ADCI DYE Chem. P. Ltd. vs Deputy Commissioner of Income Tax

Mukesh R. Shah, J.—As common question of law and facts arise in this group of appeals and pertain to the same assessee and when heard together as a matter of convenience, therefore, we dispose of all these appeals together by this common order. Feeling aggrieved and dissatisfied with the impugned common judgment and order passed by the learned Income-tax Appellate Tribunal (hereinafter referred to as "the Tribunal") dated January 7, 2005, passed in I.T.A. No. 806/AHD/1999 for the assessment year 1994-95, I.T.A. No. 807/AHD/1999 for the assessment year 1995-96 and I.T.A. No. 1475/AHD/2000 for the assessment year 1996-97, common appellant-assessee has preferred present tax appeals to consider the following substantial questions of law :

"Tax Appeal No. 1346 of 2005

Whether, on facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in confirming that the appellant was not entitled to the deduction under section 80-IA of the Income-tax Act, 1961, in respect of Central excise duty set off of Rs. 41,43,478 and sales tax set off Rs. 19,970?

Tax Appeal No. 1347 of 2005

Whether, on facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in confirming that the appellant was not entitled to the deduction under section 80-IA of the Income-tax Act, 1961, in respect of Central excise duty set off of Rs. 83,97,099?

Tax Appeal No. 1348 of 2005

Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal, was right in law in confirming that the appellant was not entitled to the deduction under section 80-IA of the Income-tax Act, 1961, in respect of Central excise duty set off of Rs. 62,29,316?"

For the sake of convenience, we will take the facts of Tax Appeal No. 1346 of 2005 arising out of the judgment and order passed by the learned Tribunal passed in I.T.A. No. 806/AHD/1999 for the assessment year 1994-95.

2.1. That the assessee is a closely held company engaged in the business of manufacturing of dyes and chemicals filed its return of income for the assessment year 1994-95 on November 28, 1994, declaring a total income at Rs. nil after claiming, inter alia, the deduction of Rs. 5,52,485 under section 80-IA. That the said deduction was arrived at by computing the profits of the business after including the following receipts :

"(I) Export benefit : Rs. 1,86,102

(II) Central excise set off: Rs. 41,43,478

(III) Miscellaneous income : Rs. 12,819

(IV) Interest income : Rs. 3,70,573

(V) Sales tax set off : Rs. 19,970."

2.2 That the Assessing Officer passed the assessment order rejecting the assessee''s claim to exclude the Central excise and sales tax from the total turnover for the purpose of computing deduction under section 80HHC of the Act. The Assessing Officer also held that interest income, export incentive, Central excise set off and the sales tax set off shall not be included for computing deduction under section 80-IA of the Act.

2.3. Feeling aggrieved and dissatisfied with the order passed by the Assessing Officer not accepting the claim of the assessee to exclude the Central excise set off from the total turnover for the purpose of computing deduction under section 80HHC as well as to exclude interest income, export incentive, Central excise set off and sales tax set off for computing deduction under section 80-IA of the Act the assessee preferred an appeal before the learned Commissioner of Income-tax (Appeals) and the learned Commissioner of Income-tax (Appeals) allowed the said appeal and directed to exclude the Central excise and sales tax from the total turnover for the purpose of computing deduction under section 80HHC of the Act as well as to include interest income, export incentive, Central excise set off and sales tax set off for computing deduction under section 80-IA of the Act.

2.4. Feeling aggrieved and dissatisfied with the order passed by the learned Commissioner of Income-tax (Appeals), the Revenue preferred an appeal before the learned Income-tax Appellate Tribunal and considering the decision of the hon''ble Supreme Court in the case of Commissioner of Income Tax, Karnataka Vs. Sterling Foods, Mangalore, , the learned Tribunal has partly allowed the said appeal and has quashed and set aside the order passed by the learned Commissioner of Income-tax (Appeals) directing to include the Central excise set off and sales tax set off for computing deduction under section 80-IA of the Act and has, consequently, restored the order passed by the learned Assessing Officer.

2.5. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Tribunal, the assessee has preferred the present tax appeals to consider the following substantial question of law.

Whether, on facts and in the circumstances of the case, the Income-tax Appellate Tribunal, was right in law in confirming that the appellant was not entitled to the deduction under section 80-IA of the Income-tax Act, 1961, in respect of Central excise duty set off of Rs. 41,43,478 and sales tax set off Rs. 19,970?

Shri S.N. Divatia, learned advocate has appeared on behalf of the asses- see and Shri Manish R. Bhatt, learned advocate has appeared on behalf of the Revenue.

Shri Divatia, learned advocate for the assessee, has vehemently submitted that the learned Tribunal has materially erred in holding that the assessee would not be entitled to deduction under section 80-IA of the Act as claim of Central excise set off and sales tax set off.

4.1. Shri Divatia, learned advocate for the assessee, has submitted that with respect to the Central excise duty set off and sales tax set off and denying the deduction under section 80-IA of the Act claimed by the assessee claimed on the aforesaid items, the learned Tribunal in pages 4 and 5 has observed as under :

"From the above, it is evident that the assessee himself has claimed the Central excise set off to be in the nature of duty draw back linked with export profit. The assessee cannot take different stand while claiming deduction under section 80-IA and section 80HHC.

We find that before the Commissioner of Income-tax (Appeals) the assessee claimed that the sales tax set off is also in the nature of the export incentive... since the assessee itself has claimed the sales tax set off to be export incentive, the decision of the hon''ble apex court in the case of Sterling Foods (Supra) would be squarely applicable in this regard also."

4.2. It is submitted by Shri Divatia, learned advocate for the assessee, that the abovesaid observations and conclusion reached by the Tribunal are based solely on the ground that before the Commissioner of Income-tax (Appeals) the assessee has claimed both the aforesaid receipts to be in the nature of export incentive. It is submitted that in fact the observations made by the learned Commissioner of Income-tax (Appeals) in paragraph 8.2 relates to the ground of appeal relating to section 80HHC and not section 80-IA. It is submitted that as such the assessee did not claim both the said receipts to be in the nature of export incentive. It is submitted that even from the contention raised before the Assessing Officer during the course of assessment proceedings would also show that the appellant had not claimed the aforesaid receipts to be in the nature of export incentives. It is submitted that all throughout the contention of the assessee before both the lower authorities was that the set off had direct and proximate link with its business activities.

4.3. It is submitted that even otherwise and even assuming for the sake of argument that the assessee had so contended but the Tribunal was supposed to examine the nature of the said receipts instead of mechanically accepting the nature. It is submitted that though the decision in the case of Liberty India Vs. Commissioner of Income Tax, has examined the scheme of DEPB so as to come to the conclusion that the profit from DEPB was in the nature of export incentive but it does not deal with the nature of Central excise duty set off and sales tax set off. It is submitted that in view of the above facts of the case, the impugned order passed by the learned Tribunal completely overlooks the facts and the contention relating to the aforesaid ground and as held against the assessee without considering the fully and properly the material available on record. It is submitted that it has also failed in passing reasoned and speaking order so as to reverse the finding and conclusion of the Commissioner of Income-tax (Appeals).

4.4. Making the above submissions and relying upon the decision of the Income-tax Appellate Tribunal, Lucknow Bench, Lucknow, passed in the case of Arvind Footwear Pvt. Ltd. v. Deputy CIT I.T.A. No. 363/Luck/2010 and other allied appeals, it is requested to quash and set aside the impugned order passed by the learned Tribunal and restored the matter back to the file of the Tribunal so as to decide the appeal on its merits in accordance with law and after considering the material produced by the assessee.

All these appeals are opposed by Shri Manish Bhatt, learned advocate for the Revenue. It is submitted that as such the issue involve in the present appeals is squarely covered by the decision of the hon''ble Supreme Court in the case of Liberty India (supra).

5.1. It is rightly observed by the learned Tribunal on the basis of the material on record that when the assessee claim deduction under section 80HHC and claim the Central excise set off to be in the nature of duty draw back linked with export profit, the said fact is to be considered for the purpose of section 80-IA. It is submitted that the learned Tribunal has rightly observed that the assessee cannot take too different stand while claiming the deduction under section 80HHC as well as under section 80-IA of the Act. It is submitted that, therefore, the learned Tribunal has relied upon the decision of the hon''ble Supreme Court in the case of Sterling Foods (supra) as rightly held that the assessee shall not be entitled to deduction under section 80-IA of the Act claim on the aforesaid two items, i.e., Central excise duty set off and sales tax set off. Therefore, it is requested to dismiss the present appeals.

Heard the learned advocates for the respective parties at length. The question which is posed for consideration of this court is whether the learned Tribunal was right in law in confirming that the appellant was not entitled to deduction under section 80-IA of the Income-tax Act, 1961, in respect of Central excise duty set off and sales tax set off? At the outset, it is required to be noted that the aforesaid issue is squarely covered against the assessee in view of the decision of the hon''ble Supreme Court in the case of Liberty India Vs. Commissioner of Income Tax, as well as in the case of Sterling Foods (supra). It is required to be noted that with respect to export incentive under the scheme of DEPB, it is held by the hon''ble Supreme Court in the case of Liberty India (supra) that in respect of DEPB and duty drawback the assessee is not entitled to deduction under section 80-IB of the Act. In the facts and circumstances of the case and so observed by the learned Tribunal, the assessee must claim the Central excise duty set off to be in the nature of duty drawback linked with export profit while claiming deduction under section 80HHC of the Act. Therefore, it is rightly observed by the Tribunal that for claiming deduction under section 80HHC, the assessee itself claimed that the Central excise duty set off is export incentive by way of duty drawback, the assessee cannot take different stand while claiming deduction under section 80-IA of the Act. Under the circumstances and if that be so applying the decisions of the hon''ble Supreme Court in the case of Liberty India (supra) and Sterling Foods (supra) and the stand taken by the assessee while claiming deduction under section 80HHC under the Act, the learned Tribunal has rightly held that the assessee shall not be entitled to deduction under section 80-IA of the Act on the Central excise duty set off as well as sales tax set off. Under the circumstances, the question of law raised in the present tax appeals in the aforesaid facts and circumstances of the case is held against the assessee and in favour of the Revenue. Consequently, all the appeals deserve to be dismissed and are, accordingly, dismissed.