Smt. Sunita Mohindersinh Walia, Ahmedabad v. The CIT-V,, Ahmedabad

ITA 1240/AHD/2010 | 2006-2007
Pronouncement Date: 13-08-2010 | Result: Dismissed

Appeal Details

RSA Number 124020514 RSA 2010
Bench Ahmedabad
Appeal Number ITA 1240/AHD/2010
Duration Of Justice 3 month(s) 23 day(s)
Appellant Smt. Sunita Mohindersinh Walia, Ahmedabad
Respondent The CIT-V,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 13-08-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 13-08-2010
Date Of Final Hearing 06-08-2010
Next Hearing Date 06-08-2010
Assessment Year 2006-2007
Appeal Filed On 20-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH BEFORE SHRI G.D. AGARWAL VICE-PRESIDENT (AZ) AND SHRI MAHAVIR SINGH JUDICIAL MEMBER ITA NO.1240/AHD/2010 [ASSTT.YEAR: 2006-07] SMT. SUNITABEN MOHINDERSINGH WALIA -VS- COMMISSIO NER OF INCOME A/12 MAHARAJA PALACE TAX-V AHMEDABAD UNIVERSITY ROAD NAVRANGPURA AHMEDABAD-380 009 PAN NO.AAHJW11790Q (APPELLANT) (RESPONDENT) REVENUE BY : SHRI ALOK JOHRI CIT-DR ASSESSEE BY: SHRI DIPAK R THAKKAR AR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX -V AHMEDABAD VIDE NO. CIT-V/TECH./263/S MW/2009-10 DATED 28-01- 2010. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF REVISION PASSED BY CIT U/S.263 SETTING ASIDE THE ASSESSMENT ON THE GROUND THAT THE ORDER OF ASSESSING OFFICER IS ERRONEOUS TO THE EXTENT OF ALL OWANCE OF DEDUCTION U/S.80IB ON DUTY DRAWBACK (EXPORT INCENTIVE). FOR THIS ASSESSE E HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS :- 1.0. THE LEARNED COMMISSIONER OF INCOME TAX V A HMEDABAD HAS ERRED IN PASSING ORDER U/S.263 OF THE INCOME TAX ACT 1961 F OR THE ASSESSMENT YEAR - 2006-2007. ITA NO.1240/AHD/2010 A.Y. 2006-07 SMT. SUSNITABEN M WALIA V. CIT-V ABD PAGE 2 2.01 THAT VARIOUS REASONS ADVANCED BY LEARNED CIT-V IN MAKING DISALLOWANCE ON THE GROUND OF DUTY DRAWBACK (EXPORT INCENTIVE) ARE CONTRARY TO THE FACTS OF THE CASE AND EVIDENCES ON RECORD. 2.02. THE APPELLANT THEREFORE SUBMIT THAT THE DISAL LOWANCE OF RS.14 82 784/- IS TO BE DELETED. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT ASSESSEE IS ENGAGED IN BUSINESS OF MANUFACTURING AND EXPORTING READYMADE G ARMENTS HOME FURNISHINGS ETC. AS PROPRIETOR OF M/S PAPERMOOON INTERNATIONAL. THE ASSESSEE IN HER RETURN OF INCOME FILED FOR ASSESSMENT YEAR 2006-07 CLAIMED DE DUCTION U/S.80IB OF RS.6 02 511/- BEING 25% OF THE PROFIT OF THE BUSINE SS COMPUTED AT RS.24 10 044/- FROM THE BUSINESS OF M/S. PAPERMOON INTERNATIONAL. DURING THE ASSESSMENT PROCEEDINGS IN RESPONSE TO ASSESSING OFFICERS PROP OSAL TO RESTRICT THE CLAIM OF DEDUCTION U/S.80IB OF THE ACT THE ASSESSEE HAS FURN ISHED DETAILS OF INCOME FROM DISCOUNT AND REBATE AT RS.51 583/- EXPORT INCENTIV E (DUTY DRAW BACK) AT RS.14 82 784/-; INTEREST ON FDR RS.3 32 073/- AND R ENT INCOME RS.S70 260/- TOTALING RS.19 36 700/-. THE ASSESSEE HERSELF HAS EXCLUDED T HE INTEREST ON FDR RENTAL INCOME FROM THE PROFITS OF THE ELIGIBLE BUSINESS FO R COMPUTATION OF DEDUCTION U/S.80IB. IN RESPECT OF DISCOUNT AND REBATE IT IS CLAIMED AS DISCOUNT ALLOWED TO THE SUPPLIER OF RAW MATERIAL. WITH REGARD TO THE DUTY D RAW BACK OF RS.14 82 784/- THE ASSESSEE SUBMITTED THAT DEDUCTION U/S80IB OF THE AC T IS ALLOWABLE AS WAS ALLOWED BY CIT(A) FOR ASSESSMENT YEARS 2001-02 AND 2003-05 IN HER CASE. ON THE BASIS OF THE ABOVE SUBMISSIONS THE AO HAS COMPLETED THE ASSESSM ENT ALLOWING DEDUCTION U/S.80IB AS CLAIMED AT RS.6 02 511/-. THE AO ALSO A LLOWED THE DEDUCTION U/S.80IB ON DUTY DRAWBACK RECEIVED BY THE ASSESSEE AS PER THE S CHEME OF CENTRAL GOVERNMENT AMOUNTING TO RS.14 82 784/-. ACCORDINGLY CIT NOTED FROM THE CASE RECORDS THAT THE ORDER OF AO IS ERRONEOUS SO AS TO PREJUDICIAL TO TH E INTEREST OF REVENUE AND ACCORDINGLY HE ISSUED SHOW CAUSE NOTICE U/S.263 OF THE ACT VIDE LETTER DATED 23-12- 2009. THE ASSESSEE RELIED ON THE DECISION OF EARLIE R YEARS I.E. ASSESSMENT YEARS 2001-02 AND 2002-03 OF CIT(A) AND STATED THAT CIT(A ) ALREADY ALLOWED THE CLAIM CONSIDERING THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF CIT V. STERLING FOODS (1999) 237 ITR 579 (SC) AND VARIOUS OTHER DECISION S OF HONBLE JURISDICTIONAL HIGH COURT AND ITAT AS UNDER:- ITA NO.1240/AHD/2010 A.Y. 2006-07 SMT. SUSNITABEN M WALIA V. CIT-V ABD PAGE 3 I) ACIT V. VIPIN SARDANA (ITAT DELHI) II) ACIT V. PRATIBHA SYNTEX LTD. 63 TTJ 409 (AHD) III) ACIT V. ANAND INTERNATIONAL (DEL) IV) INDIAN GELATINE AND CHEMICALS LTD. V. ITO 45 T AXMAN 22 (AHD) V) CIT V. INDIA GELATINE & CHEMICALS LTD. 275 ITR 284 (GUJ) 4. THE CIT RELYING ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF STERLING FOODS (SUPRA) AND THE DECISION HONBLE PUNJAB AND HARAYA NA IN THE CASE OF LIBERTY INDIA LTD. V. CIT (2007) 293 ITR 520 (P & H) SET ASIDE ASSESSMENT AND DIRECTED THE ASSESSING OFFICER TO FRAME ASSESSMENT AFRESH AS PER LAW AND THE RELEVANT DISCUSSION CARRIED IN PARA-7.IV WHICH READS AS UNDER:- IV) COMING TO THE MERITS OF THE CASE AS WAS CLEARL Y HELD BY THE SUPREME COURT IN THE CASE OF CIT VS. STERLING FOODS LTD. HINDUSTAN LEVER LTD. V /S CIT 239 ITR 217 AND PANDIAN CHEMICALS LTD. V/S CIT 262 ITR 278 THAT THE EXPORT INCENTIVES LIKE DEPB AND DUTY DRAW BACK WHICH FLOW FROM EITHER THE PROVISIONS OF CUSTOM AND EXCISE ACT OR AS PER THE SCHEMES FRAM ED BY CENTRAL GOVERNMENT FROM TIME TO TIME WITH MODIFICATION THE RE IS NO DIRECT NEXUS BETWEEN EXPORT INCENTIVES MORE SPECIFICALLY DUTY DR AW BACK/DEPB AND THE INDUSTRIAL UNDERTAKING ELIGIBLE FOR DEDUCTION U/S.8 0IB SUCH EXPORT INCENTIVES DO NOT FALL WITHIN THE EXPRESSION PROFITS DERIVED F ROM INDUSTRIAL UNDERTAKING. HENCE SUCH DUTY DRAW BACK/REBATE CANNOT BE TREATED AS ADJUSTMENT TO THE COST OF PURCHASE OF INPUTS OR MAN UFACTURE OF GOODS. THEY SHOULD BE TREATED AS SEPARATE ITEMS OF REVENUE OR I NCOME. THUS THEY ARE EARNED FROM INDEPENDENT SOURCE OF INCOME WHICH IS B EYOND THE FIRST DEGREE OF THE NEXUS BETWEEN PROFITS AND THE INDUSTRIAL UNDERT AKING. SUCH VIEW HAS ALSO BEEN REITERATED RECENTLY BY THE SUPREME COURT IN TH E CASE OF LIBERTY INDIA VS CIT 3 17 ITR 218. THE SUPREME COURT HAS UPHELD THE DECISI ON OF THE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF LIBERTY INDIA VS. CIT (2007) 293 ITR 520 ( P & H) ON THE SAME ISSUE FOR COMPUTING DEDUC TION U/S.80IB AND DECIDED THE ISSUE IN FAVOUR OF REVENUE. THUS DUTY D RAW BACK NOT BEING AN IN DERIVED FROM THE INDUSTRIAL UNDERTAKING HAS TO BE E XCLUDED FROM THE PROFITS OF BUSINESS WHILE COMPUTING DEDUCTION U/S.80IB. FOR THE ABOVE REASONS THE ASSESSMENT COMPLETED BY T HE A.O U/S.143(3) ON 18-12-2008 BEING ERRONEOUS AND PREJUDICIAL TO THE I NTERESTS OF REVENUE REQUIRES MODIFICATION BY RE-COMPUTING THE DEDUCTION U/S.80IB AFTER EXCLUDING THE DUTY DRAW BACK OF RS.14 82 784/- FROM THE PROFI TS OF EXPORT BUSINESS OF INDUSTRIAL UNDERTAKING. HENCE ASSESSMENT MADE BY TH E A.O U/S./143(3) ON 18- 12-2008 IS HEREBY SET ASIDE. A.O SHALL MAKE A FRESH ASSESSMENT AFTER CONSIDERING THE DECISION OF THE SUPREME COURT IN TH E CASE OF STERLING FOODS LTD. AND OTHER DECISIONS INCLUDING THE LATEST DECISION OF THE SUPREME COURT ON THIS ISSUE IN THE CASE OF LIBERTY INDIA AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN THIS MATTER TO ENABLE HIM TO MAKE A FRESH ASSESSMENT AS PER LAW. ITA NO.1240/AHD/2010 A.Y. 2006-07 SMT. SUSNITABEN M WALIA V. CIT-V ABD PAGE 4 AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE US. 5. BEFORE US LD. COUNSEL FOR THE ASSESSEE SHRI DIP AK R THAKKAR RELIED ON THE CASE LAWS OF HONBLE SUPREME COURT IN THE CASE OF CIT V. MAX INDIA LTD. (2007) 295 ITR 282 WHEREIN THE HONBLE APEX COURT HAS STATED THAT COMMISSIONER HAD NO JURISDICTION TO INTERFERE IN EXERCISING OF HIS POWE RS U/S.263 OF THE ACT OF DIFFERENT VIEWS EXISTED. THE HONBLE APEX COURT HELD AS UNDER :- SINCE SECTION 80HHC WAS AMENDED ELEVEN TIMES AND D IFFERENT VIEWS EXISTED WHEN THE COMMISSIONER PASSED THE ORDER AND THE MECH ANICS OF THAT SECTION HAD BECOME SO COMPLICATED OVER THE YEARS THE SUBSE QUENT AMENDMENT OF SECTION 80HHC EVEN THROUGH RETROSPECTIVE WOULD NO T BE ATTRACTED. THE LAW AS IT STOOD WHEN THE COMMISSIONER PASSED THE ORDER DATED MARCH 5 1997 HAD TO BE TAKEN INTO ACCOUNT AND THE COMMISSIONER H AD NO JURISDICTION TO INTERFERE IN EXERCISE OF HIS POWERS OF REVISION UND ER SECTION 263. ON THE OTHER HAND LD. CIT-DR SHRI ALOK JOHRID STA TED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF REVENUE AND AGAINST THE ASSESS EE BY THE DECISION OF HONBLE APEX COURT IN THE CASE OF LIBERTY INDIA LTD. V. CIT (2009) 317 ITR 218 (SC) THE HONBLE APEX COURT HELD THAT SECTION 80-IB PROVIDES FOR ALLOWING DEDUCTION IN RESPECT OF PROFIT & GAINS DERIVED FROM ELIGIBLE BUSINESS AN D ANALYSIS THE PROVISIONS AS UNDER:- BEFORE ANALYSING SECTION 80-IB AS A PREFATORY NOT E IT NEEDS TO BE MENTIONED THAT THE 1961 ACT BROADLY PROVIDES FOR TWO TYPES OF TAX INCENTIVES NAMELY INVESTMENT-LINKED INCENTIVE S AND PROFIT- LINKED INCENTIVES. CHAPTER VI-A WHICH PROVIDES FOR INCENTIVES IN THE FORM OF TAX DEDUCTIONS ESSENTIALLY BELONG TO TH E CATEGORY OF PROFIT LINKED INCENTIVES. THEREFORE WHEN SECTION 80-IA/80-TB REFERS TO PROFITS DERIVED FROM ELIGIBLE BUSINESS I T IS NOT THE OWNERSHIP OF THAT BUSINESS WHICH ATTRACTS THE INCEN TIVES. WHAT ATTRACTS THE INCENTIVES UNDER SECTION 80-IA/80-IB I S THE GENERATION OF PROFITS (OPERATIONAL PROFITS). FOR EXAMPLE AN A SSESSEE- COMPANY LOCATED IN MUMBAI MAY HAVE A BUSINESS OF BU ILDING HOUSING PROJECTS OR A SHIP IN NAVA SHEVA. OWNERSHIP OF A SHIP PER SE WILL NOT ATTRACT SECTION 80-IB(6). IT IS THE PROFITS ARISING FROM THE BUSINESS OF A SHIP WHICH ATTRACTS SUB-SECT ION (6). IN OTHER WORDS DEDUCTION UNDER SUB-SECTION (6) AT THE SPECIFIED RATE HAS LINKAGE TO THE PROFITS DERIVED FROM THE SHIPPIN G OPERATIONS. THIS IS WHAT WE MEAN IN DRAWING THE DISTINCTION BET WEEN PROFIT- LINKED TAX INCENTIVES AND INVESTMENT-LINKED TAX INC ENTIVES. IT IS FOR THIS REASON THAT PARLIAMENT HAS CON FINED THE DEDUC TION TO PROFITS DERIVED FROM ELIGIBLE BUSINESSES MENTIONED IN SUB-S ECTIONS (3) TO (11A) (AS THEY STOOD AT THE RELEVANT TIME). ONE MOR E ASPECT ITA NO.1240/AHD/2010 A.Y. 2006-07 SMT. SUSNITABEN M WALIA V. CIT-V ABD PAGE 5 NEEDS TO BE HIGHLIGHTED. EACH OF THE ELIGIBLE BUSIN ESS IN SUB SECTIONS (3) TO (11A) CONSTITUTES A STAND-ALONE ITE M IN THE MATTER OF COMPUTATION OF PROFITS. THAT IS THE REASON WHY T HE CONCEPT OF SEGMENT REPORTING STANDS INTRODUCED IN THE INDIAN ACCOUNTING STANDARDS (IAS) BY THE INSTITUTE OF CHARTERED ACCOU NTANTS OF INDIA (ICAI). ANALYSING CHAPTER VT-A WE FIND THAT SECTION 80-IB/ 80-IA ARE A CODE BY THEMSELVES AS THEY CONTAIN BOTH SUBSTANTIVE AS WELL AS PROCEDURAL PROVISIONS. THEREFORE WE NEED TO EXAMIN E WHAT THESE PROVISIONS PRESCRIBE FOR COMPUTATION OF PROFITS OF THE ELIGIBLE BUSINESS. IT IS EVIDENT THAT SECTION 80-IB PROVIDE S FOR ALLOWING OF DEDUCTION IN RESPECT OF PROFITS AND GAINS DERIVED F ROM THE ELIGIBLE BUSINESS. THE WORDS DERIVED FROM ARE NARROWER IN CONNOTATION AS COMPARED TO THE WORDS ATTRIBUTABLE TO. IN OTHE R WORDS BY USING THE EXPRESSION DERIVED FROM PARLIAMENT INT ENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. IN THE PRESENT BATCH OF CASES THE CONTROVERSY WHICH ARISES FOR DETERMINATI ON 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 (CO ST NEUTRALIZATION) HENCE IT COMES WITHIN FIRST DEGRE E SOURCE AS IT INCREASES THE NET PROFIT PROPORTIONATELY. ON THE OT HER HAND ACCORDING TO THE DEPARTMENT DEPB CREDIT/DUTY DRAWB ACK RECEIPTS DO NOT COME WITHIN FIRST DEGREE SOURCE AS THE SAID INCENTIVES FLOW FROM THE INCENTIVE SCHEMES ENACTED BY THE GOVERNMEN T OF INDIA OR FROM SECTION 75 OF THE CUSTOMS ACT 1962. HENCE ACCORDING TO THE DEPARTMENT IN THE PRESENT CASES THE FIRST DEG REE SOURCE IS THE INCENTIVE SCHEME/PROVISIONS OF THE CUSTOMS ACT. IN THIS CONNECTION THE DEPARTMENT PLACES HEAVY RELIANCE ON THE JUDGMENT OF THIS COURT IN STERLING FOODS [1999) 237 ITR 579 . THEREFORE IN THE PRESENT CASES IN WHICH WE ARE RE QUIRED TO EXAMINE THE ELIGIBLE BUSINESS OF AN INDUSTRIAL UNDE RTAKING WE NEED TO TRACE THE SOURCE OF THE PROFITS TO MANUFACT URE. (SEE CIT V. KIRLOSKAR OIL ENGINES LTD. REPORTED IN [1986] 157 I TR 762.) CONTINUING OUR ANALYSIS OF SECTION 80-IA/80-IB IT M AY BE MENTIONED THAT SUB-SECTION (13) OF SECTION 80-LB PR OVIDES FOR APPLICABILITY OF THE PROVISIONS OF SUB-SECTION (5) AND SUB-SECTIONS (7) TO (12) OF SECTION 80-IA SO FAR AS MAY BE APP LICABLE TO THE ELIGIBLE BUSINESS UNDER SECTION 80-LB. THEREFORE A T THE OUTSET WE STATED THAT ONE NEEDS TO READ SECTIONS 80-I 80-IA AND 80-IB AS HAVING A COMMON SCHEME. ON A PERUSAL OF SUB-SECTION (5) OF SECTION 80-LA IT IS NOTICED THAT IT PROVIDES FOR T HE MANNER OF COMPUTATION OF PROFITS OF AN ELIGIBLE BUSINESS. ACC ORDINGLY SUCH PROFITS ARE TO BE COMPUTED AS IF SUCH ELIGIBLE BUSI NESS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE. THEREFORE THE DE VICES ADOPTED TO REDUCE OR INFLATE THE PROFITS OF ELIGIBL E BUSINESS HAVE GOT TO BE REJECTED IN VIEW OF THE OVERRIDING PROVIS IONS OF SUBSECTION (5) OF SECTION 80-IA WHICH ARE ALSO REQ UIRED TO BE READ INTO SECTION 80-TB. (SEE SECTION 80-IB(13)). W E MAY REITERATE THAT SECTIONS 80-I 80-IA AND 80-IB HAVE A COMMON ITA NO.1240/AHD/2010 A.Y. 2006-07 SMT. SUSNITABEN M WALIA V. CIT-V ABD PAGE 6 SCHEME AND IF SO READ IT IS CLEAR THAT THE SAID SEC TIONS PROVIDE FOR INCENTIVES IN THE FORM OF DEDUCTION(S) WHICH ARE LI NKED TO PROFITS AND NOT TO INVESTMENT. ON AN ANALYSIS OF SECTIONS 8 0-IA AND 80-IB IT BECOMES CLEAR THAT ANY INDUSTRIAL UNDERTAKING W HICH BECOMES ELIGIBLE ON SATISFYING SUB-SECTION (2) WOULD BE EN TITLED TO DEDUCTION UNDER SUB-SECTION (1) ONLY TO THE EXTENT OF PROFITS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING AFTER SPEC IFIED DATE(S). HENCE APART FROM ELIGIBILITY SUB-SECTION (1) PURP ORTS TO RESTRICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF PROFITS. THIS IS THE IMPORTANCE OF THE WORDS DERIVED FROM I NDUSTRIAL UNDERTAKING AS AGAINST PROFITS ATTRIBUTABLE TO IN DUSTRIAL UNDERTAKING. DEPB IS AN INCENTIVE. IT IS GIVEN UNDER THE DUTY EX EMPTION REMISSION SCHEME. ESSENTIALLY IT IS AN EXPORT INCE NTIVE. NO DOUBT THE OBJECT BEHIND DEPB IS TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY PAYMENT ON THE IMPORT CONTENT OF EXPOR T PRODUCT. THIS NEUTRALIZATION IS PROVIDED FOR BY CREDIT TO CU STOMS DUTY AGAINST EXPORT PRODUCT. UNDER DEPB AN EXPORTER MAY APPLY FOR CREDIT AS A PERCENTAGE OF THE FOB VALUE OF EXPORTS MADE IN FREELY CONVERTIBLE CURRENCY. CREDIT IS AVAILABLE ONLY AGAI NST THE EXPORT PRODUCT AND AT RATES SPECIFIED BY THE DGFT FOR IMPO RT 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. THE REFORE IN OUR VIEW DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH F LOW FROM THE SCHEMES FRAMED BY CENTRAL GOVERNMENT OR FROM SECTIO N 75 OF THE CUSTOMS ACT 1962 HENCE INCENTIVES PROFITS ARE NO T PROFITS DERIVED FROM THE ELIGIBLE BUSINESS UNDER SECTION 80 -IB. THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKINGS. THE NEXT QUESTION IS WHAT IS DUTY DRAWBACK? SECTI ON 75 OF THE CUSTOMS ACT 1962 AND SECTION 37 OF THE CENTRAL EX CISE ACT 1944 EMPOWER THE GOVERNMENT OF INDIA TO PROVIDE FO R REPAYMENT OF CUSTOMS DUTY 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 TH E MANUFACTURE OF EXPORT GOODS OF SPECIFIED CLASS. THE RULES DO NO T 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 RELEVAN T IN RESPECT OF EACH OF VARIOUS CLASSES OF GOODS IMPORTED. BASICALL Y THE SOURCE OF THE DUTY DRAWBACK RECEIPT LIES IN SECTION 75 OF THE CUSTOMS ACT AND SECTION 37 OF THE CENTRAL EXCISE ACT. ANALYSING THE CONCEPT OF REMISSION OF DUTY DRAWBACK AND DEPB WE ARE SATISFIED THAT THE REMISSION OF DUTY IS ON A CCOUNT OF THE STATUTORY/POLICY PROVISIONS IN THE CUSTOMS ACT/SCHE ME(S) FRAMED BY THE GOVERNMENT OF INDIA. IN THE CIRCUMSTANCES W E HOLD THAT ITA NO.1240/AHD/2010 A.Y. 2006-07 SMT. SUSNITABEN M WALIA V. CIT-V ABD PAGE 7 PROFITS DERIVED BY WAY OF SUCH INCENTIVES DO NOT FA LL WITHIN THE EXPRESSION PROFITS DERIVED FROM INDUSTRIAL UNDERTA KING IN SECTION 80-LB. SINCE RELIANCE WAS PLACED ON BEHALF OF THE ASSESSEE (S) ON AS-2 WE NEED TO ANALYSE THE SAID STANDARD. AS-2 DEALS WITH VALUATION OF INVENTORIES. INVENTORI ES ARE ASSETS HELD FOR SALE IN THE COURSE OF BUSINESS; IN THE PRO DUCTION FOR SUCH SALE OR IN THE FORM OF MATERIALS OR SUPPLIES TO BE CONSUMED IN THE PRODUCTION. INVENTORY SHOULD BE VALUED AT THE LOWER OF COST A ND NET REALIZABLE VALUE (NRV). THE COST OF INVENTORY SHO ULD COMPRISE ALL COSTS OF PURCHASE COSTS OF CONVERSION AND OTHE R COSTS INCLUDING COSTS INCURRED IN BRINGING THE INVENTORY TO THEIR PRESENT LOCATION AND CONDITION. THE COST OF PURCHASE INCLUDES DUTIES AND TAXES (OTH ER THAN THOSE SUBSEQUENTLY RECOVERABLE BY THE ENTERPRISE FROM THE TAXING AUTHORITIES) FREIGHT INWARDS AND OTHER EXPENDITURE DIRECTLY ATTRIBUTABLE TO THE ACQUISITION HENCE TRADE DISCOU NTS REBATE DUTY DRAWBACK AND SUCH SIMILAR ITEMS ARE DEDUCTED IN DETERMINING THE COSTS OF PURCHASE. THEREFORE DUTY DRAWBACK REBATE ETC. SHOULD NOT BE TREATED AS ADJUSTMENT ( CREDITED) TO THE COST OF PURCHASE OR MANUFACTURE OF GOODS. THEY SHOU LD BE TREATED AS SEPARATE ITEMS OF REVENUE OR INCOME AND ACCOUNTE D FOR ACCORDINGLY (SEE PAGE 44 OF THE INDIAN ACCOUNTING S TANDARDS AND GAAP BY DOLPHY DSOUZA). THEREFORE FOR THE PURPOSE S OF AS-2 CENVAT CREDITS SHOULD NOT BE INCLUDED IN THE COST O F PURCHASE OF INVENTORIES. EVEN THE INSTITUTE OF CHARTERED ACCOUN TANTS OF INDIA (1CM) HAS ISSUED GUIDANCE NOTE ON ACCOUNTING TREATM ENT FOR CENVAT/MODVAT UNDER WHICH THE INPUTS CONSUMED AND T HE INVENTORY OF INPUTS SHOULD BE VALUED ON THE BASIS O F PURCHASE COST NET OF SPECIFIED DUTY ON INPUTS (I.E. DUTY RE COVERABLE FROM THE DEPARTMENT AT A LATER STAGE) ARISING ON ACCOUNT OF REBATES DUTY DRAWBACK DEPB BENEFIT ETC. PROFIT GENERATION COULD BE ON ACCOUNT OF COST CUTTING COST RATIONALIZATION BUSI NESS RESTRUCTURING TAX PLANNING ON SUNDRY BALANCES BEIN G WRITTEN BACK LIQUIDATION OF CURRENT ASSETS ETC. THEREFORE WE A RE OF THE VIEW THAT THE DUTY DRAWBACK DEPB BENEFITS REBATES ETC . CANNOT BE CREDITED AGAINST THE COST OF MANUFACTURE OF GOODS D EBITED IN THE PROFIT AND LOSS ACCOUNT FOR PURPOSES OF SECTION 80- IA/80-IB AS SUCH REMISSIONS (CREDITS) WOULD CONSTITUTE INDEPEND ENT SOURCE OF INCOME BEYOND THE FIRST DEGREE NEXUS BETWEEN PROFIT S AND THE INDUSTRIAL UNDERTAKING. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ABOVE I SSUE OF DEDUCTION U/S.80IB OF THE ACT ON DEPB EXPORT INCENTIVE IS SQUARELY COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BY THE DECISION OF HONBLE APE X COURT IN THE CASE OF LIBERTY ITA NO.1240/AHD/2010 A.Y. 2006-07 SMT. SUSNITABEN M WALIA V. CIT-V ABD PAGE 8 INDIA LTD. (SUPRA). AS REGARDS TO ARGUMENT OF LD. COUNSEL THA T THERE IS A CHANGE OF OPINION ONCE THE ISSUE IS SQUARELY COVERED PRIOR T O THE DECISION OF CIT(A) FOR ASSESSMENT YEARS 2001-02 AND 2003-04 BY THE DECISIO N OF HONBLE APEX COURT IN THE CASE OF STERLING FOOD LTD. (SUPRA) WHEREIN THE ISSUE WAS EXPORT INCENTIVE TH AT PROFIT FROM SALE OF IMPORT ENTITLEMENTS/LICENCE WHETHER E LIGIBLE FOR DEDUCTION U/S.80HH ON THE PROFIT DERIVE FOR INDUSTRIAL UNDERTAKING. THE H ONBLE APEX COURT IN THE CASE OF STERLING FOOD LTD. (SUPRA) HAS CATEGORICALLY HELD NO. ACCORDINGLY WE ARE OF THE VIEW THAT THE ORDER OF ASSESSING OFFICER IS ERRONEO US AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDINGLY WE UPHOLD THE ORD ER OF CIT AND THIS APPEAL OF ASSESSEE IS DISMISSED. 7. IN THE RESULT ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS DAY OF 13 TH AUG 2010 SD/- SD/- ( G.D.AGARWAL ) ( MAHAVIR SINGH ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD DATED : 13/08/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-V AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD