TMI Blog2017 (5) TMI 1492X X X X Extracts X X X X X X X X Extracts X X X X ..... matter, in our considered opinion, the view taken by the Delhi High Court is to be accepted by this Court and we accept the same. No doubt the counsel for the department has contended that the two views are taken by the Gujarat High Court while considering the duty draw back but this will not fall within the duty as held by the tribunal and in view of judgment of Supreme Court in Meghalaya Steel (2016 (3) TMI 375 - SUPREME COURT). - Decided in favour of the assessee and against the department. Rejection of books of accounts under Section 145 (3) - Held that:- Questions regarding 145 (3) in our considered opinion when the assessee was required to maintain all books of accounts for excise duty, the rejection of books of accounts under Section 145(3) followed only on the ground of 99 % sale made to the sister concerned. Merely because this is made to the sister concerned is not a ground of rejection of books of accounts under Section 145 (3). Decided in favour of the assessee. Whether the payment is made duty tax and it is reflected in the books of accounts, what is the profit and loss is absolutely prerogative of the assessee - Held that:- In view of the observations made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) of the Act despite of the proven facts that assessee has indulged in over-billings and suppression of expenses, merely to show higher profits.? (ii) Whether in the facts and circumstances of the case, the Tribunal was justified in not restoring the addition of ₹ 25,00,000/- made under Section 69C of the Act, considering the over-billing and suppression of expenses done by the assessee? (3) Whether in the facts and circumstances of the case, the Tribunal was justified in not upholding the estimation of gross profit of the assessee at ₹ 67,73,006/- as done by the Assessing Officer? 4. Counsel for the appellant Mr. Singhi has contended that in view of the subsequent observations which are made by the A.O. while considering the issue of deduction, he has given following findings:- The arguments given by the assessee have been considered and it is found that the same cannot be accepted on the basis of following reasons:- a) Assessee has claimed deduction u/s 80IC(2)(a)(iii) in respect of profit of business, which includes the amount of duty draw back in the form of Excise Duty Refund. Thus method of computation of deduction claimed by assessee u/s 80IC(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s can, in the circumstances, only be said to be the export promotions scheme of the Central Government where under the export entitlements became available. On the similar analogy Excise Duty refund can not be the motive of installation of undertaking or enterprise. There must be for the application of the words derived from , a direct nexus between the profit and gains and the industrial undertaking. In the instant case, the nexus is not direct but only Incidental. The industrial undertaking exports processed with sea food. By reason of such export and export promotion scheme applies. There under the assessee is entitled to import entitlements, which it can sell. The sale consideration there from can not in the view of SC be held to constitute a profit and gain derived from the assessee industrial undertaking. Similar conclusion applies to excise duty refund cases. e) The assessee has desired to distinguish its case from that of Sterling Foods by claiming that in the case of Import entitlements has not been sold. It has only resulted in reduction of its costing and accordingly there is increase in profit. However, the fundamental finding of Hon ble SC still remains same and is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Further the crux of all the arguments of the assessee mentioned in reply is that Excise Duty Refund allowed to him is reimbursement of Excise Duty included in the cost for manufacturing. Thus the Excise Duty Refund increases the profit from manufacturing activity and therefore there is a direct nexus between income from Excise Duty with the industrial activity. The above arguments have a basic inherent fallacy. The benefit of the Excise Duty Refund is available for units set up in North Eastern States as per Govt. norms prescribed. Thus a person who is trading same articles from open market as those which are manufactured by the assessee, he would have also been receiving same amount of benefit under Excise Duty Refund Scheme. It clearly means that these two benefits are not at all directly linked with industrial activity and therefore brings out the inherent fallacy in the argument of the assessee. i) The fact that the Excise Duty Refund benefits do not have direct nexus with undertaking and therefore cannot be treated as part of profit derived from undertaking, is also supported by the view of Hon ble SC in the case of Pandian Chemicals Ltd. vs. CIT, 262 ITR 278. The poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns to be the profit. On account of the Duty Draw Back, business profit may be increased, but so far as profits and gains derived from an industrial undertaking is concerned, it will not increase and it will remain the same. Thus the facts of the decision are squarely applicable to the facts of this case. k) The assessee has placed heavy reliance upon ITAT s decisions. But in view of the Delhi High Court s decision (192 CTR 81) now, the reliance placed by assessee became irrelevant. l) Therefore, it is held that the benefit derived by way of Excise Duty Refund by the assessee, though they are part of profits and gains of business, but cannot be treated as profits derived from undertaking established in north eastern states. Therefore, deduction u/s 80IC(2)(a)(iii) is not available on such export benefits. Accordingly the computation of deduction u/s 80IC(2) (a)(iii) is being altered to give effect to this finding. In this case the assessee has received a benefit of ₹ 2,90,51,228/- as Excise Duty Refund on which deduction u/s 80IC(2)(a)(iii) will not be available. 4.1 The same was confirmed by CIT (A) in its judgment holding as under: 6.30. It has also distinguishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al undertaking i.e. the appellant is entitled for the exemption, by virtue of the notification No.33/99/CE dated 8.7.99 hence, its case is entirely distinguishable from the case laws relied upon by it. The assessee s industrial undertaking manufactures and sells Menthol, DMO and other essential oils and makes profits and gains. By reason of such industrial undertaking, the government scheme for incentives applies under which the assessee is entitled for excise duty refund, therefore, it is the government scheme which is the direct source for such refund and not the assessee s running newly established undertaking. In view of the facts and circumstances and legality of the case, as discussed in the preceding paragraph, it is to be held here that the excise duty refund is not the income derived from the industrial undertaking. The source of this incentive in the form of excise duty refund is that particular scheme notified by the government and not the industrial undertaking itself. Hence, it is held here that the AO is right in not allowing the deduction u/s 80IC(2)(a)(iii) of the Act on the excise duty refund of ₹ 2,90,51,228/-. The addition made by the AO is thus confirmed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not brought any material on record with regard to the suppression of the expenses and the assessee has also not made the over billing and all the purchases made are genuine and the assessee is allowed the exemption of Excise Duty and therefore, the AO in the absence of any material cannot estimate the gross profit other than declared by the assessee. No addition on account of suppression of expenses u/s 69C can be made by the AO, Also the addition made on account of estimation of gross profit is directed to be deleted. Thus Ground No. 1,2,3 and 4 of the assessee are allowed and the solitary ground of the Revenue is dismissed. 4.3 He has relied upon the decision of Liberty India Vs. CIT, (2009) 317 ITR 218 holding as under:- 13. Before analyzing Section 80IB, as a prefatory note, it needs to be mentioned that the 1961 Act broadly provides for two types of tax incentives, namely, investment linked incentives and profit linked incentives. Chapter VI-A which provides for incentives in the form of tax deductions essentially belong to the category of profit linked incentives . Therefore, when Section 80IA/80IB refers to profits derived from eligible business, it is not the owners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Government of India or from Section 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 Customs Act. In this connection, Department places heavy reliance on the judgment of this Court in Sterling Food (supra). Therefore, in the present cases, in which we are required to examine the eligible business of an industrial undertaking, we need to trace the source of the profits to manufacture. see CIT v. Kirloskar Oil Engines Ltd. reported in MANU/MH/0099/1984 : (1986) 157 ITR 762 17. The next question is - what is duty drawback? Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944 empower Government of India to provide for repayment of customs and excise duty paid by an assessee. The refund is of the average amount of duty paid on materials of any particular class or description of goods used in the manufacture of export goods of specified class. The Rules do not envisage a refund of an amount arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cum-manufacturer. Subsection (2) of Section 75 of the Custo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessees' industrial undertaking. ...........In the result, the appeals are allowed The judgment under appeal is set aside. The question is answered in the affirmative and in favour of the Revenue. 4.5 He contended that both the judgments of the Supreme Court have been considered by the Division Bench of this Court in another decision in ADCI Dye Chem Pvt.Ltd. vs. Dy. Commissioner of Income Tax (2015) 370 ITR 408 (Guj.) where Division Bench has considered the case and observed as under:- Heard the learned advocates for the respective parties at length. The question which is posed for consideration of this court is whether the learned Tribunal was right in law in confirming that the appellant was not entitled to deduction under section 80-IA of the Income-tax Act, 1961, in respect of Central excise duty set off and sales tax set off? At the outset, it is required to be noted that the aforesaid issue is squarely covered against the assessee in view of the decision of the hon'ble Supreme Court in the case of liberty India v. CIT reported in MANU/SC/1585/2009 : [2009] 317 ITR 218 (SC) as well as in the case of Sterling Foods (supra). It is required to be noted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court was entirely different from the issue raised in this case. In that case, the assessee owned a factory in which he processed cashew nuts grown in his farm and he exported the cashew nuts as an exporter. At the same time, the assessee processed cashew nuts which were supplied to him by exporters on job work basis and he collected processing charges for the same. He, however, did not include such processing charges collected on job work basis in his total turnover for the purpose of computing the deduction under Section 80HHC(3) of the Act and as a result this turnover of collection charges was left out in the computation of profits and gains of business of the assessee and as a result ninety per cent of the profits of the assessee arising out of the receipt of processing charges was not deducted under clauses (1) of the Explanation (baa) to Section 80HHC. This Court held that the processing charges was included in the gross total income from cashew business and hence in terms of Explanation (baa), ninety per cent of the gross total income arising from processing charges had to be deducted under Explanation (baa) to arrive at the profits of the business. In this case, this Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first notification, i.e., 32 of 1999 the exemption is area specific, while in the second notification, i.e., 33 of 1999 the exemption is specific to goods as referred to in the Schedule appended to the said notification. It is thus clear that the exemption is directly relatable to an industrial undertaking manufacturing goods which are otherwise exgible to duty. The exemption is available either under Notification No. 32 of 1999 or under Notification No. 33 of 1999 dependent on where the unit is located or the type of goods manufactured by an assessee as specified in the relevant notification. [Para 4.7] 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/asses see by the 15th of the succeeding month. The notifications further provided that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not fall under any of the other four heads of income. Section 28(iii) (b) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head profits and gains of business or profession . If cash assistance received or receivable against exports schemes are included as being income under the head profits and gains of business or profession , it is obvious that subsidies which go to reimbursement of cost in the production of goods of a particular business would also have to be included under the head profits and gains of business or profession , and not under the head income from other sources . 5.2 The said view has now been upheld by the Supreme Court. 5.3 He further contended that the conclusion reached by the tribunal in paragraph No.7 12 which reads as under:- 7. We have heard the parties. The brief facts of the case are that the assessee is Prop: of M/s Koolmint manufacturing company, Assam. The said concern is manufacturer of Menthol, DMO and other essential oils. During the year, the said concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerns at a lower rates. The AO has observed in his order that the decision of the AO in the case of the sister concern where the sister concern has declared gross profit rate 6.75% and the AO has estimated the sale at 10% in the assessment year 2003-04. The AO further observed that assessee has suppressed various expenses vide page 8 and 9 of his order. The AO also observed that the assessee has made the purchases in cash in violation of Provisions Section 40A(3) of the Act. Therefore, the AO for the reasons mentioned herein before rejected the books of account of the assessee by invoking the Provisions of Section 145(3) of the Act. 12. After perusal of the facts, we find that the assessee is exempt from Excise Duty vide notification No33/99CE dated 8-7-99. To claim the exemption, the assessee has to deposit Excise Duty with the Excise Department in cash for allowing clearance of goods and the payment so made is debited to Excise Duty account which is shown as a debit in the P L A/c. Similarly, after the payment of Excise Duty and clearance of goods, the said Excise Duty is returned to the manufacturer by 15th of the following month. What has been refunded to the assessee is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... established only with a public motive of taking benefits of taxation, therefore the establishment of a factory in north- east parts with all hurdles is required to be viewed in right prospective and the object of the government is to promote industries in the backward area of north-east area. When with all difficulties, the assessee has established a factory in the north-east part of the country, the taxes which are paid is required to be considered under the taxation statute and whenever there are two views it is well settled that the views which are in favour of the assessee is required to be adopted. 7.1 No doubt issue is now squarely covered by the decision of Delhi High Court whereby the Delhi High Court has considered the rebate of excise duty. In that view of the matter, in our considered opinion, the view taken by the Delhi High Court is to be accepted by this Court and we accept the same. 7.2 No doubt the counsel for the department has contended that the two views are taken by the Gujarat High Court while considering the duty draw back but this will not fall within the duty as held by the tribunal and in view of judgment of Supreme Court in Meghalaya Steel (supra). ..... X X X X Extracts X X X X X X X X Extracts X X X X
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