CIT-III LUDHIANA vs. M/S JAWAND SONS UDHAY COMPLEX LUDHIANA

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ITA/91/2010HC Punjab & HaryanaPHHC01093885201029 September 2010Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE AJAY KUMAR MITTAL3 pages
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What did the High Court hold?

The High Court held that the questions raised by the Revenue had to be decided in its favour. The reasoning was based on the established legal position that income derived from export incentives, such as DEPB, is not considered income derived from the industrial undertaking for the purpose of deduction under Section 80IB. This principle was supported by the Supreme Court's decision in CIT v. Sterling Foods and the High Court's own decision in Liberty India v. CIT, which was subsequently upheld by the Supreme Court. The Court also noted that similar views had been taken in previous appeals involving the same assessee. Therefore, the Tribunal's decision to allow the deduction was found to be erroneous. The appeal filed by the Revenue was allowed.

What were the facts?

The Revenue, Commissioner of Income Tax-III, Ludhiana, appealed under Section 260A of the Income Tax Act, 1961, against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had affirmed the decision of the Commissioner of Income Tax (Appeals) [CIT(A)] for the assessment year 2005-06. The assessee, M/s Jaswand Sons, a manufacturer and exporter of hosiery goods, claimed deduction under Section 80IB of the Act on income derived from export incentives, specifically a sum of Rs. 2,30,85,177/- received as Duty Entitlement Pass Book (DEPB) from an export house. The Assessing Officer rejected this claim, but the CIT(A) allowed it, holding that part of the assessee's sales were to an export house. The ITAT upheld this view.

What were the issues?

The Tribunal had to decide the following substantial questions of law raised by the Revenue: 1. Whether the ITAT was right in holding that the CIT(A) was justified in allowing deduction under Section 80IB on Rs. 2,30,85,177/- received as DEPB, considering it part of sales made by the assessee? 2. Whether the ITAT erred in not holding the DEPB of Rs. 2,30,85,117/- received from the export house as not derived from the industrial undertaking eligible for deduction under Section 80IB? 3. Whether the ITAT erred in law in not holding that DEPB benefits do not form part of the net profits of an eligible industrial undertaking for the purpose of Section 80IB? 4. Whether the ITAT erred in not following the decision of the Punjab & Haryana High Court in M/s Liberty India Vs. CIT Karnal (293 ITR 520), which was upheld by the Supreme Court? Contentions of the Revenue: The Tribunal erred in allowing the Section 80IB deduction solely because part of the sales were to an export house. The income derived from export incentives, such as DEPB, is not eligible for deduction under Section 80IB as it is not income derived from the industrial undertaking. The Revenue relied on the Supreme Court decision in CIT v. Sterling Foods, [1999] 237 ITR 579 (SC) and the High Court's decision in Liberty India v. CIT, [2007] 293 ITR 520. The Revenue also cited previous decisions of this Court in the assessee's own cases (ITA No. 301 of 2007 and [2010] 326 ITR 39). Contentions of the Assessee: Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 80IB,Section 260A

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision: 29.9.2010 The Commissioner of Income Tax-III, Ludhiana ....Appellant. Versus M/s Jaswand Sons ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Denesh Goyal, Advocate for the appellant. Mr. Pankaj Jain, Advocate for the respondent. ADARSH KUMAR GOEL, J.

1.

This appeal has been preferred 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. 622/CHANDI/2008 dated 27.2.2009 for the assessment year 2005-06, proposing following substantial questions of law:- “1. Whether on the facts and circumstances of the case, the Hon'ble ITAT was right in holding that CIT (A) was justified in deduction under section 80IB of I.T. Act, 1961 on a sum of Rs.2,30,85,177/- received by assessee from -2- export house as DEPB considering it to be a part of sales made by assessee?

2.

Whether on the facts and circumstances of the cases Hon'ble ITAT erred in not holding the DEPB of Rs.2,30,85,117/- received from the export house as not derived from the industrial undertaking eligible for deduction under section 80IB of I.T.Act, 1961?

3.

Whether on the facts and circumstances of the case Hon'ble ITAT has erred in law in not holding DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purpose of section 80IB?

4.

Whether on the facts and circumstances of the cases Hon'ble ITAT has erred in not following the decision of Hon'ble Punjab & Haryana High Court in the case of M/s Liberty India Vs. CIT Karnal reported in 293 ITR 520 which has been upheld by the Hon'ble Supreme Court?”

2.

The assessee is manufacturer and exporter of hosiery goods. During the assessment, claim for deduction under Section 80IB was made in respect of income derived from sale of export incentives. The said claim was rejected as not falling under Section 80IB not being income derived from industrial undertaking. On appeal, the CIT (A) upheld the plea of the assessee on the ground that part of sales of the assessee were to an export house. The said view has been affirmed by -3- the Tribunal.

3.

We have heard learned counsel for the parties.

4.

Learned counsel for the revenue submits that the Tribunal erred in allowing the claim under Section 80IB only on the ground that part of sales of the assessee were to an export house which has no relevance to the question of deduction under Section 80IB. The income derived from export incentive was not eligible for deduction under Section 80IB, not being income derived from the industrial undertaking as held by the Hon'ble Supreme Court in CIT v. Sterling Foods, [1999] 237 ITR 579 (SC) and this Court in Liberty India v. CIT, [2007] 293 ITR

520.

The same view has been taken by this Court in the cases of the assessee in ITA No. 301 of 2007 (M/s Jaswand Sons v. CIT Ludhiana) decided on 17.9.2007 and Jaswand Sons v. Commissioner of Income tax (Appeals), [2010] 326 ITR 39. 5. In view of above, questions raised by the revenue have to be decided in its favour.

6.

Accordingly, the appeal is allowed. (ADARSH KUMAR GOEL) JUDGE September 29, 2010 (AJAY KUMAR MITTAL) gbs JUDGE

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