LIBERTY INDIA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) LEAVE granted.

(2.) THE issue for consideration is: whether profit from Duty Entitlement passbook Scheme (DEPB) and Duty Drawback Scheme could be said to be profit derived from the business of the Industrial Undertaking eligible for deduction under Section 80-IB of the Income-tax Act, 1961 (1961 Act)?

(3.) THE appellant, a partnership firm, owns a small scale industrial undertaking engaged in manufacturing of fabrics out of yarns and also various textile items such as cushion covers, pillow covers etc. out of fabrics/yarn purchased from the market. During the relevant previous year corresponding to Assessment Year 2001-02, appellant claimed deduction under Section 80-IB on the increased profits of Rs. 22,70,056. 00 as profit of the industrial undertaking on account of DEPB and Duty Drawback credited to the Profit and Loss account. The Assessing Officer denied deduction under section 80-IB on the ground that the said two benefits constituted export incentives, and that they did not represent profits derived from industrial undertaking. In this connection the AO placed reliance on the judgment of this Court in CIT v. Sterling Food reported in 237 ITR 579. Aggrieved by the said decision, matter was carried in appeal to CIT (A), who came to the conclusion, that duty drawback received by the appellant was inextricably linked to the production cost of the goods manufactured by the appellant; that, duty drawback was a trading receipt of the industrial undertaking having direct nexus with the activity of the industrial undertaking and consequently, the AO was not justified in denying deduction under Section 80-IB. According to CIT (A), the DEPB Scheme was different from Duty drawback Scheme inasmuch as the DEPB substituted value based Advance licencing Scheme as well as Passbook Scheme under the Exim Policy; that entitlements under DEPB Scheme were allowed at pre-determined and pre-notified rates in respect of exports made under the Scheme and consequently, DEPB did not constitute a substitute for duty drawback. According to CIT (A), credit under DEPB could be utilized by the exporter himself or it could be transferred to any other party; that such transfer could be made at higher or lower value than mentioned in the Passbook and, therefore, DEPB cannot be equated with the duty drawback, hence, the appellant who had received Rs. 20,95,740/- on sale of DEPB licence stood covered by the decision of this Court in Sterling Food (supra ). Hence, to that extent, appellant was not entitled to deduction under Section 80-IB. Against the decision of CIT (A) allowing deduction on duty drawback, the revenue went in appeal to the Tribunal which following the decision of the delhi High Court in the case of CIT v. Ritesh Industries Ltd. reported in 274 ITR 324, held that the amount received by the assessee on account of duty drawback was not an income derived from the business of the industrial undertaking so as to entitle the assessee to deduction under Section 80-IB.