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2015 DIGILAW 700 (GUJ)

Commissioner of Income Tax-II v. Hiren Alluminium

2015-07-15

A.J.DESAI, ABDULLAH GULAMAHMED URAIZEE

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Judgment A.J. Desai, J. 1. The present appeal was tagged along with other matters having one of the common substantial question in all the appeals. However, considering the arguments advanced by learned advocates appearing for the respective parties, the present appeal is required to be dealt with separately. 2. The present tax appeal under section 260A of the Income-Tax Act, 1961, has been filed by the revenue challenging the judgment and order dated 15/05/2009 passed by Income Tax Appellate Tribunal, A-Bench, Ahmedabad in ITA No. 2339/Ahd/2006, by which, the appeal preferred by the revenue challenging the order of Commissioner of Income Tax (Appeals)-VIII, Ahmedabad, has been partly allowed. 3. Brief facts, arise from the record of the case, are as under: That the respondent is an industrial undertaking registered under the provisions of Companies Act, 1956 and is in business of manufacturing aluminium wire rods, etc. The petitioner filed return of its income for the assessment year 2002-03, as per the provisions of the Act. The return was proceeded under section 143(1) of the Act on 15/01/2003. Assessing Officer vide its order dated 28/02/2004 held that the petitioner was not entitled to get any deduction u/s. 80-IB of the Act as well as income derived by way of sale of Duty Entitled Pass Book Scheme (hereinafter referred to as "DEPB"). The assessee challenged the said order before Commissioner of Income Tax (Appeals). By judgment and order dated 29/08/2006, the appeal preferred by the assessee was partly allowed and it was held that the petitioner was entitled for the deductions provided under section 80-IB of the Act for DEPB. The said decision was challenged by revenue before the Income Tax Appellate Tribunal, A-Bench, Ahmedabad, which came to be dismissed by the Tribunal vide order dated 15/05/2009. Hence, the present appeal. 4. At the time of hearing, following substantial question was raised as substantial question of law: "Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by CIT(A) in directing not to exclude the following income from profit of the business for working of deduction u/s. 80IB of the Income Tax, 1961:- (i) Interest on delayed payment from debtors of Rs. 1,32,65,597/-. (ii) Interest on loan advances to group concerns of Rs. 41,98,177/-. (iii) Interest on fixed deposits at Rs. 22,21,839/-. (iv) Income by way of sale of DEPB entitlement Rs. 10,53,381/-?" 5. Mr. 1,32,65,597/-. (ii) Interest on loan advances to group concerns of Rs. 41,98,177/-. (iii) Interest on fixed deposits at Rs. 22,21,839/-. (iv) Income by way of sale of DEPB entitlement Rs. 10,53,381/-?" 5. Mr. M.R. Bhatt, learned Senior Counsel assisted by Mrs. Mona Bhatt, learned advocate appearing for the petitioner has fairly submitted that the appeal is required to be partly allowed in view of the ratio laid down by Hon'ble Apex Court. He would submit that though the disputed question is bifurcated in four parts, the appeal is required to be allowed as far as 4th part of the question i.e. with regard to income received by the assessee by sale of DEPB to the tune of Rs. 10,53,381/-. Mr. M.R. Bhatt, learned senior counsel appearing for the petitioner has relied upon the decision rendered in the case of Liberty India Vs. Commissioner of Income-tax, (2009) 3 ITR 218 (SC) and submitted that it has been held that Hon'ble Apex Court that DEPB are incentives, which flow from the schemes framed by Central Government or from section 75 of the Customs Act, 1962. Incentive profits are not profits derived from eligible business under section 80-IB: they belong to the category of ancillary profits of such undertaking. Profits derived by way of incentives such as DEPB cannot be credited against the cost of manufacture of goods debited in the profit and loss account and they do not fall within the expression "profits derived from industrial undertaking" under section 80-IB. Therefore, he would submit that the Tribunal has wrongly allowed income of DEPB under the provisions of section 80-IB. He, therefore, would submit that the appeal may be allowed for the aforesaid question. 6. On the other hand, Mr. Saurabh Soparkar, learned counsel appearing for the respondent would submit that the assessee would not be entitled for any set off for the income by way of sale of DEPB, in view of the judgment delivered by Hon'ble Supreme Court in the case of Liberty India Vs. Commissioner of Income-Tax (supra). Since the Tribunal has already dealt with the interest on loan advances on group concerns and interest on Fixed deposit, there is no need to answer the same. He would submit that the Tribunal has rightly held that the petitioner is entitled for the set off u/s. 80-IB for the amount of interest on delayed payment. Commissioner of Income-Tax (supra). Since the Tribunal has already dealt with the interest on loan advances on group concerns and interest on Fixed deposit, there is no need to answer the same. He would submit that the Tribunal has rightly held that the petitioner is entitled for the set off u/s. 80-IB for the amount of interest on delayed payment. By relying upon the decision rendered in the case of Nirma Industries Ltd. Vs. Deputy Commissioner of Income-Tax - [2006] 283 ITR 402 (Guj) as well as in the case of Commissioner of Income-Tax Vs. Nirma Ltd., [2014]367 ITR 12 (GUJ), has submitted that there is no need to interfere with the judgment of Tribunal as well as CIT (Appeals) in view of the law laid down by Division Bench of this Court. 7. We have heard learned advocates appearing for the respective parties. We have perused the decisions rendered by Division Bench in the case of Nirma Industries Ltd. Vs. Deputy Commissioner of Income-Tax (supra) as well as Commissioner of Income-Tax Vs. Nirma Ltd. (supra) wherein it has been held that interest received on delayed payment of sale consideration shall be treated as amount derived from the business and the assessee would be entitled for deduction on such interest on its total income. Therefore, learned Tribunal has rightly confirmed the order in favour of the assessee by the CIT (Appeals). 8. As far as deduction granted by the Commissioner of Income Tax (Appeals) as well as the Income Tax Appellate Tribunal with regard to the income received by the assessee so far as sale received from DEPB is concerned, the Hon'ble Supreme Court in the case of Liberty India Vs. Commissioner of Income-Tax (supra) has categorically held that such income cannot be treated as income from business activities and, therefore, no deduction can be granted under the provisions of 80-IB. Hon'ble Apex Court in para-22 has been specifically stated as stated hereinabove, which reads as under: "22. The cost of purchase includes duties and taxes (other than those subsequently recoverable by the enterprise from the taxing authorities), freight inwards and other expenditure directly attributable to the acquisition. Hence, trade discounts, 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. Hence, trade discounts, 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 should be treated as separate items of revenue or income and accounted for accordingly (see: page 44 of the Indian Accounting Standards and GAAP by Dolphy D'souza). Therefore, for the purposes of AS-2, Cenvat credits should not be included in the cost of purchase of inventories. Even Institute of Chartered Accountants of India (ICAI) has issued guidance note on accounting treatment for Cenvat/Modvat under which the inputs consumed and the inventory of inputs should be valued on the basis of purchase cost net of specified duty on inputs (i.e. duty recoverable 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, business restructuring, tax planning on sundry balances being written back, liquidation of current assets, etc. Therefore, we are of the view that duty drawback, DEPB benefits, rebates, etc. cannot be credited against the cost of manufacture of goods debited in the profit and loss account for purposes of section 80-IA/80-IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking." 9. Considering the facts of the present case as well as considering the law laid down by the Division Bench of this Court as well as Apex Court, the appeal is partly allowed. The order dated 29/08/2006 passed by Commissioner of Income Tax (Appeals) as well as the order dated 15/05/2009 passed by Income Tax Appellate Tribunal, A-Bench, Ahmedabad in ITA No. 2339/Ahd/2006, are hereby modified to the extent declaring that the assessee is not entitled for any deduction for any income received by sale of DEPB under the provision of section 80-IB of the Act. Accordingly, the appeal is partly allowed. In Favour of Assessee/Department.