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Income Tax Appellate Tribunal, DELHIBENCH ‘E’, NEW DELHI
Before: Dr. B. R. R. KumarSh. Yogesh Kumar US
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of by ld. CIT(A)-19, New Delhi dated 10.06.2019.
The assessee has raised the following grounds of appeal:
“1. That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in denying deduction under section 80-IC of the Income Tax Act, 1961 (the Act") on the consideration received on sale of Focus Scrip/License amounting to Rs.1,22,09,846 holding that the same is not derived from industrial undertaking.
1.1 That the CIT(A) erred on facts and in law in not appreciating that the consideration received on sale of Focus Scrip/ License was towards reimbursement of cost of manufacture or sale of products/ goods forming part of profit and gains derived from the business of eligible undertaking
2 Narayan Industries and therefore, admissible for deduction under section 80IC of the Act.
2. That the CFT(A) erred on facts and in law in confirming the action of the assessing officer in denying deduction under section 80-IC of the Act on the amount of duty drawback of Rs. 1,34,38,482 holding that the same is not derived from the industrial undertaking.
3. That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in denying deduction under section 80-IC of the Act on interest on KDR amounting to Rs. 1,34,459.
4. That the CIT(A) erred on facts and in law in confirming the action of the assessing officer of charging/ levying interest under section 234C of the Act.”
Focus License:
The issue of taxability of incentive on Focus products scheme stands adjudicated by the Tribunal and it was held that the incentive received be treated as capital receipt. Reliance is placed on following judgments:
Shree Balaji Alloys Vs. ITO 127 TTJ 129 (Asr. ITAT) Confirmed by Supreme Court in 287 CTR 459 (SC) Indo Java & Co Vs. IAC 30 ITD 161 (Del ITAT (SB) Crystal Crop Protection Pvt. Ltd Vs. DCIT in of 2016 (Del ITAT) Tripti Manthollands Vs. ITO in ITA No. 58 of 2011 (Asr. ITAT)
Deduction u/s 80IC-Duty drawback:
During the year under consideration, the appellant received duty drawback amounting to Rs.1,92,64,540/- which is 3 Narayan Industries in the nature of refund granted under section 75 of the Customs Act, 1962 and section 37 of the Central Excise Act, 1944 to refund the component of custom duty and excise duty paid on materials used in manufacture of exported on goods. It was submitted that since duty draw back received during the year under consideration was less than the amount of duty component embedded as part of purchase price of various materials used in manufacture of the exported goods, there was no profit element in the duty draw back received during the year under consideration. As a necessary corollary, no part of the profits of the appellant from the industrial undertaking included any profit from incentive by way of duty drawback and therefore, the amount of duty drawback received and credited to the Profit & Loss Account was not reduced/ excluded from the eligible profits while computing deduction under section 80-IC of the Act. It was submitted that the assessing officer and CIT(A), without appreciating the aforesaid facts, held that the profits of the industrial undertaking included the amount of duty drawback, which is not eligible for deduction under section 80- IC of the Act as per the decision of the Hon'ble Supreme Court in the case of Liberty India Limited: 317 ITR 218 (SC). It held that the appellant was not eligible for deduction under section 80-IC of the Act on duty drawback to the extent of Rs.1,34,38,482/-.
We have gone through rational given by the AO as under:
“5.2 I have carefully considered the submission of the AR and vis-à- vis gone through the judgment of Hon'ble Supreme Court in the case of CIT Vs. Liberty India and Topman Exports Vs. CIT: 342 ITR 49. The facts of the case of Topman Exports vs CIT case are 4 Narayan Industries different from the present case. The issue before the Hon'ble Supreme Court in Topman Exports Vs. CIT was what is profit from transfer of DEPB but the issue in the present case before the undersigned is on the duty draw back and its inclusion in 80IC profit. The assessee has taken the ground that the duty draw back received during the year is less than the component of the duty paid and embedded as a part of purchases and further submitted that assesee purchases various raw materials which are subjected to payment of duty in course of manufacturing and amount of duty draw back was nearly to reimburse the said duty paid as part of purchase by the assessee. Here I would like to mention that the assessee has given only approximately figures & in some cases there is no duty has been paid by the assessee as part of purchase price. Therefore the calculation given by the assessee is not correct.”
The ld CIT(A) concurred with the order of the AO.
We have gone through the record and also the submission of the assessee containing 22 pages. It was submitted that the duty drawback amounting to Rs. 1,92,64,540/- is less than the amount of duty component paid and embedded as part of the purchases debited to the profit and loss account. It was submitted that the assessee purchases various raw-material and packing materials which are subjected to payment of duty in the course of manufacture/ imports and the amount of duty drawback received was merely to reimburse the said duty paid as part of purchase price by the appellant. Tentative working of duty component embedded in various purchases debited during the year under consideration is tabulated hereunder:
5 Narayan Industries Particulars Purchase (in Rs.) Rate of duty (%age) Duty component (Rs.) Fabric 19,16,69,141 8% Approx 1,53,33,531 Filling Material 4,52,40,706 10% Approx 36,19,256 Thread 58,55,563 10% Approx 4,68,445 Packing Material 2,32,35,094 10% Approx 18,58,808 Fabrication Material 51,68,346 10% Approx 4,13,468 Chemical 29,39,206 10% Approx 2,35,136 Dying Processing 2,07,31,840 6% Approx 16,58,547 with Chemical TOTAL 2,35,87,192
It was submitted that duty component embedded in purchases debited in the profit and loss account exceeds the amount of duty drawback of Rs. 1,92,64,540/- received during the year under consideration, thereby not resulting in any profit from the incentive by way of duty drawback. In view of the aforesaid, It was submitted that since there was no profit from the incentive received by the appellant by way of duty drawback, the question of any such profit being included in the eligible profit of the undertaking/ gross total income of the appellant does not arise at all. The AO may verify the purchases and duty paid thereof and examine the net impact of the duty paid and received and take a decision in accordance with the provisions of the Act.