- (1.) Both these appeals arising out of the judgment of the tribunal whereby tribunal has dismissed the appeal of the department and confirmed the order of the CIT(A) and since both the appeals relate to the same assessee, they are decided by this common judgment.
(2.) This court while admitting the appeals framed following substantial questions of law:- 2.1 Appeal No.464/2009 admitted on 23.3.2015 "(i) Whether on the facts and circumstances of the case, the Tribunal was right and justified in allowing deduction of Rs.80,84,086/- u/s 80IB on the amount of duty draw back of which is admittedly not an income derived from industrial undertaking, simply by relying upon its own order, which are also under challenge before the Hon'\ble High Court? (ii) Whether on the facts and circumstances of the case, the Tribunal was right and justified in allowing deduction u/s 80IB of Rs.21,76,234/- on interest earned on FDRs, inspite the fact that interest income is not a business income and certainly not derived from the business of the industrial undertaking?" 2.2 Appeal No.12/2010 admitted on 11.1.2010 "(1) Whether on the facts and circumstances of the case, the Tribunal was right and justified in allowing deduction of Rs.79,52,247/- u/s 80IB on the amount of duty drawback which is admittedly not an income derived from industrial undertaking, simply by relying upon its own order, which are also under challenged before this Hon'ble High Court? (2) Whether on the facts and circumstances of the case, the Tribunal was right and justified in allowing deduction u/s 80IB on interest earned on FDRs, inspite the fact that interest income is not a business income and certainly not derived from the business of the industrial undertaking?"
(3.) Counsel for the appellant Mr. Singhi has taken us to the judgment of the Supreme Court in Liberty India vs. Commissioner of Income Tax, 2009 317 ITR 218 (SC) pursuant to which, the matter was admitted in 2015 wherein the conclusion reached by the Supreme Court after discussing issue which reads as under:- "AS-2 deals with Valuation of Inventories. Inventories are assets held for sale in the course of business; in the production for such sale or in form of materials or supplies to be consumed in the production. "Inventory" should be valued at the lower of cost and net realizable value (NRV). The cost of "inventory" should comprise all costs of purchase, costs of conversion and other costs including costs incurred in bringing the "inventory" to their present location and condition. The cost of purchase includes duties and taxes (other than those subsequently recoverable by the enterprise from taxing authorities ), freight inwards and other expenditure directly attributable to the acquisition. Hence trade discounts, rebate, duty drawback, and such similar items are deducted in determining the costs of purchase. Therefore, duty drawback, rebate etc. should not be treated as adjustment (credited) to cost of purchase or manufacture of goods. They should be treated as separate items of revenue or income and accounted for accordingly (see: page 44 of Indian Accounting Standards & GAAP by Dolphy D'souza). Therefore, for the purposes of AS-2, Cenvat credits should not be included in the cost of purchase of inventories. Even Institute of Chartered Accountants of India (ICAI) has issued Guidance Note on Accounting Treatment for Cenvat/Modvat under which the inputs consumed and the inventory of inputs should be valued on the basis of purchase cost net of specified duty on inputs (i.e. duty recoverable from the Department at later stage) arising on account of rebates, duty drawback, DEPB benefit etc. Profit generation could be on account of cost cutting, cost rationalization, business restructuring, tax planning on sundry balances being written back, liquidation of current assets etc. Therefore, we are of the view that duty drawback, DEPB benefits, rebates etc. cannot be credited against the cost of manufacture of goods debited in the Profit & Loss account for purposes of Sections 80IA/80IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking. 23. We are of the view that Department has correctly applied AS-2 as could be seen from the following illustration: JUDGEMENT_293_LAWS(RAJ)5_2017_1.html In the circumstances, we hold that Duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of Sections 80I/80IA/80IB of the 1961 Act.;