CIT vs. ESSEL SHYAM COMMUNICATION LTD

? + % tN THE HIGH COURT OF DELHI AT NEW DELHI INCOME TAX APPEAL NOS 27912011 & 28412011 Reserved on : Date of Decision : COMMISSIONER OF INCOME TAX .... Appellant Through Mr. N.P. Sahni, Sr. Standing Counsel. VERSUS ESSEL SHYAM COMMUNICATION LTD. ...Respondent Through Mr. Ajay Vohra, Ms. Kavita Jha, Mr. Somnath Shukla, Advocates. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HONI'BLE MR. JUSTICE R.V. EASWAR SANJIVKFIANNA. J.: For detailed order see ITA 13012011 titled Esse/ Shyam Communication Ltd, Vs. Commissioner of Income Tax pronounced today. # I' :t' 'l .4 rr a -'l( -. (sl\NJrv KHANNA) JUDGE hl v_v.l q. (R.V.EASWAR) JUDGE .i @: May 17th,2012 NA 17tn Mav. 2012. Digitally Signed By:AMULYA Signature Not Verified

IhI THE HIGH COURT OF DEL I AT NEW DEI_HI q' INCOME TAX APPEAL NO. 1 2011 Reserved : 15th March, 2012. Date of ision tte UAV-ZO1Z L.SSEL SHYAM COMMUNICATION LTD' Through Mr. AjaY Voh Somnath Sh VERSUS i;OMfulISSIONER OF INCOME TAX Through Mr. N.P. Counsel' COIV|MTSSIONER OF INCOME TAX Through Mr. N.P- Counsei. VERSUS ISSEL SHYAM CO\4MUNICATION LTD ... APPellant a, Ms. Kavita Jha, Mr. kla, Advocates. .....ResPondent ahni, Sr. Standing Appellant Standing ... ResPondent ra, Ms. Kavita .Jha, Mr. TNCOME TAX APPEAL NOS 7912011 & 2B4t?-fi11 \ Through Mr. AjaY V Somnath Sh la, Advocates #ORAM: HCN'BLE MR. JUSTICE SANJIV KHAN ,'ION'BLE MR. JUSTICE R.V. EASWAR sAhIJ iAhlJlvKHANNA. J. ITA 13012011 Preferred bY Essel I td. and ITA Nos.2B4l2O11 and 27'Al hyam Communication 011 preferred bY the :-revenue arise out of the common order ated 31"March ,2010, :assed by the Income Tax APPellate : i Al\o. 130/201 1 . ribunal (for short, the l'agc I of'2J

ii'rbunal). The appeals perlain to the as ent year 2005-06" V/e may note that the Revenue has pre rred two appeals as ue and one by the there were cross aPPeals bY the R assessee before the tribunal against e order of the first IL appellate authority. 2 By order dated 12th July, 2011, ciuestions of law were framed in the i r-A 13012011 "1. Whether on the facts circumstances of the case, the in law in holding that income appellant from develoPment upgrades for Network Manage t@ "Whether learned ITAT l'i-ANo.1 30/20 I I following substantial nd in the ribunal erred rned by the of software ent Systems CTVICCS, WAS Section B0- Pagc 2 ol'23 for smooth and trouble free ing of VSAT service provided by the aPPella business of telecommunication not eligible for deduction unde lA(4(ii) of the lncome Tax Act? as part of 2. Whether on the facts circumstances of the case, the nd in the ribunal erred ln law in not directing exclusi of only net rest income interest income, i.e., gross in less expenditure incurred for rning such interest income, while comPU g deduction under Section B0-lA of the I e Tax Act?" holding that INSAT 2E is a dom within the meaning of sub-c in law in tic satellite se (ii) of Clause @) of Section B0-lA of the Income

tf Tax Act, 1961, desPite the fac that British Telecom has leased it to the ass 2" tTA No,,284/2011 "Whetller learned ITAT e in law in holding that income of Rs.50, 2.7641- from trading activities is derived lndustrial undertaking within the meaning f Section B0- Tax Act, IA of the 1961?" lncome 3 The assessee is a Public limit providing satellite based telecommuni VSAT services, up-linking servlces, ay out services and i.,,roadband service through satellite. lt h rhe said services, besides rental income itources. In the return of income filed o had claimed deduction under Section Act, 1961 (Act, for short) of Rs.4,BB, adjustment, had declared total 5,45,89,013/-. The total taxable it was Rs.6,90,32,5331-. company and was n solutions including earned income from nd income from other 28th October, 2005, it lA of the lncome Tax 9,0'13/- and after the ble income of Rs. under Section 115J8 4. As section B0lA is required be interpreted and 'examined, we deem it appropriate to roduce the relevant portion of the said provision, as it exis year period in question:- during the assessment I'l'ANo. l30l20ll Pagc 3 ol'23

'80-lA Deductions in resPect of P fit and gains in certain from industrial undertakings e cases.-(1) WhPre the of an ived b ise f ins after r rred with t to the rovl of this ction computi the ncome {gl of an toh and qatns from assessment vears. tained in sub- deduction in undertaking providing telecommunication serv , specified In /t9 st the clause (ii) of sub-sectlon (42), shall cent of the Profits and gains of the for the first five assessment years any time during the Periods as s providing telecommunication servlce or cellular, including radio paging, d service, network of trunking, broadb internet services on or after the 1" d Explanation.- For the PurPose "domestic satellite" means a sat operated bY an Indian compan telecommunication service." Clause (ii) to Section B0lA (4) section (2) and thereafter, thirtY cent of such profits and gains for further five a (3) xxxxxxxx ent years" (4) (ii) any undertaking which has rted or starts whether basts estic satelltte but on or before the 31" daY of M d network and of April, 1995, 2005 hundred Per igible bustness ncing at fied in sub- this clause, owned and for provtding asis supp/iedl oted above can be tt applies to an was Providing; (i) several started i:ifurcated and divided urndertaking which had ielecommunication services l'l'ANo.13012011 r,nrhether ba or cellular, (ii) radio Pagc 4 ol'23

broadband network and (vi) Internet serv " The dates during which the said services should be start ided is stipulated. Any company/assessee providing the sai services was entitled rned i.e., profits and to claim benefit in respect of income e gains derived from the said services' efore, the first and the foremost requirement, when a dedu ion is claimed with reference to clause (ii) of Section B0lA ( ), is to determine and twork of trunking, (v) ; paging (iii) ciomestic satellite service (iv) decided whether activity undertaken by by any of categories mentioned in clau assessee is covered (ii) to Section B0lA(4) This aspect has somehow escaped noti of the authorities as in confusion as the well as the tribunal. This has result Assessing Officer has made several addi ions including addition for software sales, domestic satellite ices etc. There is no clear and direct finding on the preci nature of the activitY undertaken resulting in income earned whether or not theY fall within one of the aforesaid specified categories. To some for the said confusion extent, the assessee is also responsi because of their rePlY in the co of the assessment not appreciated and proceedings. The Assessing Officer h understood the'issue and the proper leg I affect of clause (ii) of I'IANo.l 30/20 I I ['agc 5 of'23

Section B0lA (4) As we answer the becomes aPParent. 6. Question No. 1 in ITA No. 13Ol2O raised in ITA Nos. 27912011 and 2841201 are being taken up first. Question No' 2 r in lTANo. 1301201'1 wilt be taken up in the 7. Question raised in ITA 27912011 a Officer had treated Rs.1,42,34,2781- as assessee from domestic satellite service by the Assessing Officer is difficult to u ingenious. The Assessing Officer refe in which the assessee had dis Rs.13,42,2881- was made for space seg currency. This PaYment was made (Worldwide) for use of satellite service INSAT 2E. The Assessing Officer hel was not a 'domestic satellite' as it was Space, Government of lndia, which was and was being opdrated by British -f foreign company. The satd view' how the CIT (Appeals), whto held that British INTELSAT did not have ownershiP I'l'ANo. 13012011 tions, this aspect ( t 1 and the Questions are inter-related and by the assessee as the Assessing ncome earned bY the The reasoning given tand and somewhat to notes on accounts that paYment of charges in foreign to British Telecom in the Indian Satellite that the said satellite by Department of not an lndian company m (Worldwide), a , was not accePted bY elecom (Worldwide) or ght over the satellite. Pagc 6 of'23

Retying upon the letter dated 21'tNovembelfr, 2007, written by the /,"t_ Director, ISRO, it was held that the satelllite was owned by the Department of Space, Government of tnlfia and' therefore' the Assessing Officer was not justified in lpxcluding the income earned from the domestic satellite servicelp. The view of the CIT (Appeals) has been affirmed by the tribu B. The Assessing Officer to comPute addition of Rs.1,42,34,278l- observed t t the assessee had made payment of Rs.13'42,2881 to Briti Telecom (Worldwide) earned from anY third and had not shown any income or recel party. The addition was made holding income from satellite services not in satellite service as defined for purpose profit/income disclosed bY the as proportionate basis treated as profiVi uplinking services. The case of the as incurred an expenditure for utilization l'l'ANo. 13012011 d make the aforesaid the income included nature of domestic the Section B0lA The e was notionallY on e earned from satellite services, not being domestic satellite 9. The assessee holds a VSAT lice to establish, maintain and operate closed users grouP, an I license to establish, a license/permission maintain and operate internet services from the Ministry of lnformation and Br ing for Providing sse is that theY have space segment on a Pagc 7 ol'23

satellite to provide the said services. lt is their case that thev are in the business of providing lease/ s e of space segment or satellite services or that they were pr It6 utilizing space segment. lt was an expe . which was incurred services. Contention of the as broadband/internet service provider etc. segment in the satellite and paid charge and not that anv income was earned. whether any expense was incurred in stipulated in clause (ii) of Section B0l assessee has earned income deri services. lt is not the case of the domestic satellite services and earning activity. The term "domestic satellite payr^nents for the specified services, I'l'ANo. l30l20l l ing domestic satellite was/is that as a it had procured space in foreign currency for The question is not spect of the services (4), but whether the from the specified that it was providing income from the said as defined in the and operated by an the said section on ernet services etc. As income earned would I)agc 8 ol'23 explanation means the satellite own lndian company for providing telecomm ication services. The assessee is not an owner of the domes satellite and nor is it operating the satellite. On the other ha , it is apparent that the assessee is claiming benefiVcoverage u the basis that it is providing broadband/i long as it was providing the stipulated se ices and had i'eceived

qualify for deduction under Section B assessee incurs expenditure to buy and on a satellite for providing the q expenditure incurred cannot be disal income can be computed or redu earned/derived from the qualifying serv position and in the absence of details, remit the matter to the tribunal to afresh. The tribunal has to examine an and character of service rendered by parties and whether the same prescribed/stipulated service under remit is also necessary in view of the assessee before the Assessing Otfi authorities which has contributed to th written by the assessee to the Assessing "From the above, it is clear t payment to BT is made in USD, paid for use of domestic Satellite whi operated by Department of SPace, lndia but leased out bY DePartment to INTELSAT, who in-turn have subl BT and some of which is used Company. Hence, this is no questi under Section B0lA in this regard." l'l'ANo.130l20l I / A(4Xii). In case th$- utilize space segment a1 (4 t/ lifying services, the and no notional from the income . ln view of the said have no option, but to mine the said aspect clearly decide nature he assessee to third ualifies and is a n B0lA. The order of biguous starrd of the and the appellate confusion. The letter fficer reads:- t though the the same was is owned and Government of f Space (DOS) part of tt to [he assessee of disallowance Pagc 9 ol'23

such items because of security assessee is unable to provide th used for availrng the services from an provider. The customer has telecommunication services through necessarily from the assessee only. nature of equipments and their rela of services provided by the assessee, the receipt received by the as these items is inextricably links to the telecommunication services. The AO could buy the equipment from them or fro pleaded that entire income, which was business of telecommunication and wa equipment etc., had close and direct nex of the stipulated industrial undertaking. '12. The legal contention of assessee is ,However, what was relevant and required contracts under which the sales were mad Air Conditioner, generator sets per se or lTANo.13012011 ns. lf the customer then it might not be possible items to its it to provide telecommuntcation services. lt was out at the time of hearing that these equlpm cannot be t1 rn excluding these receipts. Ther s not justified we direct the Rs.50427171- AO to include the receipt of representing income from sale of eq ipment in the eligible receipt for grant of deduction 80tA " 11. Learned counsel for the Revenue. ring the course of to the assessment hearing before us, has drawn our atten order and the stand taken by the asses e. lt was submitted that the assessee had stated and that the customers other service avail the these items sidering the to the nature rn our opinion for supply of usiness of its third parties and had extricably related to exempt. Sale of with profit and gains substantially correct. examination was the . Sale of TV Camera, on standalone basis Pagc ll ol-23

{-f awarded a contract for providing te mmunication service, would not qualify for deduction B0lA re clause (ii). On the other hand, in case network of trunking and broadband/int and for executing the said contra conditioner etc. were sold as a part of a the income earned may qualifY for d with sub-section (4) assessee has been net services and while , generator sets, air plete package, then uction under Section B0lA. Therefore. each contract and n ure thereof has to be ndated and required inextricably or as an necessary requtr nt, (rrnder the same contract or under a different contract) sale/supply goods to mmunication services. operationalize and use/provide the te y linked, had nexus examined. lt has tc be ascertained supply of goods or it was a case pr"oviding qualifying services which ln case, the sale of goods was inextri and was connected with the PrimarY starting telecommunication services, ther it was a case of re the assessee was rpose of providing or he assessee will be entitled to benefit under Section B0lA. erwise, the assessee Section B0lA on the r,vill not be entitled to exemption und . transaction. Whether the commodities/ s could have been also purchased from a third party ma not relevant and the is tlre predominant or determinatirre factor in many I'l'z\No. l30l20l I Pagc tr2 ol'23

6| direction to the tribunal to decide the iss light of the above observation/ratio' question afresh in the 13. The question No.1 raised in the peal of assessee l.e. ITA 13012011 relates to income earned sale of software and whether the sai from developrnent and deduction under Section B0lA- The trib amount qualifies for al has not treated the proceeds from sale of software decla by the assessee as eligible for deduction under Section B0 on the ground that the primary reason or purpose why the con and whether it has direct nexus and is providing the qualifying activities, is determinative factor. The substantial accordingly answered. An order of re income derived from the sale of softwa qualifying business i.e. telecommunicati was entered into,, extricably linked with and would be the question of law is it is passed, with a was not derived from services. lt has been I'agc 1.3 ol'23 observed that development of software of business income. AccordinglY, a separate source e total receipt of Rs.61,58,000/- from the sale of softw should be excluded from the deduction claimed under Sectio B0lA of the Act. hich is recorded in the 14. The contention of the assessee, order passed by the tribunal, is that the ftware developed was for upgrading the Network Man l'l-ANo.13012011 t System (NMS, for /as the

shorl), to enable smooth working of V technology from Via Sat and HSN at confirmed purchase orders from TVC justification given by the assessee to tre income as eligible for deduction under S under.- The Hub controls the enti the communication network through .continuously accumulates data on th tc provide regular'health checks' for determine the level of activitv for billi NMS, which is pnncipally a software, part of Hub station for running V various remotes. The NMS needs uodated and maintained for a sm free service. Since TVC could not ha of these NMS's through the OEMs, provided the upgrades so that a uninterrupted service on the VSA various remotes could be provided, it the software developed by the appell the satellite based telecommuni rendered by it. The appellant h expertise for the software devel appellant under the impugned so four modules for TVC. Each module to orovide wide time window for between TVC and Bank of Tokyo Ludhiana Stock Exchange, EIH respectively. Without this software, appellant (TVC) could not have sate with the abovementioned companies could not be transmitted thereto. The developing the software was telecommunication operations and inextricablv linked to the business of providing telecommunication services. " I'l'ANo.13012011 T service under'the 0; he request and on dia Pvt. Ltd. The and regard the said B0lA, reads as operatrons of NMS, which system so as remotes and purpose. The is an rntegral services at be regularly and trouble the upgrades the appellant smooth and s located at s argued that t is a part of on servtces the reqursite ment. The re develooed developed t transfers & Mitsubishi, and BNP chent of the connection d the signal ole motive of further its was thus, appellant of Pagc 14 of-23 ton

(q'+ \L' / 15. We find and question that the tribunal has not e with reference to the con ined the said aspect ntion raised by the assessee. on the nature and character the software, grven which by the was developed and sold. The exact re tribunal reads as under:- from providing Telecommunication this income cannot be said to the from the eligible business Telecommunication service. The shown total receiPts of Rs.61, development and selling of software. allowed expenses on account of incurred vanous other overhead cha the appellant had not furnished any interference. Since the inco development of software was not Nature, character and type of the softwar l]-ANo.13012011 "4.8 In regard to income from software, the development of software is ce a separate llant different source of business income of the aP Thus, me derived f providing ppellant has ,000/- from The A.O has employees and other administrati lary patd to expenses of Rs.4.00.000/- and calculated the t profrt from software development at Rs.57,58, -. The A.R of the appellant submitted that the incurred higher amount of e ppellant had Rs.4,00,0004 on the develoPme of software appellant had because apart from personnel/staff, also. But ny details of expenses in excess of 4,00,000 | rred for the development of software. In these rcumstances, the calculatton made bv the A.O. d not warrant earned from t and gains derived from the eltgible busi of providing Telecommunication service, the A.O excluding the income from software computing deduction u/s B0lA." justified in lopment for 16. We find that the Assessing Officer as the appellate authorities have not examined the issu question keeping in mind the mandate of the section and con ntion of the assessee. nses than and whether or not it [)agc l5 o1'23

' could be treated and regarded as i business referred to in sub-section (4) cla has not been examined and considered' said aspect and the factual position regar software, the Assessing Cfficer and th were not justified in excluding the computation of deduction under Section Officer has merely recorded that the copy of the work orders as well as the bi the jucJicial pronouncements' income f cannot be considered as income earn activities specified in Section B0lA(4Xii) accordingly remitted to the tribunal for tribunal will examine the nature, type software oi whether it was inextricably with the activities/services stipulated in c (a) of Section B0lA. This is a technical the tribunal can take help and/or opi assessee will be also at liberty to justify by filing opinion from the experts' Ques answered with an order of remit' 17. The last question is question No I'I'ANo.1 30/201| earned from the (ii) to Section B0lA ithout examining the ng nature and tYPe of appellate authorities proceeds from lA. The Assesslng ee had furnished raised and in view of m selling of software or derived from the the Act. This issue is fresh decision. The and character of the nd directlY connected use (ii) to sub-section spect and if required, ion of exPerts. The nd establish tlreir claim ion No.1 is accordinglY ITA No.13012011. Page | 6 o1'23 / l.t I .- I

The findings recorded by the tribunal in assessee had earned interest income on and other interest of Rs.77,0421-. lt has tribunal that the aforesaid receipts can income derived from the sPecified decision of this Court in CIT Vs. Shri (2007) 2Be ITR 475. 18. The assessee has submitted that interest of Rs.B,38,626l- on FDRs ple availing non- fund based credit limits but of Rs.1,7O,99,2771- and, effectively the expense. Interest earned was busi connected with the qualifying service a set off from the interest paid. lt was earned had direct nexus with the busi the FDRs were Pledged as margin limits. The Assessing Officer, however, said contention. The CIT (Appeals) ag held that the interest on deposit was income" and not under the head "inco and therefore the assessee \/vas enti Section BOlA(4Xii) As noticed above, ITANo. i30l20ll is regard are that the Rs of Rs.7,61 ,5841- observed by the be included in the ities in view of the Honda Power EquiP hey had earned this with the banks for ey had paid interest interest paid was the ss income directlY therefore should be ted that the interest of the assessee slnce ey for availing credit id not agree with the with assessee and taxable as "business from other sources" to deduction under tribunal has reversed Page l7 ol'23 f t) .a-, (_

the findings of the ClT(Appeals) and ag Officer. 19. Decision of this Court in Shri Ram of two parts. In the first part it has income is not income derived from expo export proceeds and is not a direct an exports earning but earning made from payment by the bank. The second Pa deals with computation under Explana BOHHC. For the PurPose of the said e held that interest refers to and means ne interest, provided the interest earned is "income from business" and not under t other sources." This view has been u Court in its recent decision in ACG Private Limited. Vs- Commissioner SCC 321" The Supreme Court approvin referred to their earlier Constittltion Distrihutors (Baroda) (P) Ltd. Vs' U SCC 43 and observed as under:- "11. Before we deal with the Learned Counsel for the Parties, Explanatton (baa) to Section 80HHC l'l-ANo. 13012.011 with the Assessin t (:, (supra) consists en held that interest as it is not a Part of proximate result of eposit of moneY and of the said judgment n (bba) to Section anation, it has been interest and not gross able under the head head "income from eld by the SuPreme ssociafed CaPsules lncome Tax (2012) 3 the said judgment has Bench's decision n of lndia (1986) contentions of may extract f the Act. l'agc 18 ol'23 tn 1

Explanation: For the purposes of this (baa) "profits of the b " means of the oustness a under "Profits a ins of bus tsooninety per cent of anY sum to in clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of ection 28 or of 14. 15 l1'ANo.130l20ll XXXXXXX XXXXXXX Section BOM of the , commtssion, r receipt of a ouse or anv tuate outside above states profits of the I have to be ch profits of are allowable allowed as of income total of the iness of the "Profits and fronr whlch (1) and (2) of provided for intercorporate ion (1) of I income of an any receipts by way of broker interest, rent, charges or anY (2) the profits of any branch, office, wa other establishment of the Assessee lndia. Explanation (baa) extr similar nature included in such Pr its; and that "profits of the business" means business as comPuted under the d "Profits and Gains of Business or Profession" as receipts of the nature mentioned in ced by the auses (1) and (2) of the Explanation (baa). ofits of of an see will to be first comouted he head Gain Business sion" in nce wrth ns 28 to 44 Act. In the SIONS computation of such profits of busines , all receipts of income which are chargeable as profi business under Section 28 of the Act included. Similarly, in computation of business, different expenses whtch under Sections 30 to 44D have to and gains of expenses. After including such and after deducting such exPenses, 4atz net receipts are Profits of the Assessee computed under the Gains of Business or Prdfession deductions are to made under Cla Explanation (baa). 4? deduction in resPect of certain dividends and it Provided in S Section 80M that "where the gross Pagc l9 ol-23

Assessee being a company includes h and sublect income by /'t\ t' I way of dividends received bY it a domestic computing the total income of the Assessee, a dividends an deduction from such income bY waY amount equal to" a certain of the income mentioned tn thrs Section. The C itution Bench company, there shall, in accordance to the provisions of this Section, held that the Court must construe own language and arrive at its according to the plain naturai meani used by the legislature and so cons "such income by way of dividends" in of Section BOM must be referable allowed, ln 80M on its interpretation of the words the words b-section (1) only to the n Explanation of brokerage, or any other s not been Assessee as category of income included in the s total income but also to the quantum of the income included Similarly, Explanation (ba has to be per the plain to receipt of a similar nature included in profits" will not only refer to the nature of receip but also to the profits of the quantum of receiPts included in business as computed under the he "Profits and construed on its own language and natural meaning of the words used (baa), the words "receiPts bY way commission, interest, rent, charges Garns of Business or Profession" first part of the Explanation (baa). Clause (1) of ExPlanation (baa) included in the profits of business of computed under the head "Profits Business or Profession", ninety pe to in the ingly, if any quantum of anY receiPt of the na mentioned tn 2A. The Supreme Court (supra), did not aPProve the and Gains of cent of such in ACG sociated CaPsu/es view of the High Court in 56 (Bom.). above. For or enterprise, e assessee from the Pagc 20 of'23 quantum of the receiPt cannot be ucted under Explanation (baa) to Section 80HHC'" CIT Vs. Asian Sfar Company Ltd.(2010 326 rTR 21. We have quoted Section 80lA (1) and (2A) determining the income derived by an un rtaking we have to compute ihe total income of l1'ANo.130l20ll

business referred in sub-section ( ) to used in Section B0lA(1) and (2A) are "pro business". On the basis of same logic an to first find out the profit and gains of busi activities. Section B0lA was interpret l-iberty tndia v. Commissioner of Inc 32B.lt was highlighted Section B0lA is a and only profits "derived from" eligible deduction. The expression "derived fro beyond the first degree. Devices to inflate eligible business should be rejected. On duty drawback it was held:- "39. Analysing the concept of remissio and DEPB, we are satisfied that the remi account of the statutory/policy provisi AcUScheme(s) framed by the Governme circumstances, we hold that profits deri incentives do not fall within the expres from industrial undertaking" in Section B0-l 22. Reliance was Placed bY the explaining the same in Liberty India (sup "40. Since reliance was placed'on behalf on AS-2 we need to analYse the said s with valuation of inventories. Inventories sale in the course of business; in the sale or in the form of materials or suppli in the production "lnventory" should be of cost and net realisable value (N "inventory" should comprise all costs of conversion and other costs including l'l-ANo.13012011 n B0lA. The words and gains of eligible reasoning, we have s from the specified and elucidated in Tax, (2009i I SCC it linked incentive iness are entitled to covers sources not reduce profits from DEPB utilization and of duty drawback on of duty ts on in the Customs of lndia. ln the by way of such n "profits dertved ee on AS 2 and it was held;- f the assessee(s) ard. AS-2 deals re assets held for uction for such to be consumed lued at the lower ). The cost of rchase, costs of osts incurred In Pagc 2l ol-23 / t1 (-

bringing condition 4',1- dir the "inventorY" to their Pre location and cost urcna incl ('-:'at \ )* n those su x Opening stocK Purchases 100 Sales Duty Closing and attrib the uisiti should be lndia D'Souza). 42. Therefore, for the purposes of AS-2 ould not he 44. We are of the view that the DeP applied AS-2 as could be seen illustration: milar etc. not b reated arate rtems q[ gqa_.L Pb CENVAT credits of purchase Accountants of on Accounttng t has correctlY the following Amotrntfrs) 1 000 incl in"entories' Even the Institute of Charter fnOia 1tCAtl has issued Guidance No -reing on account of rebates, dutY Oenefit, etc. Profit generation could be cutting, cost rationalisation, business planning on sundry balances being writt for purposes of Sections 80-1fu80-lB z (credits) would constitute independent Treatment for CENVAT/MODVAT u which the tn consumed and the inputs ld be valued--Ll basis net of dutv on tnputs i.e. dutv r at a latel staqe) awback, DEPB account of cost ructurtng, tax back, hquidation of current assets, etc' 43. Therefore, we are of the view that du drawback, DEPB gainst the cost of and loss account such remtsslons benefits, rebates, etc. cannot be credited manufacture of goods debited in the rce of income beyond the first degree nexus industrial undertakin g. profits and the hla the (rncludrng customs dutY Paid) 599 Manufaciurrng overheads 300 Administrative, selling and drstribution exPenseb 200 Net profit 200 1 300 Note. ttt thc above example, the Dep-artnent is iiiiit oi,i nt 100 under Sectlon 80-tB of the 1e61 ' recetved 100 200 (emphasis suPPlled) Page 22 ttl'23 ITANo.13012011