The Assessee approached ITAT in appeal on the grounds that CIT(A) erred in ordering that DEPB income is covered under section 28 of the Act and deduction u/s 80HHC is available on such income.

• Before the Tribunal, attention was drawn towards the amendment made by the Taxation Laws (Amendment) Act, 2005, retrospectively w.e.f 01.04.1998, by which clause (iiid) was inserted in section 28 with a view to deem any profit on the transfer of DEPB, being Duty Remission Scheme under the export and import policy formulated and announced u/s 5 of the Foreign Trade (Development and Regulation) Act, 1992, as the profits and gains of business.

• By the same Amendment Act, provisions of section 80HHC of the Act were also modified by, inter-alia , inserting clause (iiid) in the clause (ba) of the Explanation below sub-section (4C).

• These amendments were made after the passing of the order by the AO and CIT(A). By virtue of these amendments, profit on transfer of DEPB Scheme became entitled to deduction u/s 80HHC from A.Y 1998-99 and onwards. Thus, deduction on the aforesaid profit was admissible in the proceedings of A.Y 2001-02 at hand.

• The learned D.R. agreed that the assessee was entitled to deduction on the aforesaid profits also but stated that the matter may be restored to the file of the AO for computation of the deduction in accordance with the amended provisions. Accordingly the matter was restored to the file of the AO with a direction to grant further deduction u/ 80HHC on the aforesaid profits in accordance with law. The appeal of Revenue was treated as dismissed.

Further , Tribunal also heard the objection of the assessee that the CIT(A) had erred in upholding the decision of the AO regarding exclusion of DEPB receipts from the business income and, thus, denying deduction u/s 80IB.

Facts of the issue :- The assessee is engaged in the business of making rice from paddy and it also purchases rice from the open market. The rice obtained from paddy and purchased from the market is thereafter sold. The assessee claimed deduction u/s 80IB amounting to Rs.9,81,199/ -. The deduction was claimed on the whole of the profit of the undertaking. However, since purchase and sale of rice did not amount to the profits of any industrial undertaking, the AO attributed 50% of the profit to the manufacturing activity. Coming to the issue of grant of deduction u/s 80IB, it was stated that in so far as profit from DEPB Scheme is concerned, there is no direct nexus between the profit and the industrial undertaking. The aforesaid profit has its source in the Export Promotion Scheme of the Central Government, under which the assessee becomes entitled to the benefit of DEPB Scheme. Therefore, such profit cannot be said to be the profit derived from the industrial undertaking. Thus, deduction u/s 80IB was denied in respect of profit from DEPB Scheme and the deduction was restricted to a sum of Rs.3,01,228/ – . CIT(A) upheld the findings of the AO but made some changes in the computation of deduction and granted further relief amounting to Rs.94,708/- to the assessee.

Tribunal observed that:-

• In regard to Duty Draw Back Scheme, it has held by the division bench of the ITAT, Delhi that the receipt was in lieu of expenses earlier incurred by payment of excise and customs duty. Therefore, the receipt was in the course of the business of the industrial undertaking. Accordingly, it was entitled to exemption u/s 80IB.

• This decision was rendered in connection with the duty draw back received by the assessee in lieu of payment of duties earlier. Such is not the case before us.

• The assessee exported rice and as a matter of incentive got entitlement to import some goods. The assessee was entitled to import goods on its own or sell the entitlement to a third party for import of goods. The assessee chose to sell the entitlement, leading to profit under the scheme.

• Madras High Court decided the cases of Pandian Chemicals Ltd. and Jameel Leathers And Uppers under section 80HH by pointing out that there was no direct nexus between cash assistance, duty draw back and import license nomination entitlement with the profits and gains of the business of the undertaking. In other words, the Court interpreted section 80HH liberally by importing the concept of profit and gains of the business of the undertaking by reading these words into the aforesaid section.

• In so far as duty draw back is concerned, there is a difference of opinion between Madras High Court and the Gujarat High Court. However, no such conflict of opinion exists in respect of profit from DEPB Scheme between any two High Courts.

• It may also be mentioned that while deciding the case of English Electric Co. of India Ltd. (1987) 168 ITR 513, the Madras High Court came to the conclusion that interest from the bank was not the income derived from the business of priority industry. At page 515, it was pointed out that while interest received from suppliers of raw-materials on deposit placed with them will constitute a direct nexus with the business of priority industry, no such nexus can be said to be exist between the business of the priority industry and the interest earned on fixed deposit.

• Therefore, we are of the view that by adding the words “any business” in section 80IB, no material difference in interpretation follows, vis-a-vis the interpretation given u/s 80HH, especially when the decision in the case of Pandian Chemicals, rendered by Madras High Court was approved by the Supreme Court.

Held :- The Assessee is not entitled to deduction u/s 80IB on profit from DEPB Scheme and the cross objection filed by the Assessee was dismissed.

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November 2020