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Income Tax Appellate Tribunal, DELHI BENCH ‘D’ NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI L.P. SAHU
ORDER
Per L.P. Sahu, Accountant Member:
This appeal by the assessee is directed against the order dated 16.11.2007 of the ld. CIT(A), Karnal for the assessment year 2004-05 on the following grounds : “
1. On the facts and circumstances of case the Learned CIT(A) has erred in not allowing deduction u/s. 80IB on the amount of DEPB of Rs.2,51,48,410/- as DEPB is a reimbursement of excise/custom duty paid on material consumed for manufacturing of exported goods.
2. The CIT(A) has reduced the deduction u/s. 80HHC in view of provisions of section 80IB(13) read with 80IA(9) of the Income Tax Act, which is illegal and uncalled for.
3. That the CIT(A) has made addition amounting to Rs.1,47,827/- on account of foreign travelling treated as personal expenses instead of business expenses, which is illegal and uncalled for.
That the order of the CIT(Appeal) is against law & facts.”
Briefly stated, the facts relevant to ground No. 1 are that the assessee derives income from manufacturing and export of handloom goods. The assessee claimed deduction u/s. 80IB amounting to Rs.32,28,340/-.The AO did not allow any deduction u/s. 80IB. The assessee had received Rs.2,51,48,410/- as export incentives, i.e., DEPB and claimed deduction u/s. 80IB on this amount of DEPB also. The AO disallowed the claim of the assessee relying upon the decision of Hon’ble Supreme Court in the case of CIT vs. Sterling foods, 237 ITR 579 (SC) and of Delhi High Court in the case of CIT vs. Ritesh Industries, 274 ITR 324 (Delhi), holding that the duty draw back and DEPB are not the income derived from the business eligible for deduction u/s. 80IB. The ld. CIT(A) after following the decisions of Hon’ble Jurisdictional High Court of Punjab & Haryana in the cases of M/s. Nahar Exports Ltd. vs. CIT, 204 CTR 464 (P&H), M/s. Liberty India vs. CIT, Karnal, 207 CTR 243 and CIT vs. Five Star Rugs, 207 CTR 246, wherein the issue has been decided against the assessee. The ld. CIT(A) has finally concluded that income of the assessee from duty draw back / DEPB cannot be held to be income “derived from” specified business and therefore, the matter is covered by the judgment of Hon’ble Supreme Court in Sterling Foods (supra). The ld. CIT(A), therefore, sustained the action of the AO on this count vide impugned order, which has been assailed by way of ground No. 1 above before us.
We have heard the rival submissions on the issue and have gone through the entire material available before us. The question which needs adjudication before us is whether the ld. Authorities below are justified to disallow deduction u/s. 80IB on the amounts of DEPB received by assessee as a supporting manufacturer. The ld. CIT(A) while sustaining the disallowance of deduction u/s. 80IB, has rested its conclusion on the stand that DEPB received by the assessee is not an income derived from the business eligible for deduction u/s. 80IB. For this, he has relied upon the case laws mentioned above. Per contra, the ld. Counsel for the assessee has placed strong reliance on the recent decision of Hon’ble Supreme Court in the case of CIT vs. Baby Marine Exports (2007) 290 ITR 323 (SC), wherein it has been categorically held that export house premium received by assessee as a supporting manufacturer forms an integral part of the sale price realized by the assessee from the export house. Besides, for the proposition that DEPB received by the assessee is an integral part of turnover of assessee, as a supporting manufacturer, the ld. Counsel for the assessee further lays his hands on the following decisions of ITAT, which have been decided by the Tribunal in favour of the assessee after following the principle of law propounded by the Hon’ble Supreme Court in the case of Baby Marine Exports (supra) :
(i). Flora Exports vs. ACIT (ITA No. 4522/Del./2004 dt. 31.01.2008. (ii). M/s. Sheena Industries vs. ACIT(ITA No. 4506/Del/2004 dt. 11.07.08 (iii). ACIT vs. Sheena Industries (ITA No. 968/Del./2007 dt. 26.09.2008 (iv). Maharashtra Seamless Ltd. (MA No. 250/Del./2007 dt. 20.12.2007 (v). ACIT vs. KTM India (ITA No. 309/Del./2008) dt. 31.07.2009 We have gone through the above decisions and we find that the ITAT, Delhi Benches in the case of M/s. Flora Exports vs. ACIT (supra) in the identical facts, has decided the issue in favour of the assessee holding that DEPB received by the assessee as a supporting manufacturer is eligible for deduction u/s. 80IB of the Act. A perusal of this order, however, shows that the decision of Hon’ble Delhi High Court in the case of Ritesh Industries (supra)(Relied by the authorities below) was also taken note of by the Tribunal and the same was found to be distinguishable in view of the decision of Hon’ble Supreme Court in the case of Baby Maine Exports, 290 ITR 323 (SC) relied by the assessee before us. In this decision, Hon’ble Apex Court has held that the premium paid by the export house or the trading house to a supporting manufacturer is an integral part of the turnover of the supporting manufacturer and was thus includible in the profits of the business eligible for deduction u/s. 80HHC. Therefore, placing reliance on this decision the Tribunal in the case of Flora Exports (supra) held that the assessee was entitled for deduction u/s. 80IB in respect of sale of DEPB received as supporting manufacturer. Thus, in view of catena of decisions relied upon by the assessee, in our considered view, the conclusion of the ld. CIT(A) denying deduction u/s. 80IB qua purported DEPB receipt, is not found to be correct. No material is adduced by the ld. DR to take a contrary view. We, therefore, reversing the impugned order, hold that the assessee is entitled for deduction u/s. 80IB of the Act. This issue is decided in favour of the assessee as such. The ground No. 1 is accordingly allowed.
4. The facts relevant to ground No. 2 are that in the assessment proceedings, the AO noticed from the computation of deduction u/s. 80HHC and 80IB that the assessee had computed deduction u/s. 80HHC and 80IB ignoring the provisions of section 80IB(13) r/w sec. 80IA(9) of the Act. After considering these provisions of the Act, the AO observed that the assessee cannot be allowed double deduction on the same income/profits & gain. It is also observed that if the assessee is allowed deduction u/s. 80IB, then deduction to the extent of such profits & gains cannot be allowed under chapter VI which also includes section 80HHC. He also observed that in view of the restrictions in section 80IA(9), the assessee cannot claim repeated deductions in respect of the same amount of eligible income and therefore, the assessee is to be first allowed deduction u/s. 80IB and then on the balance profits & gains, the deduction u/s. 80HHC is to be allowed. The learned CIT(A) sustained the finding of the AO after laying his hands on the decision of ITAT, Mumbai in the case of Leben Laboratories Ltd. vs. DCIT, 107 ITD 271 (Mum), wherein it has been held that the profit allowed as deduction u/s. 80IA is to be reduced from the profit of the business for computing deduction u/s. 80HHC. He also observed that in this decision, ITAT, Mumbai has also considered the decision of ITAT Bengalore Bench in Mittal Clothing Co. vs. DCIT (2005) 4 SOT 626, which was decided in favour of the assessee. The assessee has assailed this issue by way of ground No. 2 before us.
On this count, the ld. Counsel for the assessee placed strong reliance on the decision of Hon’ble Mumbai High Court in the case of Associated Capsules (P) Ltd. vs. DCIT & Anr. 332 ITR 0042, wherein the issue has been decided in favour of the assessee and against the Revenue. He has also referred to the decision of Hon’ble Delhi High Court in the case of Great Eastern Exports vs. CIT (2011) 332 ITR 14 (Del.) which has been decided against the assessee and in favour of the Revenue. In this situation, the ld. Counsel for the assessee contended that where two views were possible, the view favourable to the assessee should be adopted in terms of decision of Hon’ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. 88 ITR 192 (SC). He, therefore, urged to reverse the order of the ld. CIT(A) on this count.
The ld. DR on the other hand, relied upon the orders of the authorities below and submitted that the conclusions arrived at by the authorities below are supported by direct decision of Mumbai ITAT, wherein the issue has been decided against the assessee.
Having considered the rival submissions and perused the material available before us, we find considerable substance in the contention of the assessee. A perusal of the impugned order shows that the ld. CIT(A) out of three decisions of ITAT, Bangalore & Delhi (decided in favour of the assessee) and Mumbai (decided in favour of Revenue) has applied the order of Mumbai Tribunal which has been decided against the assessee on this issue. This approach of the ld. CIT(A), to our mind, is not appreciable. Hon’ble Apex Court in the case of CIT vs. Vegetable Products Ltd. (supra) has propounded a principle that in presence of contradictory views, the view favourable to the assessee has to be adopted. Therefore, laying our hands on the decision favourable to the assessee rendered by Hon’ble Bombay High Court in the case of Associated Capsules (P) Ltd. (supra) relied by assessee, we reverse the order of the CIT(A) holding that deduction u/s. 80IB would not go to reduce the total income for the purpose of calculating deduction u/s. 80HHC. Accordingly, this issue is decided in favour of the assessee.
The last issue pertains to disallowance of Rs.1,47,827/- on account of foreign traveling. The AO disallowed these expenses stating that the assessee debited expenses under the head foreign traveling expenses and claimed such expenses of Rs.3,15,442/-, out of which no supporting bills/vouchers could be placed in respect such expenses of Rs.1,47,827/-. The ld. CIT(A) also disallowed these expenses for want of any supporting evidence in the form of bills/vouchers. This disallowance has been assailed by way of ground No. 3 above.
We have considered the submissions of both the parties and the material on record and we find no infirmity in the decision of ld. CIT(A) on this count. For want of any bills/vouchers or supporting evidence to substantiate foreign traveling expenses to the extent of Rs.1,47,827/-, the ld. Authorities below have rightly disallowed the same. Therefore, this ground of appeal raised by assessee has no force and is liable to be dismissed.