{"id":289377,"date":"2023-04-13T12:00:42","date_gmt":"2023-04-13T06:30:42","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=289377"},"modified":"2023-04-18T08:58:40","modified_gmt":"2023-04-18T03:28:40","slug":"income-tax-act-duty-drawback-receipts-or-duty-entitlement-passbook-benefits-do-not-form-part-of-the-net-profits-of-eligible-industrial-undertakings-supreme-court-legal-news-legal-research-updates","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2023\/04\/13\/income-tax-act-duty-drawback-receipts-or-duty-entitlement-passbook-benefits-do-not-form-part-of-the-net-profits-of-eligible-industrial-undertakings-supreme-court-legal-news-legal-research-updates\/","title":{"rendered":"Assessee not entitled to deduction u\/s 80-IB of Income Tax Act on Duty drawback \/ DEPB Schemes profit: Supreme Court"},"content":{"rendered":"<p><script type=\"text\/javascript\">\n\u00a0\u00a0\u00a0 document.title = 'No deduction u\/s 80-IB on Duty Drawback - DEPB Schemes profit: SC | SCC Blog'\n\u00a0\u00a0\u00a0 document.querySelector('meta[name=\"description\"]').setAttribute(\"content\", \"Supreme Court held that Duty Drawback DEPB Schemes do not form part of net profits of eligible industrial undertakings u\/s 80-IB of Income Tax Act.\");\n<\/script><\/p>\n<div style=\"text-align: justify; line-height: 150%;\">\n<p style=\"margin-bottom: 3%;\"><b>Supreme Court:<\/b> The appellant challenged the impugned order passed by the Division Bench of Rajasthan High Court which had allowed the appeal preferred by the Revenue Department and had held that the assessee was not entitled to the deductions under Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001559949\" target=\"_blank\" rel=\"noopener\">80-IB<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002955939\" target=\"_blank\" rel=\"noopener\">Income Tax Act, 1961<\/a> (Act of 1961) with respect to the receipts under the Duty Drawback Scheme (&#8216;Duty Drawback&#8217;) and on transfer of Duty Entitlement Pass Book Scheme (&#8220;DEPB&#8221;). While exercising its civil appellate jurisdiction, the Division Bench of <b>M.R. Shah<\/b>* and B.V. Nagarathna J.J., dismissed the appeal filed by the assessee and affirmed the order passed by the High Court.<\/p>\n<p style=\"margin-bottom: 3%;\">In the matter at hand, the assessee filed its return dated 30-09-2008 declaring its income as nil, claiming deduction of INR 70,197 on account DEPB and INR 76,27,636 on account of receipts under the Duty Drawback. The assessee credited the receipts of the aforesaid amounts into the Profit &amp; Loss Account and claimed the same as &#8220;Profit \/ gains of business \/ profession&#8221; under Sections <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001559730\" target=\"_blank\" rel=\"noopener\">28(iiic)<\/a> and <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001559730\" target=\"_blank\" rel=\"noopener\">28(iiib)<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002955939\" target=\"_blank\" rel=\"noopener\">Act of 1961<\/a>.<\/p>\n<h4 style=\"color: #632423;\">Legal Trajectory<\/h4>\n<p style=\"margin-bottom: 3%;\">The assessee was issued a notice under Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001559382\" target=\"_blank\" rel=\"noopener\">143(2)<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002955939\" target=\"_blank\" rel=\"noopener\">Act of 1961<\/a>. The Deputy Commissioner dismissed the deductions as claimed <i>vide<\/i> order dated 24-11-2010 which was upheld by the Commissioner of Income Tax (Appeals). However, the Income Tax Appellate Tribunal (&#8216;ITAT&#8217;) allowed the appeal preferred by the assessee <i>vide<\/i> order dated 17-12-2013. The Revenue then appealed against the said order which was allowed by the High Court which had restored the order passed by the Deputy Commissioner disallowing the deductions claimed under the provisions of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002955939\" target=\"_blank\" rel=\"noopener\">Act of 1961<\/a>. Hence, the present appeal filed by the assessee.<\/p>\n<h4 style=\"color: #632423;\">Issue for consideration<\/h4>\n<ol>\n<li>\n<p>Whether on the income amount received or profit from DEPB and Duty Drawback Schemes, the assessee was entitled to deduction under Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001559949\" target=\"_blank\" rel=\"noopener\">80-IB<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002955939\" target=\"_blank\" rel=\"noopener\">Act of 1961<\/a>?<\/p>\n<\/li>\n<li>\n<p style=\"margin-bottom: 3%;\">Whether such an income can be said to be an income &#8216;derived from&#8217; industrial undertaking?<\/p>\n<\/li>\n<\/ol>\n<h4 style=\"color: #632423;\">Court Analysis<\/h4>\n<p style=\"margin-bottom: 3%;\">The Bench perused Sections <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001559730\" target=\"_blank\" rel=\"noopener\">28(iiid) and (iiie)<\/a> of <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002955939\" target=\"_blank\" rel=\"noopener\">Act of 1961<\/a> which stated that any profit on the transfer of the Duty Drawback and on transfer of DEPB Schemes, would be chargeable to income tax under the head &#8216;profits and gains of business or profession&#8217;.<\/p>\n<p style=\"margin-bottom: 3%;\">The Bench further perused Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001559949\" target=\"_blank\" rel=\"noopener\">80-IB<\/a> of <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002955939\" target=\"_blank\" rel=\"noopener\">Act of 1961<\/a> which provided for deduction in respect of profits and gains from certain industrial undertakings.<\/p>\n<p style=\"margin-bottom: 3%;\">The Court referred to <i>Liberty India<\/i> v. <i>Commissioner of Income Tax<\/i>, <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0000043716\" target=\"_blank\" rel=\"noopener\">(2009) 9 SCC 328<\/a> which had observed that DEPB \/ Duty Drawback Schemes were incentives which flow from the schemes framed by the Central Government or from Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001565630\" target=\"_blank\" rel=\"noopener\">75<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002780399\" target=\"_blank\" rel=\"noopener\">Customs Act, 1962<\/a> hence, incentive profits were not profits derived from the eligible business under Section 80-IB.It was observed that they belonged to the category of ancillary profits of such undertakings.<\/p>\n<p style=\"margin-bottom: 3%;\">The Bench noted that similar view was also expressed with respect to the Duty Drawback stating that Duty Drawback, DEPB benefits, rebated etc. could not be credited against the cost of manufacture of goods debited in the profit and loss account for purpose of Sections 80-IA and 80-IB as such remissions would constitute an independent source of income beyond the first degree nexus between profits and the industrial undertaking. Thus, it was observed that duty drawback receipts or DEPB benefits did not form part of the net profits of eligible industrial undertakings for the purpose of Section 80-IB of the Act of 1961.<\/p>\n<p style=\"margin-bottom: 3%;\">The Bench affirmed the order passed by the High Court stating that the respondent assessee was neither entitled to the deductions nor profit earned under Section 80-IB on the amount of DEPB as well as Duty Drawback Scheme.<\/p>\n<p style=\"margin-bottom: 3%;\">With the above observation, the Court dismissed the appeal.<\/p>\n<p style=\"margin-bottom: 3%;\">[<span style=\"font-weight: bold; color: #632423;\">Saraf Exports v Commissioner of Income Tax, Jaipur-III, <a href=\"http:\/\/www.scconline.com\/DocumentLink\/b9V1kPj2\" target=\"_blank\" rel=\"noopener\">2023 SCC OnLine SC 385<\/a>, decided on 10-04-2023<\/span>]<\/p>\n<p style=\"text-indent: 18pt;\"><strong><span style=\"color: #000080;\">Judgment authored by Justice M.R. Shah<\/span><\/strong><\/p>\n<blockquote class=\"wp-embedded-content\" data-secret=\"EckrjrbVlD\"><p><a href=\"https:\/\/www.scconline.com\/blog\/post\/2022\/05\/16\/know-thy-judge-justice-m-r-shah\/\">Know Thy Judge | Justice M. R. Shah<\/a><\/p><\/blockquote>\n<p><iframe loading=\"lazy\" class=\"wp-embedded-content\" sandbox=\"allow-scripts\" security=\"restricted\" style=\"position: absolute; clip: rect(1px, 1px, 1px, 1px);\" title=\"&#8220;Know Thy Judge | Justice M. R. Shah&#8221; &#8212; SCC Blog\" src=\"https:\/\/www.scconline.com\/blog\/post\/2022\/05\/16\/know-thy-judge-justice-m-r-shah\/embed\/#?secret=VCaq6b8Xn0#?secret=EckrjrbVlD\" data-secret=\"EckrjrbVlD\" width=\"600\" height=\"338\" frameborder=\"0\" marginwidth=\"0\" marginheight=\"0\" scrolling=\"no\"><\/iframe><\/p>\n<hr\/>\n<p>Advocates who appeared in this case :<\/p>\n<p style=\"margin-left: 18pt;\">For the appellants- Advocate on Record Gautam Narayan;<\/p>\n<p style=\"margin-left: 18pt;\">For the respondents- Additional Solicitor General Balbir Singh, Advocate on Record Raj Bahadur Yadav, Advocate Shashank Bajpai, Advocate Siddhant Kohli, Advocate Shyam Gopal, Advocate Chinmayee Chandra, Advocate Adit Khorana and Advocate Monica Benjamin.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p><i>The Supreme Court affirmed the order passed by the High Court stating that the respondent assessee was neither entitled to the deductions nor profit earned under Section 80-IB on the amount of DEPB as well as Duty Drawback Scheme.<\/i><\/p>\n","protected":false},"author":67517,"featured_media":289384,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,9],"tags":[31242,46988,34161,32636,56771,56772,30953,56773,2509,56769,56770,56774,5363],"class_list":["post-289377","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-supremecourt","tag-assessee","tag-assessment-year","tag-commissioner-of-income-tax","tag-deputy-commissioner","tag-duty-drawback-scheme","tag-duty-entitlement-passbook-scheme","tag-itat","tag-profit-loss-account","tag-Rajasthan_High_Court","tag-revenue-department","tag-section-80-ib-of-the-income-tax-act","tag-sections-28iiic-and-28iiib-of-the-act-1961","tag-supreme-court"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.4 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80 IB of the Income Tax Act discussed","author":"Sucheta","date":"May 5, 2015","format":false,"excerpt":"Himachal Pradesh High Court- While deciding an appeal, where the Court was asked to determine three substantial questions as to whether the conversion of gram Dal into Besan powder, by a process of mere roasting and grinding, amounts to \u2018manufacture\u2019 and the profits so derived are eligible for deduction under\u2026","rel":"","context":"In &quot;High Courts&quot;","block_context":{"text":"High Courts","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/highcourts\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2015\/10\/scc-blog_Page_9.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2015\/10\/scc-blog_Page_9.jpg?resize=350%2C200&ssl=1 1x, 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If after excluding these spaces the residential unit's built-up area remains within 1500 sq.ft., the assessee is eligible for tax deduction under Section 80-IB.","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Telangana High Court","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Telangana-High-Court.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Telangana-High-Court.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Telangana-High-Court.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Telangana-High-Court.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":249774,"url":"https:\/\/www.scconline.com\/blog\/post\/2021\/06\/14\/explained-scope-of-section-80-ia5-of-the-income-tax-act-1961-with-respect-to-determination-of-quantum-of-deduction-under-section-80-ia1\/","url_meta":{"origin":289377,"position":2},"title":"Explained| Scope of Section 80-IA(5) of the Income Tax Act, 1961 with respect to determination of quantum of deduction under Section 80-IA(1)","author":"Prachi Bhardwaj","date":"June 14, 2021","format":false,"excerpt":"Supreme Court: Interpreting the true scope of Section 80-IA(5) of the Income Tax Act, 1961, the bench of L. Nageswara Rao* and Vineet Saran, JJ has held that the scope of sub-section (5) of Section 80- IA of the Act is limited to determination of quantum of deduction under sub-section\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-3-3.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-3-3.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-3-3.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-3-3.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-3-3.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":272586,"url":"https:\/\/www.scconline.com\/blog\/post\/2022\/08\/30\/assessee-cannot-claim-deduction-by-merely-stating-bad-debt-irrecoverable-debt-appropriate-treatment-in-accounts-income-tax-act-supreme-court-legal-updates-research-news\/","url_meta":{"origin":289377,"position":3},"title":"Assessee cannot claim deduction by merely stating a bad debt as an irrecoverable write off without appropriate treatment in the accounts and non-compliance with Income Tax Act provisions: SC","author":"Prachi Bhardwaj","date":"August 30, 2022","format":false,"excerpt":"Supreme Court: In the case where the Revenue had challenged Bombay High Court\u2019s judgment affirming Income Tax Appellate Tribunal (ITAT)\u2019s order for writing off assessee\u2019s \u20b9 10 crores as a bad debt, the 3-judge bench of UU Lalit, S. Ravindra Bhat* and Sudhanshu Dhulia, JJ has summarised the law on\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/08\/MicrosoftTeams-image-62-1-1.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/08\/MicrosoftTeams-image-62-1-1.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/08\/MicrosoftTeams-image-62-1-1.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/08\/MicrosoftTeams-image-62-1-1.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/08\/MicrosoftTeams-image-62-1-1.jpg?resize=1050%2C600&ssl=1 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