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2016 (3) TMI 753 - RAJASTHAN HIGH COURT

2016 (3) TMI 753 - RAJASTHAN HIGH COURT - TMI - Deduction u/Sec. 80-IB - DEPB/duty draw back benefits - Held that:- On perusal of Sec. 80-IB, in our view, it postulates that the deduction u/Sec. 80-IB is available to the eligible industrial undertaking where the gross total income of the eligible assessee includes any “profits and gains derived from any eligible business” referred to in the section (emphasis supplied). What has to be seen is “derived from” and not “attributable to”. The expressi .....

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te 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% - Held 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 traditio .....

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l 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 fact recorded by the appellate authorities that these are the consultancy charges on account of receipt of duty draw back and is being paid on annual basis .....

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Singhi, Mr. Nikhil Similote, Ms. Meenal Ghiya For The Respondent : Mr. Mahendra Gargieya, Mr. Sanjay Jhanwar, Mr. Gunjan Pathak Reportable BY THE COURT (Per Hon'ble Ranka, J.) 1. This batch of Income Tax Appeals is directed against order of the Income Tax Appellate Tribunal, Jaipur (for short, 'Tribunal') and since the controversy raised and the substantial question of law admitted by this Court is same, for the sake of convenience and as agreed by counsel for the parties, the bunch .....

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e the fact that no quantitative details for verification was furnished by the assessee. (ii) Whether in the facts and circumstances of the case the ITAT has not acted perversely and illegally in directing to calculate the deduction of both 80-IB on total income . 3. The respondent-assessee in this appeal derives income from export of readymade garments and primarily is an exporter of such goods. The assessee furnished its return of income declaring an income of ₹ 44,71,080/- and thereafter .....

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y 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 a .....

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) and held that it is income earned on sale of import entitlements of duty draw back and excluded the same and reduced it from total business income of ₹ 2,21,44,906/- and accordingly held that deduction u/Sec. 80-IB is available on the actual business income/profit derived on ₹ 1,19,42,336/- and on the basis whereof deduction u/Sec. 80-IB of ₹ 35,82,700/- is allowable as against claimed by the assessee at ₹ 66,43,472/-. 4. The matter was carried in appeal by the responde .....

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ty draw back is integral part of the pricing of the goods, part of the cost of the production of the industrial undertaking and therefore, the duty draw back has to be treated as derived from industrial undertaking and allowed the claim. 6. Ld. counsel for the Revenue jointly contended that by no stretch of imagination, the amount, being in the nature of duty draw back, can be said to be derived as profit of business. Though it may be part of the profit and loss account but it is received from t .....

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n'ble Apex Court has held that the export incentives are not derived from the export business of the industrial undertaking and thus the issue is squarely covered in favour of the Revenue. 7. Per-contra, ld. counsel for the respondents jointly contended that the amount received as export 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 co .....

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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 judgment of th .....

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f the Central Board of Direct Taxes bearing No.21/2005 dt. 10/12/2015, the board has instructed that the Circular be applied to appeals to be filed and also to pending in High Court and such appeals either are required to be withdrawn/ not pressed by the Revenue and therefore, such of the appeals where the tax effect being below 20 lac, deserve to be dismissed in view of the Circular which is binding on the revenue. 10. We have heard counsel for the parties and carefully gone through the materia .....

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o the eligible industrial undertaking where the gross total income of the eligible assessee includes any profits and gains derived from any eligible business referred to in the section (emphasis supplied). What has to be seen is derived from and not attributable to . The expression derived from is restrictive as against attributable to , which is wider. There should be immediate nexus and not distant nexus. In our view DEPB/duty draw back benefits do not form part of net profit of undertaking as .....

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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. Th .....

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of Liberty India Vs. CIT (supra) , in our view, is also directly on the issue as in the instant case u/Sec. 80-IB of the Act. The Hon'ble Apex Court, in para 14 has observed: Analysing Chapter VI-A, we find that section 80IB/80-IA are a code by themselves as they contain both substantive as well as procedural provisions. Therefore, we need to examine what these provisions prescribe for computation of profits of the eligible business . It is evident that section 80-IB provides for allowing o .....

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redit/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 receipts do not come within first degree source as the said incentives flow from the incentive schemes enacted by the Government of India or from section 75 of the Customs Act, 1962. Hence, according to the Department, in the present cases, the first de .....

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heme and held DEPB as an incentive. It held in para 18 as under : Analysing the concept of remission of duty drawback and DEPB, we are satisfied that the remission of duty is on account of the statutory/policy provisions in the Customs Act/Scheme(s) framed by the Government of India. In the circumstances, we hold that profits derived by way of such incentives do not fall within the expression profits derived from industrial undertaking in section 80-IB. It held in para 24 as under : In the circu .....

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udgment 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 .....

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d that it applies to all pending appeals (para 10) below the specified tax limits, which may be withdrawn/not pressed. However, in view of Article 141 of the Constitution, we are bound by the judgment of the Hon'ble Apex Court and bound to follow such an issue/question which is squarely and directly covered on the issue being law of the land, and the Circular may not be applicable at-least in such matters and even otherwise the Circular of CBDT is not binding on this Court. Thus, we hold tha .....

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is answered in favour of the Revenue and against the assessee and the order of the Tribunal insofar as this issue is concerned, is reversed and appeals of the Revenue allowed. 19. In some of the appeals, in addition to the aforesaid substantial question, other substantial question of law has been framed, we now deal the same hereunder:- 20. DB I.T. Appeal No.42/2008 (CIT Vs. M/s. Garment Crafts India Ltd.: Whether in the facts and circumstances of the case, the ITAT has not acted illegally and p .....

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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 t .....

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njustified 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 defects noticed and the true profits are not deducible from such accounts and estimation is required to be made and since the assessee itself declared a gross profit rate of 45.76% in past years, therefore, the AO was well justified in applying the said GP Rate and thus supported the order of the Ao. 23. Pe .....

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cerned, as the Tribunal has found on facts that the assessee had exported approximately 50% of the turnover to a firm Her Style whereas the margin of profit was lower in comparison to others and also that in the past only 30% of the total sales was to the firm Her Style whereas the same during the current year was almost 50%. 25. Taking into consideration the above facts, in our view, the order of the Tribunal cannot be said to be unjust. The order of the Tribunal is just and proper and we are n .....

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it of the business' the ITAT was justified in directing to exclude the interest turn over from the total turn over of the business for the purpose of computing the deduction u/s. 80HHC(3) adopting the formula of 'profit of the business' export turn over/total turn over ? 27. The assessee claimed that the interest received by the assessee from the FDR (Fixed Deposit Receipts) and also from other persons, was in the nature of business income on which the assessee was entitled to deduct .....

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ment 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 .....

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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, is squarely applicable on the facts of the instant case and we quote the relevant observations : The Larger Bench of this court has taken into consideration the judgment of CIT v. Shri Ram Honda Power Equip (supra) which by and large has touched the controversy in hand and the said judgment of Delhi High Court has taken into consideration the fa .....

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262 ITR 278, and has come to the conclusion that deduction under Section 80HHC is not allowable, and in our view, the judgment of Shri Ram Honda Power Equip (supra), so also Rajasthan Land Development Corporation (Supra), Murli Investment Company (supra) and Avon Apparels (Supra), apply to the facts of the instant case with full force and we, after analysing the facts in the instant reference/appeals so also judgment of Larger Bench hold that interest received/earned does not enure for deductio .....

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not acted perversely and illegally in deleting the addition of amount of GP rate taken as 20% by Assessing Officer after considering comparable cases? (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 addi .....

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nditure. 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% . However, the Tribunal, taking into consideration the judgment rendered by this Court in the case of CIT Vs. Gotan Lime Khaniz Udyog : (2002) 256 ITR 243, has held .....

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ture 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. In our view, 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 .....

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