ADCI DYE CHEM P.LTD. vs. DY.COMMISSIONER OF INCOME TAX

Facts

The assessee, ADCI Dye Chem Pvt. Ltd., engaged in manufacturing dyes and chemicals, filed its return for AY 1994-95 claiming a deduction of Rs. 5,52,485 under Section 80IA. This deduction was computed after including export benefits, Central Excise duty set off (Rs. 41,43,478), miscellaneous income, interest income, and Sales Tax set off (Rs. 19,970). The Assessing Officer (AO) disallowed the inclusion of interest income, export incentive, Central Excise set off, and Sales Tax set off for computing the 80IA deduction. The CIT(A) allowed the assessee's appeal, directing the inclusion of these items. The revenue appealed to the ITAT, which partly allowed the appeal, quashing the CIT(A)'s order and restoring the AO's order, holding that Central Excise and Sales Tax set off should not be included for 80IA deduction. The assessee then filed these Tax Appeals before the High Court.

Held

The High Court held that the issue is squarely covered against the assessee by the decisions of the Hon'ble Supreme Court in Liberty India vs. CIT and Sterling Foods vs. CIT. The Court noted that the assessee itself claimed the Central Excise Duty set off to be in the nature of duty drawback linked with export profit while claiming deduction under Section 80HHC. Therefore, the assessee could not take a different stand while claiming deduction under Section 80IA. Applying the Supreme Court decisions and the stand taken by the assessee for Section 80HHC, the Tribunal rightly held that the assessee is not entitled to deduction under Section 80IA on Central Excise Duty set off and Sales Tax set off. The questions of law were held against the assessee and in favour of the revenue.

Key Issues

1. Whether on facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming that the appellant was not entitled to the deduction under Section 80IA of the Income Tax Act, 1961, in respect of Central Excise Duty set off of Rs. 41,43,478 and Sales Tax set off of Rs. 19,970? (Question of law) Assessee's contentions: The Tribunal erred in holding that the assessee was not entitled to deduction under Section 80IA for Central Excise and Sales Tax set off. The Tribunal's reliance on the assessee's claim before the CIT(A) that these were export incentives was misplaced, as those observations related to Section 80HHC, not 80IA. The assessee had consistently argued that these set offs had a direct link with its business activities. The Tribunal should have examined the nature of the receipts independently rather than mechanically accepting the nature. The Tribunal's order overlooked facts and contentions and failed to pass a reasoned order reversing the CIT(A)'s finding. Revenue's contentions: The issue is covered by the Supreme Court decision in CIT vs. Liberty India Ltd. The Tribunal rightly observed that when the assessee claimed Central Excise set off as duty drawback linked with export profit for Section 80HHC, it cannot take a different stand for Section 80IA. Therefore, the Tribunal rightly relied on Sterling Foods (supra) and held that the assessee is not entitled to deduction under Section 80IA on these items.