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Income Tax Appellate Tribunal, MUMBAI BENCHES “C”, MUMBAI
Before: Shri Joginder Singh, & Shri Ramit Kochar
आदेश / O R D E R Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 06/08/2010 of the Ld. First Appellate Authority, Mumbai.
We note that this appeal is filed by the assessee on 31/10/2011. This appeal was fixed for hearing for 28/08/2012 and was adjourned at the request of the assessee, to 29/08/2012. On 29/08/2012, the appeal was adjourned at the request of the assessee to 30/08/2012. This date was duly noted by the ld. counsel for the assessee (as is evident from the order-sheet). Again on at the request of the, the appeal was adjourned to 26/11/2012 (the date was duly noted by the counsel). Again on 15/05/2013, 13/08/2013, the appeal was adjourned at the request of the assessee. On further dates like 30/03/2015, 06/05/2015, 26/05/2015, 24/08/2015, 09/12/2015, 15/03/2016, the appeal was adjourned at the request of the assessee. Today, on 12/05/2016, the assessee neither presented nor moved any adjournment petition. It seems that the assessee is not interested to pursue its appeal, therefore, we have no option
M/s Opera Clothing Private Limited. but to proceed ex-parte, qua the assessee, and tend to dispose of this appeal, on merit, on the basis of material available on record. It is presumed that the assessee has nothing to say.
2.1. The ld. DR, Shri Love Kumar, strongly defended the impugned order by claiming that both the issues are covered against the assessee. Reliance was placed upon the decision from Hon’ble Apex Court in CIT vs Sterling Foods (1999) 104 taxman 204 (SC), Liberty India vs CIT (2009) 183 taxman 439 (SC) and the decision of the Tribunal in M/s Euro Footwear Ltd. vs ACIT (ITA No.877 and 878/Lkw/2008) and & 62/LKW/2009 order dated 18/12/2009.
2.2. We have considered the submissions of the ld. DR and perused the material available on record. The first ground raised by the assessee pertains to exclusion of duty drawback of Rs.1,81,49,486/- for deduction u/s 80IB of the Income Tax Act, 1961 (hereinafter the Act). The facts, in brief, are that the assessee disclosed turnover of Rs.55,02,56,982/- and net profit of Rs.4,01,83,355/-. The assessee claimed deduction of Rs.3,20,08,473/- u/s 80IB of M/s Opera Clothing Private Limited. the Act in respect of manufacturing activity at Daman Unit.
The ld. Assessing Officer found that the assessee received Rs.1,81,49,486/- as duty drawback and Rs.18,97,097/- on account of difference of exchange rate. The claim of the assessee was that the duty drawback scheme is to reimburse exporters for tariffs paid on the imported raw material and intermediates as the duty drawback is intended to reduced the cost of production, therefore, it is an integral part of the pricing of the goods. The crux of the argument by the assessee, before the Assessing Officer, was that it is to be treated as income “derived from” the business of industrial undertaking. However, considering the totality of facts and the decision from Hon’ble Apex Court in Liberty India vs CIT 317 ITR 218 (SC), it was held that duty drawback and other export incentives cannot be said to be income “derived from” industrial undertaking.
2.3. On appeal, before the Ld. Commissioner of Income Tax (Appeal), the stand taken in the assessment order was affirmed. The assessee is in further appeal before this Tribunal.
M/s Opera Clothing Private Limited.
2.4. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, under the facts narrated hereinabove, we note that Hon’ble Apex Court in the case of Liberty India vs CIT (Supra) decided the issue against the assessee by holding that duty drawback receipt/DEPB benefit do not form part of net profits of eligible industrial undertaking for the purposes of section 80I/80IA/80IB of the Act. Identically, Hon’ble Madras High Court in CIT vs Jameel Leathers 246 ITR 97 (Mad.) held that income from duty drawback cannot be allowed for the purposes for claiming deduction u/s 80IB of the Act.
2.5. We are aware that a provision in the taxing statute granting incentives for promoting growth and development should be construed liberally. As was held by Hon’ble Apex Court in Bajaj Tempo Ltd. vs CIT (1992) 62 taxman 480 (SC).
However, for claiming deduction u/s 80IB of the Act, the assessee has to establish certain facts. The income must be M/s Opera Clothing Private Limited. directly generated from the business. In CIT vs Kochin Refineries Ltd. 135 ITR 278 (Kerala) and CIT vs Cement Distributors Ltd. 208 ITR 355 (Del.), it was held that income must be directly generated from business. The ratio laid down in CIT vs Kothari Products Ltd. 295 ITR 223 (All.) supports the case of the Revenue. For taking the benefit of deduction u/s 80IB, we are of the view that the source of import entitlements cannot be said to be the industrial undertaking of the assessee as it is out of the export promotion scheme of the Central Government and is not directly “derived from” an industrial undertaking of the assessee. For getting the benefit of deduction under section 80IB there has to be “direct nexus” between the profit & gains and in the industrial undertakings. In the instant case, the nexus is not direct but only incidental. The ratio laid down in CIT vs Sterling Foods (1999) 104 taxman 204 (SC) supports our view. Thus, we find no infirmity in the conclusion drawn by the Ld. Commissioner of Income Tax (Appeal).
M/s Opera Clothing Private Limited.
2.6. So far as, exclusion of exchange rate difference of Rs.18,97,091/- for claiming deduction u/s 80IB is concerned, we find that the ld. Assessing Officer has given a finding in the assessment order the assessee has credited an amount of Rs.18,97,091/- being the exchange rate difference earned on the export realized during the year under consideration. The assessee’s submission are on record wherein they have contended that the same is part of the sale proceeds and is eligible as profit of the undertaking. We find that Hon’ble Bombay High Court in CIT vs M/s Rachna Udyog (Bom.) in of 2009, order dated 31/01/2010 has affirmed the judgment of the Tribunal, whereby, the Tribunal held that the difference on account of exchange rate fluctuation is liable to be allowed u/s 80IB of the Act. The exchange rate fluctuation arises out of and is directly related to the sale transaction involving the export of the goods of the industrial undertaking. Respectfully following the aforesaid order from Hon’ble jurisdictional High Court, this ground of the assessee is allowed.
M/s Opera Clothing Private Limited.
So far as, the additional ground raised by the assessee that the duty drawback of Rs.1,81,49,486/-, if treated as not exempt u/s 80IB then only the net duty draw back may be considered as income assessable in the hands of the assessee. We are of the view that additional ground/legal ground can be raised before the Tribunal. However, this ground was never raised before the Assessing Officer/CIT(A) by the assessee, therefore, keeping in view, the principle of natural justice, we remand this additional ground to the file of the Assessing Officer to examine the claim of the assessee and decide in accordance with law. The assessee be given opportunity of being heard, thus, the additional ground raised before this Tribunal is allowed for statistical purposes.
Finally, the appeal of the assessee is partly allowed for statistical purposes.
This order was pronounced in the open court in the presence of ld. DR at the conclusion of the hearing on 12/05/2016.