IMPORTANT POINT
Deduction – On profit earned from DEPB / Duty Drawback Schemes, assessee is not entitled to deduction under Section 80-IB of Income Tax Act, 1961.

JUDGMENT :

M.R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court of Judicature for Rajasthan at Jaipur dated 04.02.2016 in D.B. Income Tax Appeal No. 7 of 2014 by which the High Court has allowed the said appeal preferred by the Revenue and has held that the assessee is not entitled to the deduction under Section 80-IB of the Income Tax Act, 1961 (hereinafter referred to as “Act, 1961”) with respect to the receipts under the Duty Drawback Scheme (hereinafter referred to as “Duty Drawback”) and on transfer of Duty Entitlement Pass Book Scheme (hereinafter referred to as “DEPB”), the assessee has preferred the present appeal.

2. The facts leading to the present appeal in nutshell are as under:-

2.1 The assessee, a partnership firm, was engaged in the business of manufacturing and exporting wooden handicraft items. For the Assessment Year (A.Y.) 200809, the assessee filed its return on 30.09.2008 declaring its income as nil, claiming deduction of Rs. 70,197/-on account of DEPB and of Rs. 76,27,636/-on account of receipts under the Duty Drawback.

2.2 The assessee credited the receipts of the aforesaid amounts into the Profit & Loss Account and claimed the same as “Profit / gains of business / profession” under Sections 28(iiic) and 28(iiib) of the Act, 1961. The assessee was issued a notice under Section 143(2) of the Act, 1961.

2.3 By order dated 24.11.2010, the Deputy Commissioner disallowed the deductions as claimed. The order of the Deputy Commissioner disallowing the exemption as claimed, came to be upheld by the Commissioner of Income Tax (Appeals). However, the Income Tax Appellate Tribunal (ITAT) allowed the appeal preferred by the assessee vide order dated 17.12.2013 by inter alia observing that the decision of this Court in the case of Liberty India Vs. Commissioner of Income Tax, (2009) 9 SCC 328 : (2009) 317 ITR 218 (SC) can be said to be per incuriam and allowed the deductions as claimed on the receipts of amount under DEPB Scheme and Duty Drawback Scheme.

2.4 By the impugned judgment and order and relying upon the decision of this Court in the case of Liberty India (supra) and the decision of this Court in the case of Commissioner of Income Tax, Karnataka Vs. Sterling Foods, Mangalore (1999) 4 SCC 98, the High Court has allowed the appeal preferred by the Revenue and has restored the order passed by the Deputy Commissioner disallowing the deductions claimed under Section 80-IB of the Act, 1961. The impugned judgment and order passed by the High Court is the subject matter of the present appeal.

3. Learned counsel appearing on behalf of the assessee has heavily relied upon the decision of this Court in the case of Commissioner of Income Tax Vs. Meghalaya Steels Limited, (2016) 6 SCC 747 : (2016) 383 ITR 217 (SC),

3.1 It is submitted that the meaning of “derived from” under Section 80-IB as laid down in Liberty India (supra) has been widened by this Hon’ble Court in the case of Meghalaya Steels Limited (supra).

3.2 It is further submitted that the conclusion of Liberty India (supra) is based on the finding that “derived from” under Section 80-IB requires a “first degree” connection with the business of the industrial undertaking whereas the source of DEPB / Duty Drawback are incentives given under the Duty Exemption Remission Scheme / Section 75 of the Customs Act, 1962. That applying the test of “first degree”, this Court in the case of Liberty India (supra) held that receipts from DEPB / Duty Drawback cannot be deducted under Section 80-IB.

3.3 It is next submitted that, however, subsequently, in the case of Meghalaya Steels Limited (supra), the issue before this Court was whether transport, interest and power subsidy granted by the Government were entitled to be deducted under Section 80-IB and this Hon’ble Court has held that receipts of amount on the aforesaid subsidies were entitled to be deducted under Section 80IB. It is submitted that in the said case, before th