ITA No. 577 of 2007 -1- IN HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 577 of 2007 (O&M) Date of Decision: 4.11.2015 Commissioner of Income Tax, Ludhiana ....Appellant. Versus Duke Fashions Pvt. Ltd., Ludhiana ...Respondent. 1. Whether Reporters of local papers may be allowed to see judgment? 2. To be referred to Reporters or not? 3. Whether judgment should be reported in Digest? CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MR. JUSTICE HARI PAL VERMA. PRESENT: Mr. Rajesh Katoch, Advocate for appellant. Mr. Rajiv Sharma, Advocate for respondent. AJAY KUMAR MITTAL, J. 1. Delay in refiling appeal is condoned. 2. This appeal has been filed by revenue under Section 260A of Income Tax Act, 1961 (in short Act ) against order dated 31.8.2006 (Annexure A-III) passed by Income Tax Appellate Tribunal, Chandigarh Bench 'B', Chandigarh (hereinafter referred to as Tribunal ) in ITA No. 740/CHD/2004 for assessment year 2001- 02, claiming following substantial questions of law:- i) Whether on facts and law, Hon'ble Income Tax Appellate Tribunal was justified in GURBACHAN SINGH 2015.11.20 16:04 I attest to accuracy and authenticity of this document High Court Chandigarh ITA No. 577 of 2007 -2- holding that insurance claim was not in nature of 'other receipts' and 90% of such receipts could not be reduced from 'profit of business' under clause (baa) of Explanation below section 80HHC(4C) of I.T. Act? ii) Whether on facts and law, Hon'ble Income Tax Appellate Tribunal was correct in holding that sales tax & CST were not includible in total turnover for computing deduction u/s 80HHC of I.T. Act, when sales tax & CST were realized as part of sale proceeds of goods manufactured by Respondent? iii) Whether on facts and law, Hon'ble Income Tax Appellate Tribunal was justified in allowing deduction u/s 80IB on duty drawn back when same was not profit derived from industrial undertaking/specified business u/s 80IB of I.T. Act? 3. Put shortly, facts necessary for adjudication of instant appeal as narrated therein may be noticed. assessee filed its return on 25.10.2001 for assessment year 2001-02 declaring income at ` 20,87,310/-. assessment was framed vide order dated 30.1.2004 (Annexure A-I) by Assessing Officer at ` 32,94,380/-. However, deduction under Section 80HHC of Act was worked out after reducing 90% of receipts from 'profits from business' under clause (baa) of Explanation to Section 80HHC(4C) of Act. Besides GURBACHAN SINGH 2015.11.20 16:04 I attest to accuracy and authenticity of this document High Court Chandigarh ITA No. 577 of 2007 -3- this, sales tax and CST amounting to ` 38,15,689/- was included in total turnover for computing deduction under Section 80HHC of Act. deduction under Section 80IB of Act was not allowed on duty draw back as it was not profit derived from industrial undertaking. Feeling aggrieved, assessee filed appeal before Commissioner of Income Tax (Appeals) [for brevity CIT(A) ]. CIT(A) vide order dated 30.3.2004 (Annexure A-II) partly allowed appeal and directed Assessing Officer not to reduce 90% of receipts from 'profits of business' under clause (baa) of Explanation to Section 80HHC(4C) of Act. Further, Assessing Officer was directed not to add sales tax and CST receipts in total turnover for computation of deduction under Section 80HHC of Act and also to allow deduction under Section 80IB of Act by treating duty draw back as part of profits derived from industrial undertaking. Against order, Annexure A-II, revenue filed appeal before Tribunal who vide order dated 31.8.2006 (Annexure A-III) dismissed appeal on issue of insurance claim and sales tax and CST following its own decision in ITA No. 742/CHD/2004 in case of DCIT v. M/s Verma Fabrics and upheld order of CIT(A) in treating duty draw back as part of profit derived from industrial undertaking under Section 80IB of Act. Hence, present appeal by revenue. 4. We have heard learned counsel for parties. 5. It was not disputed by learned counsel for parties that question No. (i) is covered by decision of this Court in ITA No. 165 of 2007 (Commissioner of Income Tax-I, Ludhiana v. Venus Fabrics, Ludhiana) decided on 18.7.2013 which was followed in ITA No. 152 of 2007 (Commissioner of Income Tax-I, Ludhiana v. M/s Dee Kay GURBACHAN SINGH 2015.11.20 16:04 I attest to accuracy and authenticity of this document High Court Chandigarh ITA No. 577 of 2007 -4- Knitwears, Ludhiana) decided on 18.7.2013, wherein it was held as under:- We have heard counsel for parties, perused impugned order as well as relevant statutory provisions. Before we answer question, it would be appropriate to reproduce explanation (baa) appended to Section 80 HHC of 1961 Act, as follows:- (baa) profits of business means profits of business as computed under head Profits and gains of business or profession as reduced by (1) ninety per cent of any sum referred to in clauses (iiia), (iiib), (iiic), (iiid) and (iiie)] of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature included in such profits; and (2) profits of any branch, office, warehouse or any other establishment of assessee situate outside India ; words any other receipt of similar nature included in such profits used in explanation have to be read edjusdem generis to preceding words, i.e., brokerage , commission , rent , charges . words similar nature used before words any other receipt refers to and alludes to principle of GURBACHAN SINGH 2015.11.20 16:04 I attest to accuracy and authenticity of this document High Court Chandigarh ITA No. 577 of 2007 -5- edjusdem generis and in fact leaves no ambiguity as to legislative intent that only such receipts would fall within meaning of sub-clause (1) of explanation as would partake nature of words preceding expression receipts of similar nature . claim for insurance arises on account of special loss to assessee and, therefore, does not require any degree of legal acumen or scholarship to infer that such receipt cannot be included within sub- clause (1) of aforementioned explanation. We draw support for conclusion from judgment of this Court in CIT Vs. Khemka Containers Private Ltd. (275 ITR 559). said issue was decided against revenue. Accordingly, question No. (i) is answered against revenue and in favour of assessee. 6. Regarding question No. (ii), again learned counsel for parties are ad idem that this question is covered by decisions of this Court in Commissioner of Income Tax v. Lakshmi Machine Works (2007) 290 ITR 667 and Commissioner of Income Tax v. Vardhman Polytex Ltd. (2008) 296 ITR 382 wherein it was held that amount of sales tax and excise duty for purposes of computation of deduction under Section 80HHC of Act are to be excluded from total turnover. Accordingly, question No. (ii) is also answered against revenue. 7. Adverting to question No. (iii), learned counsel for revenue has relied upon judgment of Apex Court in Liberty India GURBACHAN SINGH 2015.11.20 16:04 I attest to accuracy and authenticity of this document High Court Chandigarh ITA No. 577 of 2007 -6- v. Commissioner of Income Tax (2009) 317 ITR 218 (SC) to urge that profit from DEPB and Duty Drawback Scheme are not profits derived from eligible business under Section 80IB of Act. It was prayed that question No. (iii) is, thus, to be answered in favour of revenue. Learned counsel for assessee was unable to controvert that similar issue was adjudicated by Apex Court in Liberty India's case (supra) in favour of revenue. Accordingly, question No. (iii) is decided in favour of revenue and against assessee. 8. In view of above, appeal is partly allowed in above terms. (AJAY KUMAR MITTAL) JUDGE November 4, 2015 (HARI PAL VERMA) gbs JUDGE GURBACHAN SINGH 2015.11.20 16:04 I attest to accuracy and authenticity of this document High Court Chandigarh Commissioner of Income Tax, Ludhiana v. Duke Fashions Pvt. Ltd