2005 appearing in the Profit and Loss account under the head other income. The assessee claiming 80IB benefit on the above income treating them as income derived from industrial undertaking. We find that Hon ble Supreme Court in the case of Liberty India vs. CIT (Supra) wherein the Hon ble Supreme Court has held that immediate source of income is to be looked into while allowing the deduction under 80IA deduction. The Assessee has claimed the sales tax incentive the first degree of source is Government policy and not the industrial undertaking. Therefore, the assessee received sales tax VAT incentives is the first degree and it is Govt. benefit and it is not industrial undertaking benefit, therefore, it is not a pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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