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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI G. S. PANNU & SHRI PAWAN SINGH
आदेश / O R D E R
PER PAWAN SINGH, JM: 1. These two appeals are filed by the assessee against the orders of the Ld. CIT(A)-29, Mumbai dated 20.8.2013 & 19.8.2013 respectively. As common issues are involved in both these appeals, they were heard together and disposed of by this common order.
For the sake of convenience, we may reproduce the ground of appeal in for assessment year 2009-10.
“This is an appeal against the order of the Ld. CIT(A)-29 who has erred in 1. Confirming the disallowance of deduction u/s. 80IB of Rs. 19,78, 309/- by excluding duty drawback, VKUY license and Exchange difference from the net profit declared as per the profit and loss account.”
The brief facts of the case are that the assessee is engaged in the business of manufacturing of honey filed its return of income on 23.9.2009 for Assessment Year 2009-10 declaring total income at Rs. 16,432/-. The return of income was selected for scrutiny assessment. The assessee claimed deduction u/s. 80IB of the Act. During the assessment proceedings, the assessee was asked to explain why deduction u/s. 80-IB of the Act should not be disallowed. The assessee filed its reply dated 11.07.2011 and contended that assessee firm is engaged in business of Manufacturing of honey and has claimed deduction/s 80-IB. The assessee’s factory is situated at Plot No. H- 30, UP SIDC, Kosi Kalan District, Mathura, UP. This is the second year of claiming deduction u/s 80IB (sub clause 11-A). Contention of the assessee was not accepted by AO and disallowed the deduction claimed u/s 80IB of the Act. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Ld. CIT(A).The Ld. CIT(A) after hearing the submission of the assessee, dismissed the appeal confirming the order of the Assessing Officer in the impugned order dated 20th August, 2013, against which the present appeal is filed before us.
We have heard the Ld. Counsel for the assessee and the Ld. Departmental Representative (DR) for the Revenue and perused the orders on record. Ld. AR of the assessee argued that the ground raised in the present appeal are covered by the decision of Liberty India vs. CIT (2009) 317 ITR 218 (SC). Ld. DR for Revenue supported the order of authorities below. The issue before us for our consideration has three facets, which include excluding of duty draw back, VKUY License and Foreign Exchange difference. The Ld. Counsel for the assessee argued that the case is entirely covered by the decision in the case of Liberty India Vs CIT reported in 317 ITR 218 (SC) and the decision of Jurisdictional High Court in the case of CIT Vs Rachna Udhog in Income Tax Appeal No. 2394 of 2009.
We have considered the rival contentions of the parties and perused the material available on record. The Ld. CIT(A) while dealing with the ground of appeal
has observed that the profits earned on account of sale of VKUY license, duty drawback and exchange difference could be said to be profit derived from the business of industrial undertaking eligible for deduction u/s. 80-IB of the Act. He further observed that while enacting the Section 80- IB, the legislature has used the word ‘profits and gains’ derived from which clearly spells out the intention of the framers of the section that only those profits will be eligible for deduction u/s. 80IB of the Act, which have a direct nexus with the earning of such income. The Ld. CIT(A) concluded that the words ‘derived from’ is narrower in connotation as compared to the words attributable to. In other words, by using the expression ‘derived from’, the Parliament intended to cover sources not beyond the first degree as held in the case of Liberty India Vs CIT (supra) and held that the profits derived on account of sale of VKUY license, duty drawback and exchange difference are not derived from the manufacturing or production activity of the industrial undertaking of the assessee. These profits have no direct nexus with the business activities of the assessee and, therefore, not eligible for deduction u/s. 80IB of the Act. These profits belong to the category of ancillary profits of such undertakings and are not directly related to the eligible business of the assessee firm for the purpose of Sec. 80IB of the Act and he further concluded that the Hon’ble Supreme Court in the case of Liberty India, wherein it was held by the Hon’ble Apex Court that “Duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of Sections 80-I/80-IA/80-IB of the Act and hence, incentives profits are not profits derived from the eligible business under section 80-IB of the Act and they belong to the category of ancillary profits of such undertakings” and confirmed the order of the Assessing Officer.
6. The Hon’ble Jurisdictional High Court in of 2009 in the case of CIT Vs Rachna Udhog dealt with the following issue:
“ Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the order of Ld. CIT(A) in allowing the claim of deduction u/s. 80IB in respect of incentives received of Rs. 1.17 crores (consisting of Duty Drawback of Rs. 81.51 lacs, Export Entitlement of Rs. 8.29 lacs, Rs. 14.76 lacs being DEPB license and Exchange rate difference of Rs. 13.22 lac) which were not actually derived from industrial undertaking? 7. The Hon’ble Jurisdictional High Court while discussing the ratio of the decision of Supreme Court in the case of Liberty India (supra) disallowed the claim of deduction u/s. 80-IB of the Act viz. (1) Duty draw back (2) Export Entitlement (3) DEPB license. The operative part of the decision are reproduced below: “However, in so far as the question of difference in the rate of exchange is concerned, the submission of the assessee before the Assessing Officer was that exchange rate fluctuation forms part of the sale proceeds eligible for deduction u/s. 80IB. According to the assessee, the receipt was directly related to the process of carrying on the business of the industrial undertaking. The export invoices were made in US $ terms. When the sale proceeds of goods exported are received in India in convertible foreign exchange, the rupee equivalent of the sale proceeds is liable to vary consequent upon the fluctuation in the rate of foreign exchange between the date when the goods are exported and the date on which the sale proceeds are received in India. In other words, it was the contention of the assessee that the value of the goods exported remains the same but the rupee equivalent is liable to vary due to fluctuation in the rate of foreign exchange. Consequently, a book entry is made in order to ensure that the rupee equivalent of the value of the goods exported out of India is correctly reflected in the books of account, since the books are maintained in rupee terms. Having heard the learned Counsel appearing on behalf of the appellant and learned Counsel appearing for the assessee, we are of the view that the difference on account of exchange rate fluctuation is liable to be allowed under Section 80IB. The exchange rate fluctuation arises out of and is directly related to the sale transaction involving the export of goods of the industrial undertaking. The exchange rate fluctuation between the rupee equivalent of the value of the goods exported and the actual receipts which are realized arises on account of the sale transaction. The difference arises purely as a result of a fluctuation in the rate of exchange between the date of export and the date of receipt of proceeds, since there is no variation in the sale price under the contract. The view which we have taken is also consistent with the view taken by a Division Bench of this Court on 15th December 2009 in the case of Syntel Limited Income Tax Appeal Nos. 1974, 1976 and 1978 of 2009. In the circumstances, we would affirm the judgment of the tribunal in so far as the question of exchange rate fluctuation is concerned”.
In the case of Liberty India Vs CIT, the Hon’ble Apex Court examined the question whether duty draw back receipts and duty exemption passbook
benefits form part of the net profits of eligible industrial undertaking for the purposes of Sections 80-I/80IA/80-IB of the Act and it was held that the word ‘derived from’ is narrower in connotation as compared to the words attributable to by using expression ‘derived from’ and held that the concept of remission of duty draw back and DEPB do not fall within the expression “profit derived” from industrial undertaking in Sec. 80-IB. Thus, the assessee is not entitled for the claim of deduction u/s 80IB on the amount of Duty draw back. However, the Hon’ble Jurisdictional High Court in the case of CIT Vs Rachna Udyog (supra) has allowed the deduction on the Exchange rate difference. Regarding the claim of deduction’ u/s 80IB on the income by way of exchange rate difference, it was explained before us that the same arises from exports sales made by the assessee. Therefore following the judgment of Hon’ble Bombay High Court in case of Rachna Udyog (supra) assessee’s claim for deduction w.r.t. income by way of exchange rate difference is allowed. In so far assessee’s claim for deduction on other income stated above is concerned, it is clearly deniable on the basis of aforesaid judgment in the case of Rachna Udyog (supra) which in turn is based on the judgment of Liberty India (supra) In the result, the appeal filed by the assessee is partly allowed. – A.Y. 2010-11 9. The issue involved in this appeal is identical with the issue in ITA No. 6088/M/13, though quantum may differ, therefore, on similar lines and similar reasons, the appeal filed by the assessee in ITA No. 6089/M/13 for assessment year 2010-11 is also partly allowed.