Case Citation: Mohini Originals v. ITO (ITAT Delhi), Appeal No:ITA No. 6235 & 6236/DEl/2013 Decision Date: 17/06/2015

Facts of the Case

The Assessee was an EOU filed its return of income, where AO observed that they have claimed exemption under section 10B which was allowed at the time of Assessment. Deduction on duty drawback was also allowed. However, in the proceedings for the next year A.O. disallowed the deduction.

Question of Law

Whether the disallowance of duty drawback u/s 10B was justified?

Contention of the Assessee

The ld. Counsel of the Assessee relying on the Assesse’s own Judgment where it was observed that Section 10B sub-section (1) allows deduction in respect of profits and gains as are derived by a 100 per cent export oriented unit. Section 10B(4) lays down special formula for computing the profits derived by the undertaking from export. According to it, the profits of the business of the undertaking in the ratio of export turnover to the total turnover. Thus, notwithstanding the fact that sub-section (1) of section 10B refers the profits and gains as are derived by a 100 percent export oriented unit, yet the manner of determining such eligible profits has been statutorily defined in sub section (4) of section 10B of the Act. As per the formula, the entire profits of the business are to be taken which are multiplied by the ratio of the export turnover to the total turnover of the business.

Contention of the Revenue

The A.O. relying on the decision of Hon’ble High Court in the case of M/s Ritesh Industries and also on the decision of Hon’ble Supreme Court in the case of M/s Liberty India 183 Taxman 349, wherein duty draw back were not considered eligible profit for deduction u/s 80-I & 80B of the Income-tax Act on the ground that the same was similar in nature for computing deduction u/s 10B of the I.T. Act. Accordingly section 147 proceedings were initiated for AY 2007-08 for the reasons that income of Rs. 35,51,990/- had escaped assessment. The ld. CIT(A) while dismissing the Appeal of the assessee held that there must be, for the application of the words, ‘derived from’ a direct nexus between the profits and gains and the industrial undertaking, whereas in the instant case, the nexus was not direct but only incidental.

Held by the Tribunal

The Hon’ble Tribunal while relying on the Authorities given by the Assessee held that the deduction claimed by the Assess u/s 10B would be allowed.

Direct Link to download full text of the ITAT Order from official website 

http://www.itatonline.in:8080/itat/upload/-470758580113999962813%245%5E1REFNO6235__mohini_originals.pdf

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