Narayan Industries Vs ACIT (Delhi High Court)
In Narayan Industries Vs ACIT, the Delhi High Court examined two substantial questions of law concerning deduction under Section 80-IC of the Income Tax Act. The first issue related to denial of deduction of Rs. 1,52,07,079/- on account of duty drawback, held by the Assessing Officer and upheld by the Tribunal as not being income derived from an industrial undertaking. The second issue concerned denial of deduction of Rs. 6,58,683/- relating to interest on KDR; however, this ground was not pressed by the appellant and was dismissed.
With respect to duty drawback, the appellant conceded that the issue was covered against it by Supreme Court judgments in Liberty India and Sterling Foods, which held that duty drawback and similar incentives do not have a direct nexus with industrial undertakings and cannot be treated as derived income for the purpose of Sections 80-IA/80-IB (and by implication Section 80-IC). Accordingly, question (i) was decided against the appellant.
However, the appellant raised an alternative contention that excise and customs duties paid on purchase of raw materials should be deducted from the duty drawback received. The Court framed an additional question on whether such duties paid should be subsumed from the duty drawback amount. The appellant relied on earlier Tribunal orders for AYs 2013-14 and 2015-16, where the Tribunal had remanded the matter to the Assessing Officer with directions to deduct duties paid on purchases from duty drawback received. These orders had attained finality as they were not challenged by the Department, reportedly due to low tax effect under CBDT circulars. It was also submitted that upon remand, the Assessing Officer had granted the benefit as directed.
