(O&M) COMMISSIONER OF INCOME TAX vs. M/S BHANDARI HOSIERY EXPORTS LTD.

ITA/127/2008HC Punjab & HaryanaPHHC01080091200818 April 2011Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE AJAY KUMAR MITTAL6 pages
AI SummaryAllowed

What were the facts?

The Revenue filed an appeal under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 1994-95. The ITAT had upheld the order of the CIT(A), which had dismissed the Assessing Officer's (AO) attempt to rectify an earlier order under Section 154. The assessee, M/s Bhandari Hosiery Exports Ltd., had initially claimed and been allowed deduction under Section 80-I of the Act on export incentives, including duty drawback. The AO sought to withdraw this deduction, arguing it was a mistake apparent from the record, citing the Supreme Court's decision in CIT vs. Sterling Foods Ltd. The CIT(A) and ITAT found the issue debatable and thus beyond the scope of Section 154.

What did the High Court hold?

The High Court held that the view taken by the CIT(A) and the ITAT that the Supreme Court's judgment in Sterling Foods Ltd. was concerned only with export incentives other than duty drawback could not be sustained. The Court reasoned that duty drawback, like other export incentives such as DEPB, flows from statutory/policy provisions (Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944) and is not income derived from the industrial undertaking. The Court found that the Supreme Court's decision in Sterling Foods Ltd., as reiterated in Liberty India, clearly established that such incentives are ancillary profits and not profits derived from the eligible business for the purpose of Section 80-I. Therefore, the question of law was answered in favour of the revenue and against the assessee. The appeals were allowed.

What were the issues?

1. Whether, on the facts, law, and in the circumstances of the case, the ITAT was legally justified in holding that the withdrawal of deduction under Section 80-I with reference to receipts on account of duty drawback was beyond the scope of the AO under Section 154, in view of the law laid down by the Supreme Court in CIT vs. Sterling Foods Ltd. and Pandian Chemicals Ltd. v. CIT? Assessee's Contention (as inferred from the ITAT's reasoning): The assessee conceded that import entitlements did not qualify for deduction under Section 80-I in light of Sterling Foods Ltd., but argued that duty drawback stood on a different footing. The ITAT noted that the issue of whether duty drawback receipts are income derived from an industrial undertaking was not free from doubt and debate, making it unsuitable for rectification under Section 154, citing T.S. Balram, ITO v. Volkar Brothers and CIT v. Hero Cycles Pvt. Ltd. Revenue's Contention: The revenue argued that the principle laid down in Sterling Foods Ltd. – that deduction under Section 80-I was only for income "derived from" the industrial undertaking and not for export incentives – applied equally to duty drawback, as it is an export incentive. They further relied on Liberty India v. Commissioner of Income Tax, which held that incentives like DEPB/duty drawback are not profits derived from the eligible business but ancillary profits.

Which sections of the Income-tax Act were involved?

Section 260A,Section 80-I,Section 154,Section 75,Section 37,Section 80-IB

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 127 of 2008 (O&M) Date of Decision: 18.4.2011 Commissioner of Income Tax ....Appellant. Versus M/s Bhandari Hosiery Exports Ltd. ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Katoch, Advocate for the appellant. None for the assessee. ADARSH KUMAR GOEL, J.

1.

This order will dispose of ITA Nos. 127 and 128 of 2008 as it is stated that in both the appeals question involved is same.

2.

ITA No. 127 of 2008 has been filed by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order of the Income Tax Appellate Tribunal, Chandigarh Bench “A”, Chandigarh (hereinafter referred to as “the Tribunal”), passed in ITA No. 608/Chandi/2002 dated 28.6.2005 for the assessment year 1994-95, raising following substantial question of law:- “Whether on the fact, law and in the circumstances of the case, the Hon'ble Income Tax Appellate Tribunal was legally justified in holding that the withdrawal of -2- deduction u/s 80-I with reference to the receipts on account of duty draw back was

The order continues below.

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