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 - ITAT
IS the refund of excise duty to be treated as profits and gains of business or profession carried on by assessee? This was the question before the ITAT in a recent case. If it is treated as so, it is eligible for deduction under Section 80 IB of the Income Tax Act.
The AO denied 80IB deduction on excise duty refund for the sole reason that it cannot be treated as income derived from eligible business of the undertaking. The CIT allowed the deduction on the ground that Excise Duty refund is directly related to manufacture of goods; so is the refund.
The Department took the matter to the ITAT.
The Tribunal observed,
The assessee has paid the excise duty on the goods manufactured and sold and as such it forms part of the sale price of assessee. Therefore, payment of central excise duty is integrally connected with the manufacturing and sale of goods produced by assessee. Therefore, in sum and substance, it is only a refund of an amount already paid by assessee and reduced from the sale price while computing the profit. Therefore, when assessee gets refund of an expenditure already incurred the same has to be deemed to be the profits and gains of business or profession carried on by assessee in terms of section 41(1)(a) of the Act. In that view of the matter, excise duty refund received by assessee has to be treated as part of the business profit, hence, eligible for deduction u/s 80IB of the Act. Otherwise also, as payment of excise duty is directly linked with the manufacturing of goods, refund of excise duty has to be treated as income derived from eligible business as provided u/s 80IB. In the aforesaid view of the matter, assessee will be eligible to claim deduction u/s 80IB on the income accruing from refund of excise duty .
Is such refund a revenue receipt or capital receipt? This was also an issue before the Tribunal in this case. The Tribunal did not decide this issue as deduction was already allowed under Section 80IB. Maybe an issue for another day - another litigation.