The Income Tax Appellate Tribunal (ITAT), Vishakhapatnam Bench, has recently, in an appeal filed before it, held that export incentives such as duty draw back and MEIS, are assessable as ‘profits or gains from business or profession’.
The aforesaid observation was made by the Vishakhapatnam ITAT, when an appeal was filed before it by the Revenue, as against the order of the Commissioner of Income Tax (Appeals), Visakhapatnam [CIT(A)], vide DIN & Order No. ITBA/APL/S/250/2022-23/1043845247(1), dated 14/07/2022 arising out of the order passed U/s. 143(3) of the Income Tax Act, 1961 [the Act] for the AY 2018-19.
The brief facts of the case were that the assessee was a limited company engaged in the business of export of frozen shrimp and other sea foods, and had filed its return of income for the AY 2018-19 declaring a total income of Rs. 102,53,82,880/-. After processing the return of income U/s. 143(1), the case was selected for complete scrutiny under CASS and accordingly statutory notices U/s. 143(2) and 142(1) were issued in electronic format to the assessee, calling for the information.
The assessee’s representative filed its reply on line through e-filing portal. And, the case of the assessee was notified to ACIT, Central Circle-1, Visakhapatnam, vide order U/s. 127 of the Income Tax Act, by the Pr. CIT-1, Visakhapatnam vide order Pr. CIT_1/VSP/127/Survey/Cent.2020-21, dated 10/11/2020.
The AO, on perusal of the information submitted by the assessee, found that the assessee had claimed deduction U/s. 80IB (11A) of the Income Tax Act, amounting to Rs. 73,58,97,729/, on the net profits derived from J. Timmapuram Unit. It was also found by the AO that the above net profit included other operating revenue such as Duty Draw Back of Rs. 10,59,37,013/- and sale of licenses of Rs. 28,16,55,312/.
The AO therefore issued a show cause notice proposing to reduce the receipts on account of duty draw back and sale of licenses from the net profit of the undertaking. And, in response, the assessee filed its objections before the AO stating that the deduction claimed includes receipts from MEIS of Rs. 25,66,21,149/- and Duty Draw Back of Rs. 15,46,73,265/-. The assessee’s representative also relied on the judicial pronouncements as detailed in the assessment order. However, with regard to the reply submitted by the assessee, the AO did not accept the explanations, and considered that the export incentives such as Duty Draw Back, Merchandise Exports from India Scheme (MEIS), cannot be considered as profit derived from industrial undertaking.
Thus, the A.O disallowed an amount of Rs. 41,12,94,414/-. And being aggrieved by this order of the AO, the assessee filed an appeal before the CIT(A), Visakhapatnam.
Before the CIT(A), the Assessee’s Representative submitted the decision of the Jurisdictional Tribunal in the assessee’s own case in ITA No. 156/Viz/2021 (AY: 2017-18), dated 6/6/2022. And, the CIT(A), relying on the judgment of the Supreme Court in the case of CIT vs. Meghalaya Steels Limited, and the decision of the jurisdictional Bench in ITA No. 156/Viz/2022, allowed the appeal of the assessee.
And, it is being aggrieved by the order of the CIT(A), that the Revenue has preferred the instant appeal before Vishakhapatnam ITAT.
Hearing the opposing contentions of both sides as submitted by Sri MN Murthy Naik, the CIT DR, on behalf of the Revenue, and by Sri Pawan Chakrapani, on behalf of the assessee, and thereby perusing the materials available on record, the ITAT commented:
“In view of the subsequent decision of the Hon’ble Supreme Court in the case of Meghalaya Steel Ltd , the findings recorded by the Ld. AO based on the decision of the Hon’ble Supreme Court in the case of Liberty India (supra) cannot be held as sustainable as the Hon’ble Supreme Court in para 29 of its decision in Meghalaya Steel Ltd (supra) held that the Hon’ble Himachal Pradesh High Court having wrongly interpreted the judgment in the case of CIT vs. Sterling Foods [1999] 104 Taxman 204 and Liberty India (supra) to arrive at the opposite conclusion has held to be wrongly decided.”
“We are therefore of the considered view that since the Hon’ble Supreme Court has overruled its earlier decision in the case of Liberty India (supra) and now the decision in the case of Meghalaya Steel Ltd (supra) holds good. In the assessee’s own case for the AY 2017-18, this Bench has held that the export entitlements are an income assessable under the head “profits or gains from business or profession” as per clause (iiib) and (iiid) to section 28 of the IT Act, 1961. “, the ITAT coram consisting of Duvvuru RL Reddy, the Judicial Member, and S. Balakrishnan, the Accountant Member added.
Thus, dismissing the Revenue’s appeal, the Vishakhapatnam ITAT held:
“Respectfully following the above precedents, we hold that the export incentives such as Duty Draw Back and MEIS is an income assessable under the head ‘profits or gains from business or profession’ as per clause (iiib) and (iiid) to section 28 of the Act. In view of the above, the grounds raised by the Revenue are dismissed.”
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