M/S NEEL KANTH GUMand CHEMICALS vs. PRINCIPAL COMMISSIONER OF INCOME TAX-III

By way of these appeals, the appellant has assailed the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal preferred by the assessee and also confirming the order of AO as well as CIT(A).

Counsel for the appellant, in all the appeals, has framed the following substantial questions of law:- “(i) Whether the Tribunal acted on total misconception in holding the cash assistance received under the scheme of Duty Entitlement Pass Book (DEPB) and Vishesh Krishi Gram

Counsel for the appellant contended that the Tribunal has seriously committed an error in not considering the basic object of the DEPB and VKGUY which reads as under:- “DEPB: The objective of DEPB is to neutralize the incidence of Customs duty on the import content of the export product. The Neutralisation is granted under this scheme by way of grant of duty credit against the export product. The DEPB and/or the (4 of 12) [ITA-176/2017]

He contended that in view of the decision of this court which is prior to decision of the Supreme Court in M/s Liberty India vs. CIT (2009) 317 ITR 2018, in case of Saraf Seasoning Udyog vs. Income Tax Officer reported in [2009] 317 ITR 202 (Raj.) more particularly in para 9 & 12m this court held as under:- “9. Section 80IB, which provides for exemption, also reads as under: 80-IB Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings. - (1) Where the gross total income of-an assessee includes any profits and gains derived from any business referred to in Sub-sections (3) to (11), (11A) and (1IB) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. (4) The amount of deduction in the case of an industrial undertaking in an industrially backward State specified in the Eighth Schedule shall be hundred per cent, of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five per cent (or thirty per cent, where the assessee is a company) or the profits and gains derived from such industrial undertaking.

In our view, on a combined reading of Section 80IB(4) and Section 28(iiid), as introduced, does make clear, that the profit derived on transfer of DEPB licenses, does very much fall within four corners of profits and gains, derived from such industrial undertaking, being assessee, and is capable of being taxed only under Section 28, subject to exemption, as provided in Section 80IB, and/or other eligible provisions.” 5. reported in [2009] 317 ITR 353 (Del) wherein it has been held as under:- “18. As stated above, the notifications clearly mandate that the exemption from excise duty is available only if the industrial activity carried out by the assessee either in a new industrial undertaking or in an industrial undertaking in which installed capacity is increased by at least by 25 percent. It is thus clear that in the first notification, i.e. 32 of 1999 the exemption is area specific, while in the second notification, i.e., 33 of 1999 the exemption is specific to goods as referred to in the schedule appended to the said notification. It is thus clear that the exemption is directly relatable to an industrial undertaking manufacturing goods which are otherwise exigible to duty. The exemption is available either under Notification No. 32 of 1999 or under Notification No.33 of 1999 dependent on where the unit is located or the type of goods manufactured by an assessee as specified in the relevant notification.

To our mind, the procedure for granting of exemption is, as indicated above, that the assessee in the first instance, pays the excise duty from its current account. The statement with respect to clearances made, is submitted with the concerned Central excise authorities by the 7th of the succeeding month. The Central excise authorities

In these circumstances, the submissions of the learned counsel for the Revenue is that there is no direct nexus between the refund of excise duty paid or that the refund of excise duty paid was dependent on the said notifications is, to say the least, completely untenable. As a matter of fact as found by the Tribunal as well as the Commissioner of Income-tax(Appeals), in the instant case, the assessee has adopted an incorrect accounting methodology. The assessee as found bythe authorities below had on the payment of excise duty debited the profit and loss account and upon receipt of refund credited the profit and loss account. The net effect on the profit and loss was "nil" on account of the methodology followed by the assessee. There was thus, according to us, no reason to exclude the amount of refund of excise duty in arriving at "profit derived" for the purposes of claiming deduction under section 80-IB of the Act.

The other contention of the learned counsel for the Revenue that the assessee by virtue of Notification No.48 of 1999 would claim double benefit by having passed on the duty paid to its customers then recovering it in the form of sale price, even while claiming deduction under section 80-IB of the Act is also misconceived and deserves to be rejected at the very threshold. The reason being, firstly, no such case has been set up by the Revenue before any of the authorities below. This court cannot be called upon for the first time to appreciate submissions which have no factual foundation. Secondly, what is important to note is that the assessee as mentioned hereinabove is in the business of manufacturing chewing tobacco and kiwam. These goods by themselves are not inputs for any other goods and hence, the apprehension of the Revenue taht the assessee would claim a benefit of Notification No.48 of 1999 has no substance.

As against this, the learned counsel for the assessee drew our attention to a judgment of (7 of 12) [ITA-176/2017]

reported in [2016] 383 ITR 217 (SC) wherein it has been held as under:- “26. We do not find it necessary to further encumber this judgment with the judgments which Shri Ganesh cited on the netting principle. We find it unnecessary to further substantiate the reasoning in our judgment based on the said principle.

A Delhi High Court judgment was also cited before us being CIT v. Dharampal Premchand Ltd. MANU/DE/1689/2008MANU/DE/1689/2008 : 317 ITR 353 from which an SLP preferred in the Supreme Court was dismissed. This judgment also concerned itself with Section 80-IB of the Act, in which it was held that refund of excise duty should not be excluded in arriving at the profit derived from business for the purpose of claiming deduction Under Section 80-IB of the Act.

It only remains to consider one further argument by Shri Radhakrishnan. He has argued that as the subsidies that are received by the Respondent, would be income from other sources referable to Section 56 of the Income Tax Act, any deduction that is to be made, can only be made from income from other sources and not from profits and gains of business, which is a separate and distinct head as recognised by Section 14 of the Income Tax Act. Shri Radhakrishnan is not correct in his submission that assistance by way of subsidies which are reimbursed on the incurring of costs relatable to a business, are under the head "income from other sources", which is a residuary head of income that can be availed only if income does not fall under any of the other four heads of income. Section 28(iii)(b) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head "profits and gains of business or profession". If cash assistance

For the reasons given by us, we are of the view that the Gauhati, Calcutta and Delhi High Courts have correctly construed Sections 80-IB and 80-IC. The Himachal Pradesh High Court, having wrongly interpreted the judgments in Sterling Foods and Liberty India to arrive at the opposite conclusion, is held to be wrongly decided

We have heard counsel for the appellant.

Taking into consideration the concurrent finding of three authorities apart from the fact that the very object of the benefits which are required to be granted under DEPB has not fulfilled and Tribunal while considering the case has observed as under:- “7. Now the assessee is in appeal before us. The ld AR of the assessee has argued that the authorities below were not justified in rejecting the claim of deduction U/s 80IB of the Act. Ld. AR has reiterated the submissions as made in the written brief. Ld. Counsel has drew our attention to provisions of Section 28(iiib)/28(iiid) of the Act. He submitted that the authorities below have wrongly applied the ratio of the judgment of the Hon'ble Supreme Court in the case of M/s Liberty that Hon'ble Apex Court in following cases where [ITA-176/2017] it was held that DEPB credit is “cash assistance” receivable by a person against export under the scheme of the Government of India and falls under clause (iiib) (iiid) of Section 28 of the Act and is chargeable to income tax under the head “profit and gains from business or profession”. He submitted that following the judgments of the Hon'ble Supreme Court in the cases of Nissan Pvt. Ltd. Vs. ITO (supra), the Hon’ble Jaipur liable for deduction U/s 80IB read with Section 28(iiid) of the Act. He further submitted that in the case of M/s Handicrafts Vs. ITO, Churu (2013) 50 Tax World 155 (Jd), the Hon’ble Jodhpur Bench of ITAT has held that DEPB, DDB are eligible for exemption U/s 10BA of the Act as business income. He submitted that under the provisions of Section (section 28(iiib) and (iiid) of the Act), the judgments of the Hon'ble Supreme Court and the decisions of the Hon’ble ITAT, the ld CIT(A) was not justified in ignoring the provisions of law in sustaining the disallowances of deduction U/s 80IB of the Act on cash assistance received from Government of India, treating the same as incentive and not business income.

On the contrary, the ld. Sr. DR has strongly opposed the submissions of the ld. AR and further submitted that the decision of the Hon'ble business referred to in Sub-section (3) to (11), such business being as the eligible business. He submitted that the assessee has to demonstrate that the profit and gains which is claiming as a deduction should be derived from the eligible business. He submitted that what the assessee is claiming is not derived from the eligible business, therefore, the authorities below were justified in declining the claim of deduction U/s 80IB of the Act.

In that view of the matter, no case is made out for interference. No substantial question of law arises.

Hence, the appeals being devoid of merit deserve to be dismissed. The same are dismissed. (INDERJEET SINGH)J. (K.S.JHAVERI)J. A.Sharma/68-71