No Deduction u/s 80IB on Profit from DEPB /Duty Drawback Schemes: SC [Read Judgement]

The Supreme Court of India in its recent judgement has held that no deduction under section 80IB of the Income Tax Act, 1961 is allowable on profit from Duty Entitlement Pass Book Scheme (DEPB) / duty drawback schemes. 

The appellant, M/s. Saraf Exports challenged 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 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 concerning the receipts under the Duty Drawback Scheme and on the transfer of Duty Entitlement Pass Book Scheme (DEPB).

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 a deduction of Rs. 70,197/- on account of DEPB and of Rs. 76,27,636/- on account of receipts under the Duty Drawback. 

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. 

The order of the Deputy Commissioner disallowing the exemption as claimed was upheld by the Commissioner of Income Tax (Appeals).  The Income Tax Appellate Tribunal (ITAT) allowed the appeal preferred by the assessee by allowing the deductions as claimed on the receipts of the amount under the DEPB Scheme and Duty Drawback Scheme. 

It was 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 is incentives given under the Duty Exemption Remission Scheme / Section 75 of the Customs Act, 1962. 

On the other hand, according to the Department, DEPB credit/duty drawback receipts do not come within the first-degree source as the said incentives flow from the incentive schemes enacted by the Government of India or from Section 75 of the Customs Act, 1962.

In light of various precedents, the Coram comprising of Justice M R Shah and Justice B V Nagarathna held that, on the profit earned from DEPB/Duty Drawback Schemes, the assessee is not entitled to deduction under Section 80-IB of the Income Tax Act, 1961. 

To Read the full text of the Order CLICK HERE

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