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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL SHRI S BALAKRISHNAN, HON’BLE
PER S. BALAKRISHNAN, Accountant Member:
This appeal filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-3, Visakhapatnam [CIT(A)] vide DIN & Order No. ITBA/APL/S/250/2022-23/1043845247(1), dated 14/07/2022 arising out of the order passed U/s. 143(3) of the Income Tax Act, 1961 [the Act] for the AY 2018-19.
The brief facts of the case are that the assessee is a limited company engaged in the business of export of frozen shrimp and other sea foods filed its return of income for the AY 2018-19 declaring a total income of Rs. 102,53,82,880/-. After processing the return of income U/s. 143(1), the case was selected for complete scrutiny under CASS and accordingly statutory notices U/s. 143(2) and 142(1) were issued in electronic format to the assessee calling for the information. The assessee’s representative filed its reply on line through e-filing portal. The case of the assessee was notified to ACIT, Central Circle-1, Visakhapatnam vide order U/s. 127 of the Act by the Pr. CIT-1, Visakhapatnam vide order Pr.
CIT_1/VSP/127/Survey/Cent.2020-21, dated 10/11/2020. The Ld. AO on perusal of the information submitted by the assessee found that the assessee has claimed deduction U/s. 80IB(11A) of the Act amounting to Rs. 73,58,97,729/- on the net profits derived from J. Timmapuram Unit. The Ld. AO found that the above net profit included other operating revenue such as Duty Draw Back of Rs. 10,59,37,013/- and sale of licenses of Rs. 28,16,55,312/-. The Ld. AO therefore issued a show cause notice proposing to reduce the receipts on account of duty draw back and sale of licenses from the net profit of the undertaking. In response the assessee filed its objections before the Ld. AO stating that the deduction claimed includes receipts from MEIS of Rs. 25,66,21,149/- and Duty Draw Back of Rs. 15,46,73,265/-. The assessee’s representative also relied on the judicial pronouncements as detailed in the assessment order. Considering the reply submitted by the assessee, the Ld. AO did not accept the explanations and considered that the export incentives such as Duty Draw Back, Merchandise Exports from India Scheme (MEIS) cannot be considered as profit derived from industrial undertaking and disallowed an amount of Rs. 41,12,94,414/-. Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A), Visakhapatnam.
Before the Ld. CIT(A), the Assessee’s Representative submitted the decision of the Jurisdictional Tribunal in the assessee’s own case in (AY: 2017-18), dated 6/6/2022. The Ld. CIT(A) relying on the judgment of the Hon’ble Supreme Court in the case of CIT vs. Meghalaya Steels Limited (2016) 383 ITR 217 and the decision of the jurisdictional Bench in ITA No. 156/Viz/2022 (supra) allowed the appeal of the assessee.
Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us.
The Revenue has raised six grounds in its appeal however, the only issue involved in the grounds of appeal was in relation to allowability of income under Duty Draw Back and MEIS scheme for the profits derived from eligible industrial undertaking for the purpose of claiming deduction U/s. 80IB of the Act.
The Ld. DR in his written submissions briefly explained the operations of MEIS scheme and Duty Draw Back and argued that the export incentives cannot be considered as income derived from industrial undertaking for the purpose of section 80IB of the Act.
The Ld. DR placed heavy reliance on the judgment of the Hon’ble Supreme Court in the case of M/s. Liberty India vs. CIT [2019] 317 ITR 218. The Ld. DR further submitted that the Hon’ble Supreme Court while deciding the case in M/s. Meghalaya Steels Limited observed that the later judgment of the Apex Court cannot be set to have an overriding effect by the Apex Court in the case of M/s.
Liberty India (supra). The Ld. DR therefore pleaded that the order of the Ld. AO be upheld.
Per contra, the Ld. AR submitted that the Finance Act, 2005 has inserted in section 28 a new clause-(iiid) with retrospective effect from 1/4/1998 that any profit on the transfer of Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import polity formulated and announced under section 5 of the Foreign Trade (Development and Regulation)
Act, 1992 shall be treated as part of the business profits of the exporter. The Ld. AR also relied on the ratio laid down by the Hon’ble Supreme Court in the case of CIT vs. Meghalaya Steels Ltd (2016) 383 ITR 217 (SC). The Ld. AR vehemently argued that the Liberty India (supra) judgment has been nullified by the judgment laid down in Meghalaya Steel Ltd (supra) in the year 2016 and hence the ratio laid down in Liberty India (supra) should not be valid. The Ld. AR also submitted that if there is no export sales, the assessee is not entitled for these incentives and hence it has direct link and nexus with the activities of the assessee industrial undertaking entitling deduction U/s. 80IB(11A) of the Act. The Ld. AR placed heavy reliance on the assessee’s own case in (supra) for the AY 2017-18. The Ld. AR therefore pleaded that the order of the Ld. CIT (A) be upheld.
We have considered the rival submission and perused the material available on record. The main contention of the Revenue is that the decision in the case of M/s. Meghalaya Steels Limited (supra) held by the Apex Court does not over ride the subsequent judgment of the Apex Court in M/s. Liberty India(supra). We find that in the case of M/s. Meghalaya Steels Limited (supra), the Hon’ble Apex Court rendered a final verdict after referring to its earlier decision in the case of M/s. Liberty India (supra). We have also observed that the Authorities below have failed to understand the Legislative Intent behind the insertion of a clause-(iiid) to section 28 of the Act with retrospective effect wherein it has been held that cash assistance received or receivable by any person against exports under any scheme of Government of India shall be treated as income under the head “profits and gains of business or profession” and not under the head “income from other sources”.
Since the issue revolves around the provisions of section 80IB(11A) of the IT Act, 1961, we find it appropriate and necessary to reproduce the provisions of section 80IB(1) & (11A) of the Act:
“80IB(1): Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to (11), (11A) and (11B) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section.
80IB(11A) The amount of deduction in a case of an undertaking deriving profit from the business of processing, preservation and packaging of fruits or vegetables or meat and meat products or poultry or marine or dairy products or from the integrated business of handling, storage and transportation of foodgrains, shall be hundred per cent of the profits and gains derived from such undertaking for five assessment years beginning with the initial assessment year and thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from the operation of such business in a manner that the total period of deduction does not exceed ten consecutive assessment years and subject to fulfilment of the condition that it begins to operate such business on or after the 1st day of April, 2001 : Provided that the provisions of this section shall not apply to an undertaking engaged in the business of processing, preservation and packaging of meat or meat products or poultry or marine or dairy products if it begins to operate such business before the 1st day of April, 2009.” We also find it appropriate to reproduce section 28(iiid) of the Act:
“Sec. 28(iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) ;”
The only issue in the instant case is entitlement for deduction U/s. 80IB(11A) of the Act where the Ld. AO has referred to the decision of the Hon’ble Supreme Court in the case of M/s. Liberty India (supra) to exclude the export incentives for the purpose of deduction U/s. 80IB(11A) of the Act. The reliance placed by the Ld. AR in the decision of the Hon’ble Supreme Court in the case of M/s.
Meghalaya Steels Limited (supra) has merits in the case. Relevant paras 28 & 29 of Meghalaya Steels Ltd (supra) judgment delivered by the Hon’ble Supreme Court is extracted below for reference:
“28. It only remains to consider one further argument by Shri Radhakrishnan. He has argued that as the subsidies that are received by the respondent, would be income from other sources referable to Section 56 of the Income Tax Act, any deduction that is to be made, can only be made from income from other sources and not from profits and gains of business, which is a separate and distinct head as recognised by Section 14 of the Income Tax Act. Shri Radhakrishnan is not correct in his submission that assistance by way of subsidies which are reimbursed on the incurring of costs relatable to a business, are under the head “income from other sources”, which is a residuary head of income that can be availed only if income does not fall under any of the other four heads of income. Section 28(iii)(b) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head “profits and gains of business or profession”. If cash assistance received or receivable against exports schemes are included as being income under the head “profits and gains of business or profession”, it is obvious that subsidies which go to reimbursement of cost in the production of goods of a particular business would also have to be included under the head “profits and gains of business or profession”, and not under the head “income from other sources”.
For the reasons given by us, we are of the view that the Gauhati, Calcutta and Delhi High Courts have correctly construed Sections 80-IB and 80-IC. The Himachal Pradesh High Court, having wrongly interpreted the judgments in Sterling Foods and Liberty India to arrive at the opposite conclusion, is held to be wrongly decided for the reasons given by us hereinabove.”
Therefore, in view of the subsequent decision of the Hon’ble Supreme Court in the case of Meghalaya Steel Ltd (supra), the findings recorded by the Ld. AO based on the decision of the Hon’ble Supreme Court in the case of Liberty India (supra) cannot be held as sustainable as the Hon’ble Supreme Court in para 29 of its decision in Meghalaya Steel Ltd (supra) held that the Hon’ble Himachal Pradesh High Court having wrongly interpreted the judgment in the case of CIT vs. Sterling Foods [1999] 104 Taxman 204 and Liberty India (supra) to arrive at the opposite conclusion has held to be wrongly decided. We are therefore of the considered view that since the Hon’ble Supreme Court has overruled its earlier decision in the case of Liberty India (supra) and now the decision in the case of Meghalaya Steel Ltd (supra) holds good. In the assessee’s own case for the AY 2017-18, this Bench has held that the export entitlements is an income assessable under the head “profits or gains from business or profession” as per clause (iiib) and (iiid) to section 28 of the IT Act, 1961. Respectfully following the above precedents, we hold that the export incentives such as Duty Draw Back and MEIS is an income assessable under the head ‘profits or gains from business or profession’ as per clause (iiib) and (iiid) to section 28 of the Act. In view of the above, the grounds raised by the Revenue are dismissed.
In the result, appeal of the Revenue is dismissed.
Pronounced in the open Court on the 17th March, 2023.