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2016 (3) TMI 753

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..... that:- Tribunal, taking into consideration the judgment rendered by this Court in the case of CIT Vs. Gotan Lime Khaniz Udyog (2001 (7) TMI 19 - RAJASTHAN High Court ) has held that the books of accounts have been maintained in proper manner and deleted the addition and in our view, we find no perversity in the order of the Tribunal in deleting the tradition addition as even otherwise it is a finding of fact based on the material on record and there can be no hard and fast rule of increasing the GP Rate over the years. - Decided in favour of the assessee. Disallowance of duty draw back consultancy charges - While the AO held that it is capital expenditure in nature and it has enduring effect, however, both i.e. the CIT(A) as well as the Tribunal came to the conclusion that it is revenue in nature - Held that:- The finding of the Tribunal that it is not in the nature of enduring effect, is just and proper, the finding of fact recorded by both the appellate authorities is that the consultancy charges have to be paid on account of duty draw back received by the assessee which is to the extent of 1% or 1.5% and this has been paid on year to year basis. When this is a finding of fac .....

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..... n u/Sec. 80-IB of the Act @30% at ₹ 66,43,472/- on the total business income of ₹ 2,21,44,906/-. The assessee had claimed deduction in respect of entire profits of business which included export incentives to the tune of ₹ 1,02,02,570/- and it was claimed by the assessee that firstly the income of the entire business has to be computed under the head Income from business and profession and then 30% of such income is allowable as deduction u/Sec. 80-IB and accordingly the same was claimed as a deduction @30% as it derived such benefit from an industrial undertaking. The Assessing Officer (for short, 'AO'), however, was of the view that in so far as the export incentives received to the tune of ₹ 1,02,02,570/- is concerned, since it does not constitute profit and gain derived from the assessee's industrial undertaking, there being no nexus with the profit of business/business income, therefore, the AO excluded the same for consideration and out of purview of Sec. 80-IB. He while disallowing relied upon judgments of Hon'ble Apex Court in the case of CIT Vs. N.C. Budhiraja Company : (1993) 204 ITR 412 (SC); Cambay Electric Supply Industrial C .....

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..... ort incentive is integral part of the pricing of the goods, the exporter exports the goods taking into consideration the import entitlements/ DEPB license/ duty draw back and there is direct nexus between the cost of the manufactured goods and the said receipts and DEPB license is to be compensated against the excise/custom duty paid or inputs used in manufacturing and contended that it is also derived from the export business and thus the deduction is allowable. 8. They also contended that this Court in the case of Saraf Seasoning Udyog Vs. ITO : (2009) 317 ITR 0202 (Raj.) has taken into consideration the newly introduced Clause (iiid) u/Sec. 28 of the Act and contended that the judgment of this Court on the same issue is required to be taken into consideration in which even the judgment of the Hon'ble Apex Court in the case of CIT Vs. Sterling Foods (supra) has been distinguished. They contended that the judgments of Gujarat High Court in the case of CIT Vs. India Gelatine and Chemicals Ltd. (2005) 275 ITR 0284 (Guj.) and Delhi High Court in the case of CIT Vs. Eltek SGS P. Ltd.: (2008) 300 ITR 0006 (Del.) also support contention of the assessee. They also relied upon the .....

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..... We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Government whereunder the export entitlements become available. There must be, for the application of the words derived from , a direct nexus between the profits and gains and only industrial undertaking. In the instant case, the nexus is not direct and only incidental. The industrial undertaking exports processed sea food. By reason of such export, the Export Promotion Scheme applies. Thereunder, the assessee is entitled to import entitlements, which it can sell. The sale consideration therefrom cannot, in our view, be held to constitute a profit and gain derived from the assessee's industrial undertaking. 14. Thus, the Hon'ble Apex Court in the identical circumstances relating to import entitlements clearly held that it does not constitute profit and gains derived from the assessee's industrial undertaking. 15. The judgment of the Hon'ble Apex Court in the case of Liberty India Vs. CIT (supra) , in our view, is .....

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..... taking in section 80-IB. It held in para 24 as under : In the circumstances, we hold that duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of section 80-I/80-IA/80-IB of the 1961 Act. 16. Thus, in our view, the judgment is directly and squarely on the issue and the issue is no more res integra. It may also be relevant to observe that the judgments rendered by this Court in the case of Saraf Seasoning Udyog (supra) and CIT Vs. Chokshi Contacts (P) Ltd. (supra) are judgments prior to the judgment of the Hon'ble Apex Court in the case of Liberty India Vs. CIT (supra) and thus are per incurium. The judgments in the case of Topman Exports Vs. CIT (supra) and Vikas Kalra Vs. CIT : (2012) 247 CTR 0382, in our view, are in context of sec. 80HHC read with explanation (baa) of the Income Tax Act, and accordingly are distinguishable. The other judgments, relied upon by counsel for the assessees, are also distinguishable in view of what we have noticed hereinabove and the arguments of the counsel for the assessees find no force and are hereby rejected. 17. We may also deal with the issue raised by le .....

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..... tock register maintained visa- vis the production/consumption of the raw material, and there are several cuttings and overwriting in the so-called stock register/records and thus applied provisions of Sec. 145 (3) and made a trading addition of ₹ 22,95,317/- and on an appeal by the assessee, the CIT(A) partially allowed the appeal of the assessee and sustained the addition of ₹ 12,42,965/-. On a further appeal by the assessee, the Tribunal, after analyzing the past history, came to the conclusion that the total turnover has increased sharply and found that the assessee was able to prove with material and evidence that exports to a concern Her Style is less profitable than sales made to other concern and approximately 50% of the turnover is to Her Style whereas in the past years, the sale relating to the said company was lower and finding such a fact, the Tribunal deleted the entire trading addition. 22. Ld. counsel for the appellant-Revenue contended that the Tribunal was unjustified in deleting the trading addition which was rightly made by the AO as once the provisions of Sec. 145(3) are invoked and the assessee is not able to prove by acceptable evidence the d .....

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..... view that interest received has no concern or connection over the export turnover/income, and rather it is in the nature of income from other sources and thus rejected claim of the assessee. The CIT(A) also rejected contention of the assessee. However, on a further appeal before the Tribunal, the Tribunal allowed the claim holding that it is income from business. 28. Ld. counsel for the Revenue at the outset relied upon the judgment rendered by Larger Bench of this Court in the case of Reliance Trading Corporation Vs. ITO : (2015) 376 ITR 53 (FB-Raj.) and Division Bench of this Court in the case of CIT ors. Vs. Vimal Chand Surana and ors., DB Income Tax Reference No.4/2003 and other connected cases, decided on 11/09/2015, which has taken into consideration identical question. 29. Per-contra, ld. counsel for the assessee contended that the order of the Tribunal is just and proper and the interest was shown as part of profits and was in the natue of business income, formed part of business income and there was common books of accounts and there was direct nexus of the said amounts having been received on exports. Thus, the Tribunal was correct and justified. 30. We have c .....

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..... (ii)Whether in the facts and circumstances of the case, the ITAT was justified in law and has not acted perversely in holding the duty drawback consultancy charges as revenue expenditure instead of capital expenditure inspite of the fact that the benefit arising out of this expenses was of enduring nature? 33. The said two questions raised in addition to Sec. 80-IB, are that the Tribunal erred in deleting the addition on account of gross profit rate taken as 20% by the AO and the the duty draw back consultancy charges. While the claim of the assessee was that no estimation of trading account can be made and consultancy charges paid is revenue expenditure. The claim of the revenue was on the contrary that books are required to be rejected as true profits cannot be deduced and consultancy charges are capital in nature and thus capital expenditure. 34. Insofar as the trading addition is concerned, in our view, the AO applied a certain percentage while making trading addition rejecting books of accounts u/Sec. 145(3) and applied the GP Rate of 20% on the total turnover as disclosed by the assessee. The CIT(A) on a further appeal by the assessee applied a GP Rate of 15% . Howe .....

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