MS SARAF EXPORT vs. THE COMMISSIONER OF INCOME TAX AND ANR

Facts

These appeals by M/s Saraf Export (the assessee) are against the judgment of the Income Tax Appellate Tribunal (ITAT). The assessee, engaged in manufacturing wooden handicraft items, claimed deductions under Section 80-IB of the Income Tax Act, 1961, in addition to income from export sales, DEPB, and Drawback duty for Assessment Year 2008-09. The Assessing Officer disallowed the DEPB and Drawback duty amounts, relying on the Supreme Court judgment in Liberty India vs. CIT. The CIT(A) dismissed the assessee's appeal. The ITAT, however, held the Supreme Court judgment in Liberty India to be per incuriam and followed this Court's judgments in Chokshi Contracts (P) Ltd., Saraf Seasoning Udyog, and a Tribunal order in M/s. Bothra International, thereby reversing the Assessing Officer's order. The High Court, in turn, allowed the revenue's appeal, restoring the Assessing Officer's order.

Held

The High Court held that the issue was squarely covered by its own previous judgment in Commissioner of Income Tax, Jaipur-III vs. M/s. Saraf Exports (2016 (3) WLC 660), which had allowed the revenue's appeal and restored the Assessing Officer's order. The Tribunal's decision to consider the Supreme Court judgment in Liberty India vs. CIT as per incuriam and follow other precedents was set aside. The Court noted that the assessee had filed an SLP before the Supreme Court. Consequently, the High Court dismissed the appeals filed by the assessee, making the dismissal subject to the final outcome of the SLP pending before the Supreme Court on the question involved. The operative direction was to dismiss the appeals.

Key Issues

1. Whether the amounts received by the assessee by way of DEPB and Drawback duty are incentives and thus not eligible for deduction under Section 80-IB of the Income Tax Act, 1961, in light of the Supreme Court judgment in Liberty India vs. CIT (2009) 317 ITR 218 (SC)? Assessee's Contention: The assessee argued that the ITAT had correctly held the Supreme Court judgment in Liberty India to be per incuriam and had followed this Court's judgments in Chokshi Contracts (P) Ltd. (251 ITR 587 (Raj.)) and Saraf Seasoning Udyog (2009 (317) ITR 202 (Raj.)), as well as an order of the Jodhpur Bench of the Tribunal in M/s. Bothra International. The assessee also pointed out that a Special Leave Petition (SLP) No. 12142/2016 had been filed before the Supreme Court, delay condoned, and notice issued. Revenue's Contention: The revenue contended that the matters were squarely covered by this Court's judgment in Commissioner of Income Tax, Jaipur-III vs. M/s. Saraf Exports (2016 (3) WLC 660).