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2016 Supreme(Raj) 14
IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR
AJAY RASTOGI And J.K. RANKA, J.
Commissioner of Income Tax -Appellant
Vs.
M/s. Garment Crafts -Respondent
(1) DB Income Tax Appeal No.42, 410, 441, 658, 647, 710, 699, 712, 100, 494, 512 of 2009 and 571 of 2011
Decided On : 12.01.2016
Mr. RB Mathur, Mr. Anuroop Singhi, Mr. Nikhil Similote, counsel for the appellant Ms. Meenal Ghiya Mr. Mahendra Gargieya
Mr. Sanjay Jhanwar, counsel for the respondents Mr. Gunjan Pathak
Export incentives are not profits and gains derived from an assessee's industrial undertaking and are therefore not eligible for deduction under Section 80-IB of the Income Tax Act.
Headnote:
INCOME TAX - DEDUCTION - SECTION 80-IB - DUTY DRAWBACK - NOT DERIVED FROM INDUSTRIAL UNDERTAKING - NOT ALLOWABLE AS DEDUCTION - TRADING ADDITION - JUSTIFIED - DUTY DRAWBACK CONSULTANCY CHARGES - REVENUE EXPENDITURE - ALLOWABLE.
Fact of the Case:
The assessee, an exporter of readymade garments, claimed deduction under Section 80-IB of the Income Tax Act on the entire business income, including export incentives. The Assessing Officer disallowed the deduction on the ground that the export incentives were not derived from the assessee's industrial undertaking. The assessee appealed to the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT), both of whom upheld the Assessing Officer's order. The assessee filed appeals to the High Court.
Finding of the Court:
The High Court held that the deduction under Section 80-IB was not allowable on the export incentives as they were not derived from the assessee's industrial undertaking. The Court also upheld the Assessing Officer's order on the trading addition and held that the duty drawback consultancy charges were revenue expenditure and allowable as a deduction.
Issues: 1. Whether deduction under Section 80-IB is allowable on export incentives received by an assessee engaged in the business of exporting readymade garments? 2. Whether the Assessing Officer was justified in making a trading addition under Section 145(3) of the Income Tax Act? 3. Whether duty drawback consultancy charges are revenue expenditure or capital expenditure?
Ratio Decidendi: 1. The Court held that the deduction under Section 80-IB is not allowable on export incentives as they are not derived from the assessee's industrial undertaking. The Court relied on the judgments of the Supreme Court in CIT v. Sterling Foods and Liberty India v. CIT, which held that export incentives are not profits and gains derived from the assessee's industrial undertaking. 2. The Court upheld the Assessing Officer's order on the trading addition, holding that the assessee had not maintained proper books of accounts and that the estimation of the gross profit rate was justified. 3. The Court held that the duty drawback consultancy charges were revenue expenditure and allowable as a deduction. The Court held that the charges were paid on an annual basis and were not in the nature of enduring benefits.
Final Decision: The Court dismissed the assessee's appeals.
Ranka, J.
1. This batch of Income Tax Appeals is directed against order of the Income Tax Appellate Tribunal, Jaipur (for short, 'Tribunal') and since the controversy raised and the substantial question of law admitted by this Court is same, for the sake of convenience and as agreed by counsel for the parties, the bunch of appeals are being decided by this common judgment.
2. The brief facts are being taken from DB Income Tax Appeal No.42/2008 (Commissioner of Income Tax Vs. M/s. Garment Crafts). This appeal was admitted on the following substantial questions of law:-
“(i) Whether in the facts and circumstances of the case, the ITAT has not acted illegally and perversely in reversing the order passed by the CIT (A) as well as Assessing officer for rejection of books of accounts and estimating the GP rate despite the fact that no quantitative details for verification was furnished by the assessee.
(ii) Whether in the facts and circumstances of the case the ITAT has not acted perversely and illegally in directing to calculate the deduction of both 80-IB on total income”.
3. The respondent-assessee in this appeal derives income from export of readymade garments and primarily is an exporter of such goods. The assessee furnished its return of income declaring an income of Rs.44,71,080/-and thereafter a revised return was filed showing total income at Rs.31,42,390/-in which deduction u/Sec. 80-IB of the Income Tax Act was claimed by the assessee. The assessee, as aforesaid, claimed deduction u/Sec. 80-IB of the Act @30% at Rs.66,43,472/-on the total business income of Rs.2,21,44,906/-. The assessee had claimed deduction in respect of entire profits of business which included export incentives to the tune of Rs.1,02,02,570/-and it was claimed by the assessee that firstly the income of the entire business has to be computed under the head “Income from business and profession” and then 30% of such income is allowable as deduction u/Sec. 80-IB and accordingly the same was claimed as a deduction @30% as it derived such benefit from an industrial undertaking. The Assessing Officer (for short, 'AO'), however, was of the view that in so far as the export incentives received to the tune of Rs.1,02,02,570/-is concerned, since it does not constitute profit and gain derived from the assessee's industrial undertaking, there being no nexus with the profit of business/business income, therefore, the AO excluded the same for consideration and out of purview of Sec. 80-IB. He while disallowing relied upon judgments of Hon'ble Apex Court in the case of CIT Vs. N.C. Budhiraja & Company : (1993) 204 ITR 412 (SC); Cambay Electric Supply Industrial Company Limited Vs. CIT: (1978) 113 ITR 84 (SC), and CIT Vs. Sterling Foods : (1999) 237 ITR 579 (SC) and held that it is income earned on sale of import entitlements of duty draw back and excluded the same and reduced it from total business income of Rs.2,21,44,906/-and accordingly held that deduction u/Sec. 80-IB is available on the actual business income/profit derived on Rs.1,19,42,336/-and on the basis whereof deduction u/Sec. 80-IB of Rs.35,82,700/-is allowable as against claimed by the assessee at Rs.66,43,472/-.
4. The matter was carried in appeal by the respondent before the Commissioner of Income Tax (Appeals) (for short, 'CIT(A)') who upheld the findings of the AO and rejected claim of the assessee.
5. Both, the Revenue as well as assessee filed cross appeals before the Tribunal. The Tribunal, in so far as the assessee's appeal is concerned, partly allowed the same and rejected the appeal of the Revenue. In so far as the issue relating to deduction u/Sec 80-IB, is concerned, the Tribunal accepted contention of the assessee and held that duty draw back is integral part of the pricing of the goods, part of the cost of the production of the industrial undertaking and therefore, the duty draw back has to be treated as derived from industrial undertaking and allowed the claim.
6. Ld. counsel for
