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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
PER S. BALAKRISHNAN, Accountant Member :
This appeal filed by the assessee is directed against the order passed U/s. 263 by the Ld. Principal Commissioner of Income Tax-1, Visakhapatnam [Pr. CIT] in DIN & Order No. ITBA/REV/F/REV5/2021-22/1040943074(1), dated 17/3/2022
2 arising out of the order passed U/s. 143(3) of the Income Tax Act, 1961 [the Act] for the AY 2017-18.
The facts of the case are that the assessee is engaged in the business of sale of shrimps which includes processing, preservation, packaging and export of shrimp products, filed its return of income for the AY 2017-18 on 16/12/2017 declaring a total income of Rs. NIL. Subsequently, the case was selected for scrutiny under CASS and statutory notices U/s. 142(1) of the Act was issued on 30/08/2019 and served through ITBA portal. The Ld. AO considering the submissions made by the assessee disallowed 6% of the self-made vouchers of Rs. 3,41,25,018/- amounting to Rs. 20,47,501/- while framing the assessment U/s 143(3) of the Act. Subsequently, the Ld. Pr. CIT-1, Visakhapatnam while exercising his powers U/s. 263 of the Act found that the assessee has claimed a deduction of Rs. 3,35,84,170/- U/s. 80IB(11A) of the Act. The Ld. Pr. CIT found from the P & L Account of the assessee that the assessee has received an income of Rs. 4,38,01,028/- from the Duty Draw Back Scheme and Rs.5,39,69,173/- from Merchandise Exports from India Scheme [MEIS]. The Ld. Pr. CIT by relying on the decision of the Hon’ble Supreme Court in the case of Liberty
3 India Ltd vs. CIT reported in [2009] 317 ITR 218 (SC) considered that the income from Duty Draw Back Schemed and MEIS scheme are not allowable for deduction U/s. 80IB(11A) of the Act and hence considered the order of the Ld. CIT(A) as erroneous and prejudicial to the interests of the Revenue. The Ld. Pr. CIT therefore directed the Ld. AO to recompute the assessee’s income by disallowing the assessee’s claim of deduction U/s. 80IB(11A) of the Act by providing one more opportunity to the assessee.
Aggrieved by the order of the Ld. Pr. CIT, the assessee is in appeal before us by raising the following grounds of appeal:
“1. The order of the Ld. Pr. CIT is contrary to the facts and also the law applicable to the facts of the case.
2. The Ld. Pr. CIT is not justified in assuming jurisdiction U/s. 263 of the Act in as much as the assessment order U/s. 143(3) dated 19/12/2019 for the AY 2017-18 is neither erroneous nor prejudicial to the interests of the Revenue.
3. The Ld. Pr. CIT is not justified in directing the Assessing Officer to disallow the deduction of Rs. 4,86,59,368/- claimed by the appellant U/s. 80IB(11A) of the Act.
4. The Ld. Pr. CIT is not justified in holding that the duty draw back of Rs. 4,38,01,028/- and MEIS income of Rs. 5,39,69,173/- are not eligible for deduction U/s. 80IB(11A) of the Act.
5. For any other ground that may be urged at the time of appeal hearing.”
3. The only issue contested by the assessee in this appeal is with respect to disallowance of deduction of Rs. 4,38,01,028/-
4 received from Duty Draw Back Scheme and Rs. 5,39,69,173/- from MEIS as not eligible for deduction U/s. 80IB(11A) of the Act.
At the outset, the Ld. AR submitted that consequent to the recent decision of the Hon’ble Supreme Court in the case of M/s.
Saraf Exports vs. CIT (Civil Appeal No. 4822 of 2022) wherein it was held that the Duty Draw Back and DEPB are not eligible for deduction U/s. 80IB-(11A) of the Act. He therefore expressed his view that the decision of the Hon’ble Supreme Court (supra) may be applied.
The Ld. DR also relied on the decision of the Hon’ble Supreme Court in the case of Saraf Exports (supra) and supported the decision taken by the Ld. Pr. CIT.
We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. Admittedly, the assessee has claimed a deduction of Rs. 4,86,59,368/- U/s. 80IB(11A) of the Act after considering the adjustments of depreciation and other expenditure. It is also found that the assessee has received an income of Rs. 4,38,01,028/- from Duty Draw Back and Rs. 5,39,69,173/- from MEIS. This Bench by relying on the decision of the Hon’ble
5 Supreme Court in the case of CIT vs. Meghalaya Steels Limited (2016) 383 ITR 217 has allowed deduction of export incentives namely Duty Drawback scheme, Duty Entitlement Pass Book Scheme (DEPB) inI.T.A. No.158/Viz/2022 (AY: 2018-19)in the case of Assistant Commissioner of Income Tax,Central Circle- 1,Visakhapatnam vs. Nekkanti Sea Foods Limited. However, subsequently the Hon’ble Supreme Court in the case of M/s.
Saraf Exports (supra) has clearly held that the income received from Duty Draw Back and DEPB schemes are not derived from the industrial undertaking and hence not allowable as deduction U/s. 80IB(11A) of the Act. The Hon’ble Supreme Court in its order (supra) in paras 7.7 and 8 held as follows:
“7.7 Insofar as reliance placed by the learned counsel for the assessee upon the subsequent decision of this Court in the case of Meghalaya Steels Limited (supra) is concerned, at the outset, it is required to be noted that in the case of Meghalaya Steels Limited (supra), it was a case of three subsidies, namely a) Transport Subsidy, b) Interest Subsidy, and c) Power Subsidy and in that context this Court observed and held that since these subsidies directly affect the cost of manufacturing, they have a direct nexus with the profits and gains of the undertaking and since these subsidies have a direct nexus, they can be said to be derived from the industrial undertaking. It is to be noted that in the case of Meghalaya Steels Limited (supra), this Court did take note of the decision in the case of Liberty India (supra), however, this Court specifically observed that the case of Liberty India (supra) was concerned with an export incentive, which is very far removed from reimbursement of an element of cost. While dealing with the decision in the case of Liberty India (supra), this Court distinguished Duty
6 Entitlement Pass Book and Duty Drawback Schemes and specifically observed that the DPEB / Duty Drawback Scheme is not related to the business of an industrial undertaking for manufacturing or selling its products and the DEPB entitlement arises only when the undertaking goes on to export the said product, that is, after it manufactures or produces the same. In paragraph 20, in the case of Meghalaya Steels Limited (supra), while distinguishing the profit derived from DEPB / Duty Drawback, it is observed and held as under:-
“20. Liberty India [Liberty India v. CIT, (2009) 9 SCC 328] being the fourth judgment in this line also does not help the Revenue. What this Court was concerned with was an export incentive, which is very far removed from reimbursement of an element of cost. A DEPB drawback scheme is not related to the business of an industrial undertaking for manufacturing or selling its products. DEPB entitlement arises only when the undertaking goes on to export the said product, that is, after it manufactures or produces the same. Pithily put, if there is no export, there is no DEPB entitlement, and therefore its relation to manufacture of a product and/or sale within India is not proximate or direct but is one step removed. Also, the object behind DEPB entitlement, as has been held by this Court, is to neutralise the incidence of customs duty payment on the import content of the export product which is provided for by credit to customs duty against the export product. In such a scenario, it cannot be said that such duty exemption scheme is derived from profits and gains made by the industrial undertaking or business itself.”
Thus, from paragraph 20 of the said decision, it can be seen that this Court did not disapprove of the decision of this Court in the case of Liberty India (supra). Even in the case of Meghalaya Steels Limited (supra), this Court did not consider the earlier decision in the case of Sterling Foods, Mangalore (supra). Thus, the decision of this Court in the cases of Liberty India (supra) and Sterling Foods, Mangalore (supra), which as such are on DEPB / Duty Drawback Schemes clinch the issue at hand. It cannot be said that the decision taken in the case of Meghalaya Steels Limited (supra) is contrary to the decisions in the case of Sterling Foods, Mangalore (supra) and Liberty India (supra). On the contrary, the observations made in paragraph
7 20 can be said to be in favour of the Revenue and against the assessee.
In view of the above and for the reasons stated above, the High Court has rightly held that the respondent – assessee is not entitled to the deductions under Section 80-IB on the amount of DEPB as well as Duty Drawback Schemes. We hold that on the profit earned from DEPB / Duty Drawback Schemes, the assessee is not entitled to deduction under Section 80-IB of the Act, 1961. Any contrary decision of any High Court is held to be not good law. Present appeal deserves to be dismissed and is accordingly dismissed. However, in the facts and circumstances of the case, there shall be no order as to costs.”
Judicially following ratio laid down by the Hon’ble Supreme Court in the case of M/s. Saraf Exports (supra) we are inclined to uphold the order of the Ld. Pr. CIT passed U/s. 263 of the Act.
In the result, appeal of the assessee is dismissed. 6.
Pronounced in the open Court on 27th September, 2023.