IN INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES , HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA No. Asst. Year Appellant Respondent 263/Hyd/2016 2008-09 Asst. Commissioner of Income Tax, M/s. Vibrant Greentech Circle-2(2), India Private Ltd., [Now with DCIT, (Formerly known as M/s. Cir. 17(2)] Hyderabad Chemicals HYDERABAD 264/Hyd/2016 2009-10 Limited), Dy. Commissioner of HYDERABAD Income Tax, [PAN: AABCH1014K] Circle-2(2), [Now with DCIT, Cir. 17(2)] HYDERABAD For Assessee : Shri A.V. Raghu Ram, AR For Revenue : Shri S.V.S.S. Prasad, DR Date of Hearing : 26-09-2016 Date of Pronouncement : 30-09-2016 ORDER PER B. RAMAKOTAIAH, A.M. : These two appeals arise out of common order of Commissioner of Income Tax (Appeals)-5, Hyderabad dated 28-01-2016 for AYs. 2008-09 & 2009-10. issue involved in these two appeals is with reference to deduction u/s. 80-IB of Income Tax Act [Act] and quantification thereon. Assessee raised following grounds: 1. On facts and in circumstances of case, order of learned Commissioner of Income Tax (Appeals)-5, Hyderabad, allowing appeal of Appellant only in part is erroneous, illegal and unsustainable in law. Commissioner (Appeals) ought to have allowed appeal in entirety and as prayed for. I.T.A. Nos. 263 & 264/Hyd/2016 :- 2 -: M/s. Vibrant Greentech India Private Limited (Formerly known as M/s. Hyderabad Chemicals Limited) 2. Commissioner (Appeals) erred in not allocating indirect expenses as claimed by Appellant. basis on which Commissioner of Income Tax (Appeals) declined to follow allocation of indirect expenses made by Appellant is incorrect and unsustainable on facts and in law. 3. Commissioner (Appeals) without pointing out cogent reasons erred in deviating from method followed by Appellant for allocating indirect expenditure between two units. 4. Commissioner (Appeals) erred in sustaining order of Assessing Officer in holding that refund of excise duty is not eligible for deduction under section 80IB of Act. Commissioner (Appeals) failed to notice binding decision of jurisdictional Tribunal in case of M/s. Coromandel International Limited in regard. 5. On facts and in circumstances of case, Commissioner (Appeals) failed to appreciate nature of refund of excise duty and in relying on judgements which are not applicable to facts of Appellant s case . 2. There are cross-appeals for same assessment years by Revenue but both DR and Ld. Counsel agreed that issues are entirely different. Ld. Counsel submitted that issues in assessee appeals are covered and therefore, these appeals can be heard. Assessee appeals in these two years are dealt with after hearing Ld. DR and Ld. Counsel. 3. Briefly stated, assessee is engaged in business of manufacture and sale of chemicals and pesticides. It has set up unit at Balangar, Hyderabad in 1954 which is not eligible for tax exemptions now. It has set up second unit at Jammu and claimed deduction u/s. 80-IB for first time in AY. 2007-08. AO considered that Jammu unit was set up by splitting up as well as re-construction of existing unit at Balanagar and transferring Machinery and Plant of existing unit, therefore, deduction I.T.A. Nos. 263 & 264/Hyd/2016 :- 3 -: M/s. Vibrant Greentech India Private Limited (Formerly known as M/s. Hyderabad Chemicals Limited) u/s. 80-IB is not eligible to that unit. Claim for deduction u/s. 80- IB in impugned assessment years was rejected by AO for same reasons. In AY. 2007-08, Ld. CIT(A) gave benefit in favour of assessee and directed AO to allow deduction for Jammu unit based on books of account separately maintained. However, in impugned assessment years, Ld. CIT(A) differed from stand taken by his predecessor and confirmed AO s stand that Jammu unit was not eligible for deduction. Since entire deduction was not allowed, quantification of profits for deduction was not adjudicated by Ld. CIT(A) in these impugned years. All appeals for AY. 2007-08 to 2009-10 were considered by ITAT and ITAT vide its order dt. 11-03-2015 in ITA Nos. 344 & 499/Hyd/2012 and 561 & 562/Hyd/2013 has decided that assessee s Jammu unit is eligible for deduction u/s. 80-IB. Since quantification of profits was not determined by CIT(A), matter was restored to file of AO to determine quantum of profits eligible for deduction in these years. AO quantified deductions allocating expenditure based on turnover of each unit. Ld. CIT(A) however, considering his predecessor s order, directed AO to consider direct expenses as per books of account, but indirect expenses on proportion of turnovers. 3.1. One more issue for consideration was issue whether Excise Duty refund received is eligible for deduction u/s. 80-IB. AO was of opinion that Excise Duty refund is not profit derived from Jammu unit, accordingly, same was not eligible for deduction u/s. 80-IB. Assessee contended that Excise Duty refund is nothing but reimbursement of Excise Duty paid I.T.A. Nos. 263 & 264/Hyd/2016 :- 4 -: M/s. Vibrant Greentech India Private Limited (Formerly known as M/s. Hyderabad Chemicals Limited) which has bearing on profits of unit and accordingly, principles laid down by Hon'ble Supreme Court in case of M/s. Liberty India Vs. CIT (arriving out of SLP(C) No. 582/07 is not applicable. Ld. CIT(A) however, did not agree and confirmed action of AO. Both parties are in appeal, but we are adjudicating only assessee s contentions now in these appeals. 4. Even though assessee contested issue of quantification of profits and apportionment of direct and indirect expenditure, in course of present arguments, Ld. Counsel did not press grounds. Accordingly, these two grounds are treated as withdrawn . However, this order would not curtail rights of Revenue in contesting allocation of expenditure between eligible and non-eligible units which has to be adjudicated in Revenue appeals separately. 5. only issue for consideration in assessee s appeals in both years is eligibility of refund of Excise Duty for deduction u/s. 80-IB. Assessee has obtained refund of Excise Duty paid and reduced same from Excise duty account and only net amount was claimed in P&L account in computing profits of unit. AO excluded amount of Rs. 5.65 Crores which was deducted from Excise duty Paid account in AY. 2008-09 and amount of Rs. 3.27 Crores in AY. 2009-10. It was case of assessee that cost of raw-material includes Excise Duty paid and refund of Excise Duty will reduce cost of raw- material and accordingly, assessee has reduced amounts from cost of material in manufacturing activity. AO is of opinion that Excise Duty refund is mainly attributable to I.T.A. Nos. 263 & 264/Hyd/2016 :- 5 -: M/s. Vibrant Greentech India Private Limited (Formerly known as M/s. Hyderabad Chemicals Limited) undertaking but not derived from undertaking. He relied upon cases of CIT Vs. India Gelatin and Chemicals Ltd., [275 ITR 284] (Guj), CIT Vs. India Reitesh Industries Ltd., [274 ITR 324] (Del) and Sterling Foods [237 ITR 579] (SC) and other cases. It was contended that in all these judicial decisions, it was held that concessions or reliefs may be incidental or attributable to undertaking but not immediate source, therefore, not derived from undertaking. It was contended by assessee before CIT(A) that issues covered in its favour by decision of ITAT in case of DCIT Vs. M/s. Coromandel International Ltd., Hyderabad in ITA No. 1147 and 1157/Hyd/2014 dt. 21-11-2014 which are on similar facts. Ld. CIT(A) however, did not agree and held that this may be business income of assessee, but it is not derived from industrial undertaking so as to be eligible for deduction u/s 80IB. He affirmed action of AO and directed to re-compute deduction by excluding refund of Excise Duty from computation. Assessee is aggrieved and raised Ground Nos. 4 & 5 in both years which are similar. 6. After considering rival contentions, we are of opinion that assessee is eligible for deduction on Excise Duty. When Excise Duty is paid, it increases cost of raw-material or material consumption and when same was refunded, same will set off cost. This issue was considered by Co-ordinate Bench in case of DCIT Vs. M/s. Coromandel International Ltd., Hyderabad in ITA No. 1147 and 1157/Hyd/2014 dt. 21-11-2014 (supra), wherein after considering assessee s submissions have held as under: 8. Having considered rival submissions and perused orders of revenue authorities as well as other materials on record and after having I.T.A. Nos. 263 & 264/Hyd/2016 :- 6 -: M/s. Vibrant Greentech India Private Limited (Formerly known as M/s. Hyderabad Chemicals Limited) applied our mind to decisions relied upon by parties, we do not find any infirmity in order of ld. CIT(A) in allowing benefit u/s 80IB to assessee on excise duty refund for following reasons. 9. It is clear from assessment order that AO has denied 80IB deduction on excise duty refund for sole reason that it cannot be treated as income derived from eligible business of undertaking. However, as can be seen from facts brought on record, there is no dispute that assessee has paid excise duty on goods manufactured and sold and as such it forms part of sale price of assessee. Therefore, payment of central excise duty is integrally connected with manufacturing and sale of goods produced by assessee. It is also not in dispute that as per industrial policy resolution declared for state of J&K and consequent to Central Excise Department Notification, assessee became eligible for refund of excise duty paid after set off of CENVAT credit. Therefore, in sum and substance, it is only refund of amount already paid by assessee and reduced from sale price while computing profit. Therefore, when assessee gets refund of expenditure already incurred same has to be deemed to be profits and gains of business or profession carried on by assessee in terms of section 41(1)(a) of Act. In that view of after, excise duty refund received by assessee has to be treated as part of business profit, hence, eligible for deduction u/s 80IB of Act. Otherwise, also, as payment of excise duty is directly linked with manufacturing of goods, refund of excise duty has to be treated ,as income derived from eligible business as provided u/s 80IB. In aforesaid view of matter, assessee will be eligible, to claim deduction u/s 80IB on income accruing from refund of excise duty. So far as ratio in case of Liberty India Vs. CIT (supra), facts are clearly distinguishable and do not apply to facts of present case. In case of Liberty India, hon'ble Supreme Court was considering profits derived from sale/transfer of DEPB/Duty Draw Sack Benefits. DEPB/Duty Draw Back Benefits, is given under scheme framed under Customs Act and it is transferable, in other words, it is marketable commodity, Excise duty refund by assessee in present case is neither marketable commodity nor transferable. It is only refund of expenditure already incurred by assessee, hence decision of Hon'ble Supreme Court in case of Liberty India (supra) will not apply. In aforesaid view of matter, we uphold order of ld. CIT(A) by dismissing grounds raised . 6.1. Respectfully following same, since facts are similar, we direct AO to re-compute deduction by taking into consideration Excise Duty component in cost of I.T.A. Nos. 263 & 264/Hyd/2016 :- 7 -: M/s. Vibrant Greentech India Private Limited (Formerly known as M/s. Hyderabad Chemicals Limited) consumption of raw-material. grounds of assessee on this issue are accordingly, allowed. 7. In result, both appeals of assessee are allowed. Order pronounced in court on 30th September, 2016 Sd/- Sd/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad, Dated 30th September, 2016 TNMM Copy to : 1. M/s. Vibrant Greentech India Private Limited, (Formerly known as M/s. Hyderabad Chemicals Limited) C/o. A.V. Raghu Ram, P. Vinod & M. Neelima Devi, Advocates, 610, Babukhan Estate, Basheerbagh, Hyderabad. 2. Dy. Commissioner of Income Tax, Circle-2(2), [Now with DCIT, Cir. 17(2)], Hyderabad. 3. Asst. Commissioner of Income Tax, Circle-2(2), [Now with DCIT, Cir. 17(2)], Hyderabad. 4. CIT (Appeals)-5, Hyderabad. 5. Pr.CIT-5, Hyderabad. 6. D.R. ITAT, Hyderabad. 7. Guard File. M/s. Vibrant Greentech India Private Ltd., (Formerly known as M/s. Hyderabad Chemicals Limited) v. Asst. Commissioner of Income-tax, Circle-2(2), Hyderabad