Duty Drawback Taxable Only Upon Actual Receipt, Holds ITAT

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) on 15 April held that duty drawback can be taxed only in the year of actual receipt, and not merely on the basis of data reflected on the CBEC portal. A Bench comprising Accountant Member Waseem Ahmed and Judicial Member Soundararajan K. deleted the addition of Rs. 21.70 lakh made against SKF Engineering & Lubrication India Pvt. Ltd. and also quashed the penalty proceedings initiated under Section 270A of the Income-tax Act, 1961.

The Assessing Officer (AO) completed assessment for AY 2018-19 under Section 143(3) and treated the difference between the duty drawback amount allegedly reflected in CBEC/ICEGATE data and the amount disclosed in the Profit & Loss account as undisclosed income. The AO added Rs. 21,70,825/- to the income of the assessee and further initiated penalty proceedings for alleged misreporting of income under Section 270A. The Commissioner of Income Tax (Appeals) upheld both the quantum addition and penalty order.

Before the ITAT, SKF Engineering submitted that it consistently followed the practice of accounting duty drawback on an actual realisation basis. It argued that duty drawback amounts were recognised only when credited by the Government into the bank account of the assessee. The assessee further contended that the AO relied upon CBEC portal data without furnishing the underlying details or giving an opportunity to rebut the same. Bank statements and supporting documents were also produced to demonstrate that only Rs. 1,20,699/- had actually been received during the relevant year. The Bench pointed out that “Section 145B(3) clearly says that the year in which the duty drawback was received by the assessee should be deemed as income of the previous year of the assessee in which the duty drawback was received.”

The Tribunal observed that Section 2(24)(xviii) includes duty drawback within the definition of income, while Section 145B(3) specifically provides that such income is taxable in the year of receipt. It noted that the duty drawback was directly credited by the Government into the assessee’s bank account, and the bank statements clearly established that only Rs. 1,20,699/- was received during the relevant assessment year. The Bench held that “The AO without giving any data or details, had presumed that the assessee had received the duty drawback of Rs. 22,91,524/- and made the addition to the total income declared by the assessee.”

The Bench held that the addition could not be sustained merely on presumptions or unshared CBEC data, particularly when the assessee had produced documentary evidence supporting the actual receipt of duty drawback. Accordingly, the ITAT directed the deletion of the addition of Rs. 21,70,825/-.

While dealing with the penalty appeal, the Tribunal observed that once the quantum addition itself had been deleted, the allegation of misreporting of income would not survive. It therefore set aside the penalty levied under Section 270A(1) of the Act. Thus, both the quantum appeal and the penalty appeal filed by the assessee were allowed.

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