OPERA CLOTHING,MUMBAI vs. ACIT 18(1), MUMBAI

In both the appeals, the assessee is seeking deduction u/s 80IB of the Act in respect of “Duty drawback receipts” by contending that the same is only reimbursement of duty/deemed duty paid by it and hence only net amount should be disallowed. The assessee has also taken a plea that the “Duty drawback receipts” would go to reduce the material cost.

We heard the parties and perused the record. We notice that the Tribunal has rejected the claim for deduction u/s 80IB of the Act in respect of duty drawback receipts by following the decision rendered by Hon’ble Supreme

The Ld A.R submitted that the Hon’ble Supreme Court has held in the case of ACG Associated Capsules P Ltd (343 ITR 89) that the net income should be considered for computing “profits of business”. He submitted that the same ratio should be applied to the instant case also. He submitted that the assessee has paid excise duty on its purchases and in respect of purchases made from non-excisable units, the duty should be deemed to have been paid. He submitted that the “duty drawback scheme” is nothing but reimbursement of those excise duty only and hence the disallowance of deduction u/s 80IB should be restricted to net amount of duty drawback after deduction of excise duty paid or deemed to have been paid. In the alternative, the Ld A.R submitted that the duty drawback should go to reduce material cost and hence should be considered as part of business profits.

On the contrary, the ld D.R submitted that the Duty drawback is an incentive scheme promoted by the Government of India in order to encourage exports. He submitted that the quantum of incentive is determined on the basis of value of exports made by applying the rates prescribed therein. Accordingly he submitted that the incentive so received is related to the Export promotion Scheme floated by the Government and cannot be considered as actual reimbursement of Excise duty as canvassed by the assessee. He submitted that the Hon’ble Supreme Court has held in the case of CIT Vs. Sterling Foods (237 ITR 579) that the source for the import entitlements is the Export promotion Scheme of the Central Government and hence the nexus

Having heard rival contentions, we do not find any merit in the contentions of the assessee. Admittedly, the duty drawback was allowed by the Central Government as per the Export promotion scheme floated by it and further the scheme nowhere states that it is actual reimbursement of duty paid by the assessee. In any case the source of Duty drawback is the Export promotion scheme as held by Hon’ble Supreme Court in the case of Sterling Foods (supra) and not the industrial undertaking. In this view of the matter, we do not find merit in all the contentions raised by the assessee. The reliance placed by Ld A.R in the case of ACG Associated Capsules (supra) is also misplaced as the same has been rendered in the context of sec. 80HHC of the Act, wherein a special formula was prescribed to compute “Profits of business” and the above said decision of Hon’ble Supreme Court only interprets the formula for the purposes of sec. 80HHC of the Act. Hence the ratio laid down in the said case cannot be applied to sec. 80IB of the Act. In any case, the claim of the assessee is squarely covered against it by the decision of Hon’ble Supreme Court in the case of Sterling Foods (supra). Accordingly we reject both the appeals of the assessee.

In the result, both the appeals of the assessee are dismissed. Order has been pronounced in the Court on 6.03.2018.