DCIT CEN CIR 2, MUMBAI v. CIPLA LTD, MUMBAI

ITA 4784/MUM/2009 | 2007-2008
Pronouncement Date: 28-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 478419914 RSA 2009
Assessee PAN AAACC1450B
Bench Mumbai
Appeal Number ITA 4784/MUM/2009
Duration Of Justice 1 year(s) 5 month(s) 10 day(s)
Appellant DCIT CEN CIR 2, MUMBAI
Respondent CIPLA LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 28-01-2011
Date Of Final Hearing 04-11-2010
Next Hearing Date 04-11-2010
Assessment Year 2007-2008
Appeal Filed On 18-08-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: MUMBAI BEFORE SHRI R.S. PADVEKAR JUDICIAL MEMBER AND SHRI RAJENDRA SINGH ACCOUNTANT MEMBER ITA NO.4784/MUM/2009 (ASSESSMENT YEAR: 2007-08) DCIT-CENTRAL CIRCLE -2 OLD CGO BLDG. ANNEXE 9TH FLOOR M.K. ROAD MUMBAI - 400 020 ....REVENUE VS M/S. CIPLA LTD. 289 BELLASIS ROAD MUMBAI -400 008 ASSESSEE PAN: AAACC 1450 B ASSESSEE BY: SHRI D.P. BAPAT REVENUE BY: SHRI AJIT KUMAR SINHA O R D E R PER R.S. PADVEKAR JUDICIAL MEMBER IN THIS APPEAL THE REVENUE HAS CHALLENGED THE IMPUG NED ORDER OF THE LD. CIT (A) CENTRAL I MUMBAI DATED 22.5.2009 FOR THE A.Y. 2007-08. GROUND NO.1 READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT (A) ERRED IN NOT UPHOLDING THE BASIS AD OPTED BY A.O. FOR COMPUTING 80-IB DEDUCTION ADMISSIBLE TO TH E ELIGIBLE UNITS AND IN HOLDING THAT THE A.O. WAS NOT JUSTIFIE D IN INVOKING THE PROVISIONS OF SECTION 80-IB(13) R.S. PROVISO TO SECTION ITA 4784/M/2009 M/S. CIPLA LTD. 2 80IA(8) OF THE ACT WHEN THE ASSESSEE WAS UNDER THE OBLIGATION OF LAW TO ADOPT THE MARKET VALUE TO FO R THE GOODS TRANSFERRED TO AN FROM THE 80-IB UNDERTAKING. 2. THE FACTS WHICH REVEAL FROM THE RECORD ARE AS UN DER. THE ASSESSEE- COMPANY IS ENGAGED IN THE MANUFACTURING OF BULK DRU GS AS WELL AS PHARMACEUTICAL PRODUCTS. THE ASSESSEE IS HAVING LO CAL SALSAS WELL AS EXPORT SALES. THE ASSESSEE FILED THE RETURN OF INC OME DECLARING TOTAL INCOME AT ` 2 72 76 18 906/- WHICH WAS SELECTED FOR SCRUTINY U /S.143(3) OF THE ACT. THE A.O. HAS NOTED THAT THE ASSESSEE H AS CLAIMED THE DEDUCTION U/S.80IB IN RESPECT OF ITS NEW UNIT AT VE RNA GOA AT ` 30.42 CRORES AND THE ELIGIBLE PROFIT WAS DECLARED AT ` 101.40 CRORES. THE ASSESSEE HAS ALSO CLAIMED THE DEDUCTION OF ` 20.64 CRORES U/S.80IB IN RESPECT OF GOA UNIT-II WHICH WAS SET-UP IN THE FINA NCIAL YEAR 2003-04. SAME WAY ASSESSEE HAS CLAIMED THE DEDUCTION U/S.80 IB OF ` 62.58 CRORES AND ` 29.32 CRORES IN RESPECT OF EOU SET-UP AT KURKUMBH AND BANGALORE RESPECTIVELY. IN RESPECT OF THE UNIT AT PATALGANGA NO DEDUCTION WAS CLAIMED U/S.80IB DUE TO LOSSES. THE A.O. HAS NOTED THAT AS PER RECORDS THAT WHILE TRANSFERRING RAW MATERIAL S INTERMEDIATES FINISHED PRODUCTS FROM NON-80IB UNITS TO THE UNITS WHICH ARE ELIGIBLE FOR FOR DEDUCTION U/S.80IB/80IC/10B AS WELL AS VIS-A-VI Z THE GOODS ARE TRANSFERRED AT THE RATES DIFFERENT THAN THE MARKET RATES AS ON THE DATE OF THE TRANSFER. THE A.O. HAS OBSERVED THAT IN THIS Y EAR ALSO THE ASSESSEE HAS NOT GONE WITH THE MARKET RATE FOR TRANSFERRING THE RAW MATERIAL AND THE INTERMEDIATES AS WELL AS FINISHED GOODS. THE A .O. SOUGHT THE EXPLANATION FROM THE ASSESSEE ON THIS ISSUE. THE E XPLANATION FILED BY THE ASSESSEE TO THE A.O. IS ON THE PAGE NOS. 5 & 6 OF T HE ASSESSMENT ORDER. THE EXPLANATION OF THE ASSESSEE BEFORE THE A.O. IS AS UNDER:- ITA 4784/M/2009 M/S. CIPLA LTD. 3 1. THERE ARE NO EXCEPTIONAL DIFFICULTIES IN THE PR EPARATION OF THE PROFIT AND LOSS ACCOUNT OF THE TWO ELIGIBLE UNDERTA KINGS AS IS SEEN FROM OUR SUBMISSIONS BELOW: OUT SALES HAVE BEEN TAKEN ON ACTUALS AS ARE REFLECT ED IN THE COMPANYS ANNUAL ACCOUNTS. ALL EXPENDITURES ARE ALSO ON ACTUALS AS PER COMPANY ANNUAL ACCOUNTS AND THE BASIS OF ALLOCATED EXPENDIT URE HAVE ALSO BEEN INDICATED CLEARLY. DEPRECIATION IS AS PER RETURNS OF INCOME FILED BY U S AND THE DETAILED UNIT-WISE BREAKUP OF THE SAME IS ALSO ALREADY FURNISHED. AS REGARDS TRANSFERS TO AND FROM THE ELIGIBLE UNDERTAKING WE HAVE FURNISHED THE COMPLETE DETAILS OF QUANTITY/VALUE OF TRANSFERS DETAILS OF ITEMS TRANS FERRED AS WELL AS THE BASIS OF THEIR VALUATION ALONG WITH DOCUMENTARY EVIDENCE. WE ALSO UNDERTAKE TO GET THE ABOVE COMPUTATION CERTIFIED FORM OUR AUDITOR IF SO REQUIRED BY YOU. IN VIEW OF THE ABOVE IT IS SUBMITTED THAT THE CIRCU MSTANCES DO NOT WARRANT INVOCATION OF PROVISO TO SECTION 80IA(8 ) AND THERE ARE NO EXCEPTIONAL DIFFICULTY IN COMPUTATION OF PRO FIT OF THE TWO ELIGIBLE UNDERTAKINGS. ITA 4784/M/2009 M/S. CIPLA LTD. 4 2. WITHOUT PREJUDICE THE SCOPE OF THE PROVISO TO SECTION 80IA(8) SHOULD BE LIMITED TO CAPTIVE TRANSFERS ONLY. WE FU RTHER SUBMIT THAT THE ASSESSING OFFICER IN ASSESSMENT YEAR 1996- 97 HAS ERRED IN ADOPTING A DIFFERENT APPROACH ON IDENTICAL FACTS NOTWITHSTANDING THE ORDER OF THE CIT (A) IN ASSESSM ENT YEAR 1995-96. IT IS SUBMITTED THAT THE PROVISO OF SECTI ON 80IA(9) HAS BEEN WRONGLY INVOKED TO THE ENTIRELY OF THE OPE RATION OF KURKUMBH AND PATALGANGA EVEN THOUGH THE CRITICISMS IN THE ASSESSMENT ORDER OF A.Y. 1996-97 IS AGAINST ONLY A PORTION OF THE TRANSACTION OF TRANSFERS IN AND TRANSFER OUT. THEREFORE IT IS SUBMITTED THAT BY ADOPTING THE GLOBAL METHOD EV EN THE PROFITS EARNED ON DIRECT SALES HAVE BEEN ADVERSELY AFFECTED. 3. IT IS SUBMITTED THAT THE THUMB RULE METHOD IS AD HOC AND ARBITRARY AND DOES NOT CONSIDER THE FACT THAT THE R ETURN OF GOA AND KURKUMBH UNDERTAKINGS ARE FAR HIGHER THEN THE AVERAGE RETURN OF THE COMPANY AS JUSTIFIED IN PARA 7 OF OUR LETTER DATED NOVEMBER 21 2005. 3. THE A.O. WAS NOT IMPRESSED WITH THE EXPLANATION OF THE ASSESSEE. THE A.O. HAS OBSERVED THAT FOR TRANSFERRING THE GOO DS FROM NON-ELIGIBLE UNITS TO THE ELIGIBLE UNITS DOES NOT CORRESPOND WIT H THE MARKET VALUE OF SUCH GOODS ON THE DATE OF THE TRANSFER. THE A.O. A SKED THE ASSESSEE TO SUBMIT THE DETAILS OF THE MARKET VALUE OF THE GOODS TRANSFERRED ON THE DATES ON WHICH THE TRANSACTION WAS EFFECTED. THE A .O. HAS FURTHER OBSERVED THAT THE ASSESSEE DID NOT FURNISH ANYTHING . THE A.O. THEREFORE PROCEEDED TO RE-WORK THE ELIGIBLE PROFIT IN RESPECT OF THE UNITS FOR ALLOWING THE DEDUCTION U/S.80IB 80IC AND 10B BY INVOKING TH E PROVISIONS U/S 80IA(8) FOR DETERMINING THE REASONABLE PROFITS. THE A.O. MADE THE COMPARISON OF THE ACCOUNTING RESULTS OF THE DIFFERE NT UNITS I.E. GOA UNIT BADDI UNIT GOA UNIT-II KURKUMBH EOU UNIT BANGALO RE UNIT ETC. ETC. ITA 4784/M/2009 M/S. CIPLA LTD. 5 THE A.O. WORKED OUT THE PROFIT RATIO OF EACH UNIT O N THE COMPARISON BASIS AND ACCORDINGLY WORKED OUT THE ELIGIBLE PROFIT FOR THE PURPOSE OF ARRIVING THE DEDUCTION. THE A.O. WORKED OUT THE PROFIT PER THE EACH UNIT AND IN CONSEQUENCE THE DEDUCTION CLAIMED BY THE ASSESSEE W AS REDUCED. THE ASSESSEE CHALLENGED THE WORKING OF THE ELIGIBLE PRO FIT BEFORE THE A.O. BEFORE THE LD. CIT (A). THE LD. CIT (A) FOLLOWING THE ORDERS IN THE PRECEDING YEARS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. NOW THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL SUBM ITTED THAT THIS ISSUE HAS CONSISTENTLY BEEN DECIDED IN FAVOUR OF TH E ASSESSEE BY THE TRIBUNAL FROM THE A.YS. 1996-97 & 1997-98 ONWARDS. THE LD. COUNSEL REFERRED TO THE COMPILATION IN WHICH THE COPIES OF THE TRIBUNAL ORDERS ARE PLACED IN ASSESSEES OWN CASE. BY PERUSAL OF THE O RDERS PLACED ON RECORD IT IS SEEN THAT CONSISTENTLY THIS ISSUE HAS BEEN DE CIDED IN FAVOUR OF THE ASSESSEE. WE MAY LIKE TO REPRODUCE THE ORDER FOR T HE A.YS. 2003-04 2004-05 & 2005-06 BEING ITA NO. 7329 & 7412/M/2005 AND ITA NOS.4320 & 4321/M/2006 DATED 2.1.2009 THE OPERATIV E PART OF THE ORDER IS AS UNDER:- THE FIRST GROUND RAISED IN THIS APPEAL RELATE TO T HE BASIS ADOPTED BY THE ASSESSING OFFICER FOR COMPUTING DEDUCTION UNDER SECTION 80IB ADMISSIBLE TO THE ELIGIBLE UNITS. THE LEARNED COUN SEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION THAT THE IDENTIC AL GROUND WAS RAISED IN THE ASSESSEES OWN CASE FOR THE ASSESSMEN T YEAR 2002- 2003 AND THE TRIBUNAL HAS CONFIRMED THE ORDER OF TH E CIT (A) AFTER HOLDING THAT CIT (A) HAS DECIDED THE ISSUE FOLLOWIN G THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 1995-96 TO 1997-98 AS DISCUSSED IN PARA 7 OF THE CIT (A)S ORDER. THE RELEVANT OBSERV ATION OF THE TRIBUNAL IS EXTRACTED HEREUNDER : ITA 4784/M/2009 M/S. CIPLA LTD. 6 6. REVENUE IS AGGRIEVED ON THE DECISION OF THE CIT (A) IN NOT UPHOLDING THE BASIS ADOPTED BY THE AO. WE FIND THAT THE CIT (A) HAS RELIED ON THE ORDER OF ITAT FOR THE AY 1995-96 TO 1997-98 AS DISCUSSED IN PARA 7 OF THE TRIBUNAL ORDE R OF THE CIT (A). PARA 40 TO 51 AND 55 OF THE ITAT ORDER VI DE ITA NO.4619 4731 3036 3057 AND 2062 DATED 14.2.2005 DEALS WITH THIS ISSUE. THE TRIBUNAL AFTER CONSIDERING T HE DEPARTMENTAL ARGUMENT THAT THE AO HAS CORRECTLY INV OKED THE PROVISO TO SECTION 80IA(A) AS WELL AS THE IN APPLYI NG THE GLOBAL PROFIT PERCENTAGE METHOD RELIED ON THE DE CISION REPORTED IN 48 ITR 213(SC) WHILE CONFIRMING THE OR DER OF THE CIT (A) AS DISCUSSED IN PARA 55 OF THE SAID ORDER. WE FIND THAT THE FACTS FOR THIS YEAR IN QUESTION IS NO DIFF ERENT. THEREFORE WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE CIT (A) FOR THIS YEAR. ACCORDINGLY GROUND 1 IS DISMISSED . 5. AS THE FACTS ARE IDENTICAL IN THIS YEAR ALSO AS THE A.O. HAS ADOPTED THE GLOBAL PROFIT METHOD WE FIND NO REASON TO TAKE A DIFFERENT VIEW THAN THAT TAKEN BY THE LD. CIT (A). ACCORDINGLY ORDER OF THE LD. CIT (A) ON THIS ISSUE IS CONFIRMED. ACCORDINGLY GROUND NO.1 IS DISMISSED. 6. GROUND NO.2 READS AS UNDER:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT (A) ERRED IN HOLDING THAT THE ASSE SSEE IS ELIGIBLE FOR CLAIMING DEDUCTION U/S.80IB ON THE PRO FITS DERIVED FROM THE WORK / MANUFACTURING GOT DONE THROUGH LEAS E AND LICENSE MANUFACTURERS (LLMS) 7. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL SUBM ITTED THAT THIS ISSUE IS ALSO CONSISTENTLY BEEN DECIDED BY THE TRIB UNAL IN THE PRECEDING ITA 4784/M/2009 M/S. CIPLA LTD. 7 YEAR IN FAVOUR OF THE ASSESSEE. THE LD. COUNSEL RE FERRED TO THE COPY OF THE TRIBUNAL ORDER CITED SUPRA FOR A.YS. 2003-04 2005-06 AND SUBMITTED THAT HONBLE TRIBUNAL HAS ALSO REFERRED T O THE EARLIER ORDERS ALSO. WE HAVE ALSO HEARD THE LD. D.R. WHO FAIRLY C ONCEDED THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE A SSESSEE AND OPERATIVE PART OF THE TRIBUNAL ORDER IS AS UNDER:- 8. THE NEXT GROUND RELATE TO ALLOWANCE O DEDUCTIO N UNDER SECTION 80IB ON THE PROFITS DERIVED FOR MANUFACTURING DONE BY THE ASSESSEE FROM THE LOAN LICENSE MANUFACTURERS (LLMS). IN THI S REGARD IT WAS FURTHER CONTENDED THAT THIS ISSUE IS ALSO COVERED B Y THE ORDER OF THE TRIBUNAL IN ASSESSEES CASE FOR THE ASSESSMENT YEAR 2002-03 IN WHICH THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOLLOWING ITS ORDER IN ITA NO.4142/MUM/2005. THE R ELEVANT OBSERVATION OF THE TRIBUNAL ARE EXTRACTED HEREUNDER : 16. THE AO DENIED THE DEDUCTION HOLDING THAT THE S UCH PROFIT ARE DERIVED FROM OUT-SOURCING ACTIVITIES AND NOT FOR THE MANUFACTURING DONE BY THE ASSESSEE ITSELF AND THERE FORE SUCH PROFITS ARE NOT ENTITLED TO DEDUCTION. CIT (A) GAV E A RELIEF OF TO THE ASSESSEE RELYING ON HIS OWN ORDER FOR AY 2001-0 2. DURING THE ASSESSMENT PROCEEDINGS BEFORE US THE COUNSEL M ENTIONED THAT THE SAID ORDER FOR A.Y. 2002-01 TRAVELLED UPTO THE ITAT WHERE THE TRIBUNAL HELD THAT THE ASSESSEE IS ENTITL ED TO RELIEF AS DISCUSSED IN PARA 5 AND 5.1 OF THE ORDER OF ITA 4142/MUM/2005 WHICH IS PLACED AT PAGES 17 TO 20 OF THE PAPER BOOK. 17. WE HAVE PERUSED THE SAME AND RELEVANT PART OF P ARAS 5 AND 5.1. READS AS UNDER: ITA 4784/M/2009 M/S. CIPLA LTD. 8 GROUND NO.2 AND 3 ARE AGAINST DEDUCTION ALLOWED U/S.80IB ON THE PROFIT DERIVED FROM MANUFACTURING D ONE BY THE ASSESSEE FROM LOAN LICENSE MANUFACTURER (LL M) ETC. THE LD CIT (A) ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE FOLLOWING THE ORDER OF THE EARLIER YEAR. EARLIER ORDER OF THE LD. CIT (A) IN GROUP CONCERN FOR AY. 1 998-99 AND 2001-02 HAVE BEEN CONFIRMED BY THE TRIBUNAL. T HE ORDER OF THE EARLIER YEAR IN GROUP CONCERNS I.E M/S . OKASA PVT. LTD. HAVE BEEN CONFIRMED BY THE TRIBUNAL IN ITA NO.4140 AND 4141/MUM/2005. COPY OF THE SAME IS PLACED ON RECORD AT PAGE 100 OF THE PAPER BOOK. SINCE THE FACTS ARE IDENTICAL IN THE PRESENT CASE A LSO THEREFORE FOLLOWING THE ORDER OF THE TRIBUNAL IN CA SE OF GROUP CONCERNS OF THE ASSESSEE (SUPRA) WE CONFIRM T HE ORDER OF THE LD CIT (A) HERE ALSO. THIS GROUND OF THE DEPARTMENT ALSO FAILS. 18. IN VIEW OF THE ABOVE WE FIND NO REASON TO INTER FERE WITH THE ORDER OF THE CIT (A). ACCORDINGLY GROUND 4 & 5 OF THE REVENUE ARE DISMISSED. 9. WE THEREFORE FOLLOWING THE SAME DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 8. WE THEREFORE FOLLOWING THE ORDERS OF THE TRIBU NAL ON THIS ISSUE IN THE ASSESSEES OWN CASE IN THE PRECEDING YEARS DIS MISS THE GROUND NO.2 9. GROUND NO.3 READS AS UNDER:- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT (A) WAS NOT JUSTIFIED IN HOLDING THAT D EPB CREDIT ITA 4784/M/2009 M/S. CIPLA LTD. 9 PROCESSING CHARGES AND MISCELLANEOUS RECEIPTS ARE E LIGIBLE FOR COMPUTATION OR PROFITS FOR THE PURPOSE OF CLAIMING DEDUCTION U/S.80IB. 10. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL SU BMITTED THAT IN RESPECT OF DEPB CREDIT WHETHER THE SAME CAN BE CON SIDERED FOR COMPUTING THE ELIGIBLE PROFIT HAS BEEN DECIDED AGAI NST THE ASSESSEE IN A.Y. 2006-07 AND SO FAR AS OTHER INCOMES ARE LIKE M ISCELLANEOUS RECEIPTS PROCESSING CHARGES THE SAME HAVE BEEN DECIDED IN F AVOUR OF THE ASSESSEE. SO FAR AS MISCELLANEOUS RECEIPTS AND PRO CESSING CHARGES ARE CONCERNED IN ASSESSEES OWN CASE FOR THE A.Y. 200 6-07 THE TRIBUNAL HAS CONSIDERED THIS ISSUE. SO FAR AS THE ISSUE OF THE DEPB CREDIT IS CONCERNED BY FOLLOWING THE DECISION OF LIBERTY IND IA VS CIT (2009 TIOL 100 (SC IT) THE TRIBUNAL DECLINED TO ACCEPT THE FIN DING OF THE LD. CIT (A) BUT IN RESPECT OF PROCESSING CHARGES AND MISCELLANE OUS RECEIPTS THE EARLIER ORDER WAS FOLLOWED. THE RELEVANT PART OF T HE TRIBUNAL ORDER IN ITA 5337 AND 5606/M/2008 DATED 23.9.2009 IS RELEVANT WH ICH READS AS UNDER:- 16. ALTHOUGH THE ITATS IN ITS ORDER IN ITA NO.732 9/MUM/05 7412/M/05 4320 & 4321/M/06 IN ASSESSEES OWN CASE HAS HELD IN FAVOUR OF THE ASSESSEE WE FIND THAT THE APEX CO URT IN A RECENT DECISION IN THE CASE OF M/S. LIBERTY INDIA VS CIT ( 2009 TIOL 100 (SC IT) HAS HELD THAT PROFIT FROM DUTY ENTITLEMENT PASSBOOK SCHEME (DEPB ) AND DUTY DRAWBACK SCHEME COULD NOT BE SAID TO BE PROFIT DERIVED FROM THE BUSINESS OF AN INDUSTRIAL UNDERTAKING ELIG IBLE FOR DEDUCTION UNDER SECTION 80IB OF THE INCOME-TAX ACT. IN THE CASE OF LIBERTY INDIA VS. CIT (SUPRA) THE COMPANY WHICH MANUFACTURERS FABRICS AND FINISHED ITEMS CLAIMED D EDUCTION ON THE PROFITS ON ACCOUNT OF DEPB) AND DUTY DRAWBAC K ITA 4784/M/2009 M/S. CIPLA LTD. 10 SCHEME. THE AUTHORITIES REJECTED THE CLAIM ON THE GROUND THAT THE TWO BENEFITS CONSTITUTED EXPORT INCENTIVES AND THEY DID NOT REPRESENT PROFITS DERIVED FROM INDUSTRIAL UNDERTAKI NG. UPHOLDING THIS VIEW THE SUPREME COURT STATED THAT THESE INCENTIVES COULD NOT BE CREDITED AGAINST THE COST O F MANUFACTURE OF GOODS DEBITED IN THE PROFIT AND LOSS ACCOUNT FOR PURPOSES OF SECTION 80IA/80IB AS SUCH REMISSION S (CREDITS) WOULD CONSTITUTE INDEPENDENT SOURCE OF INCOME. RESPECTFULLY FOLLOWING THE DECISION OF THE APEX COU RT IN THE CASE OF M/S. LIBERTY INDIA VS CIT (SUPRA) WE HOLD THAT THE ASSESSEE IS NOT ENTITLED TO RELIEF U/S.80IB IN RESP ECT OF DEPB CREDITS. THEREFORE REVENUES APPEAL ON THIS ISSUE IS ALLOWED. 11. WE THEREFORE PARTLY ALLOW GROUND NO.3 TO THE EXTENT OF THE DEPB CREDIT AND HOLD THAT DEPB CREDIT/PROFIT CANNOT BE T REATED AS INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING FOR THE PUR POSE OF COMPUTING THE DEDUCTION U/S.80IB OR 10A OF THE ACT AND TO THAT EX TENT THE ORDER OF THE LD. CIT (A) IS REVERSED AND ORDER OF THE A.O. IS RE STORED. 12. GROUND NO.4 READS AS UNDER:- 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT (A) WAS NOT JUSTIFIED IN DIRECTING THE A.O. TO EXCLUDE THE UNUTILIZED CREDIT BALANCE OF DUTY EXEMP TION PASS BOOK SCHEME (DEPB) AMOUNTING TO ` 10 69 59 104/- FROM THE BUSINESS INCOME ON THE GROUND THAT THE ASSESSEE WAS ENTITLED TO THE RIGHT TO RECEIVE THE DEPB CREDITS ON ACTUAL IMPORT OF GOODS WHICH HAD NOT MATERIALIZED DURING THE YEAR UN DER REFERENCE. ITA 4784/M/2009 M/S. CIPLA LTD. 11 13. IT WAS NOTICED BY THE A.O. THAT IN THE COMPUTAT ION OF THE TOTAL INCOME FILED THE RETURN OF INCOME THE ASSESSEE HAS ADDED BACK AN AMOUNT OF ` 10 69 59 104/- ON ACCOUNT OF AMOUNT CREDITED TO TH E PROFIT & LOSS A/C. TOWARDS DEPB. THE A.O. HAS NOTED THAT AMOUNT OF ` 47 27 99 314/- WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT WHICH WAS IN RESPECT OF THE DEPB ENTITLEMENT. THE A.O. HAS ALSO NOTED THAT THE CREDIT ALLOWED ON THE DEPB SCHEME IS NOT REFUNDABLE TO THE ASSESSEE. BUT THE SAME IS ALLOWED TO BE SET OFF AGAINST THE DUTY PAYA BLE ON THE IMPORTS OF THE GOODS. THE SUM OF ` 10 69 59 104/- WAS IN RESPECT OF THE SAID CREDIT WHICH HAS NOT BEEN SET OFF AND AVAILED OFF AGAINST THE DUTY PAYABLE ON THE IMPORTS EFFECTED UP TO MARCH 2007. THE A.O. HA S OBSERVED THAT THE SAID AMOUNT HAS BEEN SHOWN AS AN ASSET IN THE BALAN CE-SHEET AND IN THE PROFIT AND LOSS ACCOUNT TO THAT EXTENT IT IS CREDI TED ON FOOTING OF REASONABLE CERTAINTY OR REALIZATION. WHILE COMPUTI NG THE TOTAL INCOME THE SAID AMOUNT WAS REDUCED ON THE REASON THAT IT I S NOT ACCRUED TO THE ASSESSEE-COMPANY AS PER THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE CASE OF E.D. SASOON & CO. 26 ITR 27. THE A. O. DECLINED TO ACCEPT THE PLEA OF THE ASSESSEE THAT TO THAT EXTENT OF ` 10 69 59 101/-. THERE IS A ACCRUAL OF INCOME TO THE ASSESSEE. THE ASSESSEE CHALLENGED THE ADDITION MADE BY THE A.O. BEFORE THE LD. CIT (A) AN D FOUND FAVOUR AND THE ADDITION WAS DELETED. THE LD. CIT (A) DELETED THE ADDITION BY OBSERVING THAT THIS ISSUE HAS BEEN DECIDED IN FAVOU R OF THE ASSESSEE IN A.Y. 2006-07. NOW THE REVENUE IS IN APPEAL BEFORE US. 14. THE LD. COUNSEL SUBMITTED THAT IN THE A.YS. 200 4-05 & 2005-06 THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE AN D IN OTHER YEARS THE SAME HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. IN A.YS. 2004-05 AND 2005-06 (ITAS 4407 IN 4008/M/2006) THE TRIBUNAL FOL LOWED THE DECISION IN THE CASE OF TOPMAN EXPORTS VS. ITO 318 ITR (AT) 87 (MUM)(SB) IN ITA 4784/M/2009 M/S. CIPLA LTD. 12 WHICH IT HAS BEEN HELD THAT IT IS ONLY WHEN THE EXP ORTER MAKES AN APPLICATION AND ACQUIRES THE RIGHT TO DEAL WITH THE CREDIT AND INCOME THEREOF ACCRUES AT THAT STAGE AND BECOMES EXIGIBLE TO TAX ACCORDINGLY. THE LD. COUNSEL ARGUED THAT THE ASSESSEE HAS NOT SO LD THE DEPB IN THE MARKET. IT IS ARGUED THAT THE ASSESSEE BOOKS THE C REDITS AT THE TIME OF EXPORT AND CREDIT IS UTILIZED WHEN THE IMPORTS ARE MADE. IT IS ARGUED THAT THE DECISION IN THE CASE OF TOPMAN EXPORTS (SUPRA) IS NOT A GOOD LAW. IT IS ARGUED THAT IN THE CASE OF CIT VS. KALPATRU COLO URS & CHEMICALS 233 ITR 313 (BOM)(SUPRA)/ 192 TAXMAN 435 (BOM) THE HON BLE HIGH COURT HAS HELD THAT THE INCOME ACCRUES TO THE ASSESSEE AT THE TIME OF EXPORT NOT AT THE TIME OF MAKING THE APPLICATION. IT IS A RGUED THAT THE NATURE OF THE SAID CREDIT IS CONTINGENT IF THERE IS NO IMPORT THEN IT WILL LAPSE UNLESS THE SAME IS USED OR TRANSFERRED. PER CONTR A THE LD. D.R. SUBMITS THAT THE ASSESSEE CAN SALE THE SAID DEPB IN THE MAR KET AND IT IS NOT THAT IF THE ASSESSEE DOES NOT MAKE ANY IMPORT THEN THE S AME BENEFIT IS LAPSE. IT IS ARGUED THAT THIS ISSUE IS SQUARELY COVERED I. E. AT THE TIME WHEN APPLICATION IS MADE FOR AVAILING CREDIT BY THE DECI SION OF HONBLE BENCH IN THE CASE OF TOPMAN EXPORTS (SUPRA). SO FAR AS THE DECISION IN THE CASE OF CIT VS. KALPATRU COLOURS & CHEMICALS (SUPRA) IS CON CERNED THE ISSUE AT WHAT POINT OF TIME THERE IS ACCRUAL OF INCOME HAS N OT BEEN CONSIDERED. HE THEREFORE PLEADED THAT TO RESTORE THE ADDITION MADE BY THE A.O. 15. WE HAVE ALREADY NARRATED THE FACTS. THE SHOR T CONTROVERSY IS IN RESPECT THE TIME OF ACCRUAL DEPB CREDIT TO THE ASSE SSEE. IN TOPMAN EXPORTS (SUPRA) THE SPECIAL BENCH HELD THAT IT IS A TIME OF MAKING THE APPLICATION THE RIGHT IS ACCRUED IN FAVOUR OF THE ASSESSEE TO UTILISE A CREDIT. IT IS ALSO TRUE THAT THE ASSESSEE CAN TRA NSFER OR SALE DEPB IN THE OPEN MARKET. 16. IN THE CASE OF CIT VS. KALPATRU COLOURS & CHEMI CALS (SUPRA) THE QUESTIONS BEFORE THE HONBLE HIGH COURT WERE AS UND ER:- ITA 4784/M/2009 M/S. CIPLA LTD. 13 (I) WHETHER THE ENTIRE ACCOUNT RECEIVED ON THE SALE OF DUTY ENTITLED PASS-BOOK (DEPB) DOES NOT RECEIVED PROFITS CHARGEAB LE U/S.28(IIID) OF THE I.T. ACT AND THE THAT FACE VALUE OF THE DUTY DRAWBACK ENTITLEMENT PASS-BOOK ESTABLISHED DEDUCTED FROM THE SALE PROCEED. (II) WHETHER THE FACE VALUE OF THE DUTY ENTITLEMENT PASS-BOOK IS CHARGEABLE TO TAX U/S.28(IIIB) AT THE TIME OF ACCRU AL OF INCOME I.E. WHEN THE APPLICATION FOR DUTY ENTITLEMENT PASS-BOOK IS FILED WITH THE CONCERNED AUTHORITY PURSUANT TO THE EXPORTS MADE IN THAT THE PROFITS ON THE SALE OF DUTY ENTITLEMENT PASS-BOOK REPRESENT ING THE EXCESS OF THE SALE PROCEEDS OVER THE FACE VALUE IS LIABLE TO BE CONCERNED U/S.28(IIID) AT THE TIME OF SALE. THE HONBLE HIGH COURT HAS EXPLAINED THE DUTY ENTIT LEMENT PASS-BOOK SCHEME (DEPB) AND IT IS OBSERVED THAT SAID SCHEME I S AN OPTIONAL FACILITY WHICH IS GRANTED TO EXPORTERS WHO ARE NOT DESIROUS OF NOT GOING THROUGH LICENSING ROUTE. THE OBJECT OF THE DEPB SCHEME IS TO NEUTRALIZE BURDEN OF CUSTOM DUTY ON THE IMPORT CONTENT OF THE EXPORT PRODUCTS. AS PER THE DEPB SCHEME AN EXPORTER IS ALLOWED TO APPLY FOR GET TING CREDIT WHICH IS COMPUTED AT A SPECIFIC PERCENTAGE OF FOB VALUE OF E XPORTS MADE IN FREELY CONVERTIBLE FOREIGN CURRENCY. THE EXPORT PRODUCTS AND RATES GOVERNING THE GRANT OF DEPB CREDIT ARE NOTIFIED. IT IS ALSO OBSERVED THAT THE GOODS WHICH ARE EXPORTED NEED NOT AS A MATTER OF FACT N ECESSARILY UTILIZED IMPORTED INPUTS. IT IS FURTHER OBSERVED THAT THE C REDIT NEED NOT BE UTILIZED BY THE EXPORTER HIMSELF FOR THE MATTER IT IS NOT NECESSARY FOR THE EXPORTER TO UTILIZE THE GOODS THAT MAY BE IMPORTED AGAINST THE DEPB CREDIT AND DEPB CREDIT IS A TRANSFERABLE. THE SPEC IAL BENCH OF THE ITAT MUMBAI IN THE CASE OF TOPMAN EXPORTS (SUPRA) HAS HE LD THAT ONLY TO THE EXTENT OF THE DIFFERENCE BETWEEN FACE VALUE AND PRO CEEDS RECEIVED ON THE TRANSFER IS SUBJECTED TO TAX U/S.28(IIID) OF THE AC T. THE HONBLE HIGH COURT HELD THAT THERE IS NO COST OF ACQUISITION FOR THE DEPB AS IT IS IN THE NATURE OF THE INCENTIVE AT PAR WITH THE OTHER INCENTIVES PROVIDED IN ITA 4784/M/2009 M/S. CIPLA LTD. 14 SECTION 28 (IIIA) (IIIB) & (IIIC) OF THE ACT AND H ENCE THE ENTIRE FACE VALUE OF THE DEPB AS WELL AS THE AMOUNT RECEIVED AT TIME TRA NSFER OF DEPB WOULD CONSTITUTE TO PROFITS OF THE BUSINESS U/S.28 (IIID) OF THE ACT AND MERELY BECAUSE A PART OF THE SAME FACE VALUE WAS OFFERED T O TAX IN THE YEAR IN WHICH THE CREDIT ACCRUED TO THE ASSESSEE WOULD NOT BE GROUND TO HOLD THAT SUCH PROFITS WAS NOT COVERED U/S.28 (IIID) OF THE ACT. 17. THE LD. COUNSEL ARGUED THAT IN THE CASE OF CIT VS. KALPATRU COLOURS & CHEMICALS (SUPRA) THE ISSUE HAS BEEN CONS IDERED BY THE HONBLE HIGH COURT BUT WE ARE NOT IN AGREEMENT TO S AID CONTENTION. AS ADMITTEDLY THE TIME OF ACCRUAL OF THE INCOME IN RES PECT OF THE DEPB HAS NOT BEEN DISCUSSED OR DECIDED IN THE SAID JUDGMENT. THERE IS NO DISPUTE ABOUT THE FACT THAT THE DEPB IS FREELY TRANSFERABLE AND THE ASSESSEE CAN SALE THE SAME IN THE MARKET. ONCE THE ASSESSEE MAK ES AN APPLICATION FOR GETTING THE DEPB CREDIT AT THAT POINT OF TIME THERE IS AN ACCRUAL OF THE INCOME. IN OUR OPINION THE DECISION OF THE TRIBU NAL IN THE ASSESSEES OWN CASE FOR THE A.YS. 2003-04 & 2004-05 STANDS AS GOOD LAW AND THAT HAS NOT CHANGED BY THE DECISION OF CIT VS. KALPATRU COLOURS & CHEMICALS (SUPRA). WE THEREFORE FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2003-04 AND 2004-05 REVERSE T HE FINDING OF THE LD. CIT (A) ON THIS ISSUE AND ALLOW GROUND NO.4 TAKEN B Y THE REVENUE. 18. IN THE RESULT REVENUES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 8TH JANUARY 2011. SD/- SD/- ( RAJENDRA SINGH ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI DATE: 28TH JANUARY 2011 ITA 4784/M/2009 M/S. CIPLA LTD. 15 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CENTRAL-I MUMBAI. 4) THE CIT CENTRAL-I MUMBAI. 5) THE D.R. C BENCH MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T. MUMBAI *CHAVAN ITA 4784/M/2009 M/S. CIPLA LTD. 16 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 21/24.01.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 24.01.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER