M/s. Prem Textiles, Mandsaur V. The A.C.I.T., Ratlam

CO 6/IND/2010

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7212 (ITAT-INDORE)
• Duration Of Justice: 2 year(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-04-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 23-08-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 19-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KESHAVE SAXENA
• Assessee Lawyers: R P RATHI
• Keywords: Retrospective amendment
• Section: 80HHC; 147; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AADFP9466E I.T.A.NO. 126 /IND/201 0 A.Y. : 2004 - 05 ACIT, M/S. PREM TEXTILES, RATLAM VS SADAR BAZAR, BHANPURA, DIST. MANDSAUR. APPELLANT RESPONDENT C.O.NO.06/IND/2010 (ARISING OUT OF I.T.A.NO. 126/IND/2010) A.Y. : 2004 - 05 M/S. PREM TEXTILES, ACIT, SADAR BAZAR, BHANPURA, DIST. MANDSAUR. VS RATLAM CROSS OBJECTOR RESPONDENT DEPARTMENT BY : S HRI KESHAVE SAXENA, CIT DR ASSESSEE BY : SHRI R.P. RATHI, C. A. DATE OF HEARING : 17.04.2012 DATE OF PRONOUNCEMENT : 19 . 0 4 .201 2 -: 2: - 2 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE AGAINST THE ORDER OF CIT (A) DATED 4.12.2009 FOR THE ASSESSMENT YEAR 2004-05. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. FACTS AS EMERGING FROM THE ORDERS OF LOWER AUTHORITIES IN BRIEF ARE THAT THE ASSESSEE FIRM IS IN THE BUSINESS OF MANUFACTURING AND EXPORT OF COTTON AND NON- COTTON CLOTH/FABRIC SINCE 1994. THE ASSESSEE IS A R ECOGNIZED EXPORT HOUSE REGISTERED WITH RBI AND COTTON TEXTILE EXPORT PROMOTION COUNCIL. THE ASSESSEE MAINTAINS PROPER BO OKS OF ACCOUNT WHICH ARE TAX AUDITED. DURING THE PREVIOUS YEAR, THE ASSESSEE FIRM REALIZED A TOTAL EXPORT OF RS. 25,45, 24,777/- AGAINST WHICH IT CLAIMED DEDUCTION U/S 80HHC. THE C OPY OF THE CERTIFICATE IN FORM NO.10CCAB FROM CHARTERED AC COUNTANT CLAIMING THE DEDUCTION U/S 80HHC WAS ENCLOSED WITH THE RETURN OF INCOME. THE ASSESSEE FILED THE RETURN OF INCOME AT RS. 71,02,920/- AFTER CLAIMING DEDUCTION U/S 80HHC AT RS. -: 3: - 3 27,13,516/- ON 24.10.2004. THE ASSESSING OFFICER OB SERVED THAT THE ASSESSEE HAS INCLUDED IN ITS TOTAL INCOME THE AMOUNT OF DEPB AND OTHER INCOME AND IF THE AMOUNT OF DEPB AND OTHER INCOME NOT REALIZED FROM EXPORTS IS REDUCED F ROM THE PROFIT OF THE BUSINESS, THERE SHALL BE NEGATIVE PRO FIT I.E. LOSS OF RS. 2,25,00,249/-. HE, THEREFORE, CONCLUDED THAT IN SUCH CIRCUMSTANCES, THE DEDUCTION U/S 80HHC WAS NOT AVAI LABLE TO THE ASSESSEE. 3. BY THE IMPUGNED ORDER, THE LD. CIT(A) ALLOWED ASSESSEES CLAIM AFTER RELAYING ON THE DECISION OF THE I.T.A.T. SPECIAL BENCH IN THE CASE OF TOPMAN EXPORT, 33 SOT 337, HELD AS UNDER :- THE FACTS OF THE CASE AND SUBMISSIONS OF THE ASSESSEE ARE CAREFULLY CONSIDERED. IT WOULD BE WORTHWHILE TO REFER THE RELEVANT PARA OF THE DECISI ON OF HON'BLE I.T.A.T., MUMBAI SPECIAL BENCH IN THE CA SE OF M/S. TOPMAN EXPORTS VS. ITO (SUPRA) FOR APPRECIATING THE CORRECT LEGAL POSITION, INTENTION OF THE -: 4: - 4 LEGISLATURE BEHIND SUCH RETROSPECTIVE AMENDMENT AND RATIO DECIDENDI APPLICABLE IN THE ASSESSEES CASE. IN VIEW OF THE ABOVE, IT IS HELD THAT THE ASSESSE ES CLAIM FOR DEDUCTION U/S 80HHC IS FULLY JUSTIFIED IN SO FAR AS IT IS RIGHTFULLY HELD THAT AMOUNT OF DEPB UNDER THE PRESCRIBED SCHEME WAS PART AND PARCEL O F EXPORT RECEIPTS EVEN IF THE ASSESSEE HAD CHOSEN T HE OPTION TO TRANSFER THESE LICENSES OF CLAIM TO OTHE R EXPORTERS. THEREFORE, THE CLAIM OF DEDUCTION U/S 80HHC AMOUNTING TO RS. 26,95,179/- IS HELD TO BE FULLY JUSTIFIED AND ACCORDINGLY ALLOWED. 4. AGAINST THE ABOVE ORDER OF CIT(A), REVENUE IS IN AP PEAL BEFORE US AND THE ASSESSEE HAS ALSO FILED CROSS OBJ ECTION CHALLENGING THE VALIDITY OF REOPENING U/S 147 OF TH E INCOME-TAX ACT, 1961. 5. AT THE OUT-SET, LD. AUTHORIZED REPRESENTATIVE PLAC ED ON RECORD THE ORDER OF HON'BLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS, ORDER DATED 8 TH FEBRUARY, 2012, WHEREIN HON'BLE SUPREME COURT HAS UPHELD THE VIEW TAKEN BY THE -: 5: - 5 I.T.A.T., SPECIAL BENCH, AFTER REVERSING THE ORDER OF HON'BLE BOMBAY HIGH COURT. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FOUND FROM RECORD THAT THE ASSESSING OFFICER HAS DECLINED CLAIM OF DEDUCTION U/S 80HHC IN RESPECT OF ITS DEPB INCOME. PRECISELY THIS ISSUE WAS BEFORE THE I.T.A.T. SPECIAL BENCH IN THE CASE OF TOPMAN EXPORTS (SUPRA) AS NARRATED ABOVE. AFTER CON SIDERING THE RELEVANT PROVISIONS OF LAW, THE TRIBUNAL HAVE D ECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT PARA OF THE TRIBUNALS ORDER HAVE BEEN QUOTED BY THE LD.CIT(A) IN HIS ORDER AND AFTER APPLYING THE PROPOSITION OF LAW LAID DOWN THEREIN TO THE FACTS OF THE INSTANT CASE, HELD THAT THE ASSESS EE WAS ELIGIBLE FOR CLAIM OF DEDUCTION ON DEPB INCENTIVE. HOWEVER, THE CIT(A) HELD THAT SINCE THE ASSESSEE HAS NOT SATISFI ED TWO CONDITIONS AS PRESCRIBED UNDER CLAUSE (A) & (B) TO THE PROVISO TO SECTION 80HHC(3), THEREFORE, THE ASSESSEE WAS NO T ENTITLED FOR ADDITIONAL DEDUCTION ON THE PREMIUM ON RS. 72,5 51/- RECEIVED BY IT. SINCE THE ASSESSEE HAS NOT CLAIMED THIS ADDITIONAL DEDUCTION UNDER THE PROVISO TO SECTION 8 0HHC(3), -: 6: - 6 THE LD. CIT(A) ALLOWED THE ASSESSEES CLAIM OF DEDU CTION U/S 80HHC AMOUNTING TO RS. 26,95,179/-. THIS ORDER OF I .T.A.T. SPECIAL BENCH WAS REVERSED BY BOMBAY HIGH COURT IN THE CASE OF KALPATARU COLOURS AND REPORT AT 192 TAXMAN 435. HOWEVER, THE HON'BLE SUPREME COURT REVERSED THE ORDER OF HON 'BLE HIGH COURT AND UPHELD THE VIEW TAKEN BY I.T.A.T. FOLLOWI NG IS THE PRECISE OBSERVATION OF HON'BLE SUPREME COURT AS REP ORTED AT 18 TAXMAN 120 (S.C.) :- 15. WE MAY NOW POINT OUT THE ERRORS IN THE IMPUGNED JUDGMENT OF THE HIGH COURT. THE FIRST REASON GIVEN BY THE HIGH COURT IS THAT CLAUSE (IIIA) OF SECTION 28 TREA TS PROFITS ON THE SALE OF AN IMPORT LICENSE AS INCOME CHARGEAB LE TO TAX AND WHEN THE LICENSE IS SOLD, THE ENTIRE AMOUNT IS TREATED AS PROFITS OF BUSINESS UNDER CLAUSE (IIIA) OF SECTION 28 AND THUS THERE IS NO JUSTIFICATION TO TREAT THE AMOUNT WHICH IS RECEIVED BY AN EXPORTER ON THE TRANSFER OF THE DEPB ANY DIFFERENTLY THAN THE PROFITS WHICH ARE MAD E ON THE SALE OF AN IMPORT LICENSE UNDER CLAUSE (IIIA) O F SECTION 28 OF THE ACT. IN TAKING THE VIEW THAT WHEN THE IMP ORT LICENSE IS SOLD THE ENTIRE AMOUNT IS TREATED AS PRO FITS OF -: 7: - 7 BUSINESS, THE HIGH COURT HAS VISUALIZED A SITUATION WHERE THE COST OF ACQUIRING THE IMPORT LICENSE IS NIL. TH E COST OF ACQUIRING DEPB, ON THE OTHER HAND, IS NOT NIL BECAU SE THE PERSON ACQUIRES IT BY PAYING CUSTOMS DUTY ON THE IM PORT CONTENT OF THE EXPORT PRODUCT AND THE DEPB WHICH AC CRUES TO A PERSON AGAINST EXPORTS HAS A COST ELEMENT IN I T. ACCORDINGLY, WHEN DEPB IS SOLD BY A PERSON, HIS PRO FIT ON TRANSFER OF DEPB WOULD BE THE SALE VALUE OF THE DEP B LESS THE FACE VALUE OF DEPB WHICH REPRESENTS THE CO ST OF THE DEPB. THE SECOND REASON GIVEN BY THE HIGH COURT IN THE IMPUGNED JUDGMENT IS THAT UNDER THE DEPB SCHEME , DEPB IS GIVEN AT A PERCENTAGE OF THE FOB VALUE OF T HE EXPORTS SO AS TO NEUTRALIZE THE INCIDENCE OF CUSTOM S DUTY ON THE IMPORT CONTENT OF THE EXPORT PRODUCTS, BUT T HE EXPORTER MAY NOT HIMSELF UTILIZE THE DEPB FOR PAYIN G CUSTOMS DUTY BUT MAY TRANSFER IT TO SOMEONE ELSE AN D THEREFORE THE ENTIRE SUM RECEIVED ON TRANSFER OF DE PB WOULD BE COVERED UNDER CLAUSE (IIID) OF SECTION 28. THE HIGH COURT HAS FAILED TO APPRECIATE THAT DEPB REPRE SENTS PART OF THE COST INCURRED BY A PERSON FOR MANUFACTU RE OF -: 8: - 8 THE EXPORT PRODUCT AND HENCE EVEN WHERE THE DEPB IS NOT UTILIZED BY THE EXPORTER BUT IS TRANSFERRED TO ANOT HER PERSON, THE DEPB CONTINUES TO REMAIN AS A COST TO T HE EXPORTER. WHEN, THEREFORE, DEPB IS TRANSFERRED BY A PERSON, THE ENTIRE SUM RECEIVED BY HIM ON SUCH TRAN SFER DOES NOT BECOME HIS PROFITS. IT IS ONLY THE AMOUNT THAT HE RECEIVES IN EXCESS OF THE DEPB WHICH REPRESENTS HIS PROFITS ON TRANSFER OF THE DEPB. 16. THE HIGH COURT HAS SOUGHT TO MEET THE ARGUMENT OF DOUBLE TAXATION MADE ON BEHALF OF THE ASSESSEES BY HOLDING THAT WHERE THE FACE VALUE OF THE DEPB WAS OFFERED TO TAX IN THE YEAR IN WHICH THE CREDIT ACCR UED TO THE ASSESSEE AS BUSINESS PROFITS, THEN ANY FURTHER PROFIT ARISING ON TRANSFER OF DEPB WOULD BE TAXED AS PROFI TS OF BUSINESS UNDER SECTION 28(IIID) IN THE YEAR IN WHIC H THE TRANSFER OF DEPB TOOK PLACE. THIS VIEW OF THE HIGH COURT, IN OUR CONSIDERED OPINION, IS CONTRARY TO THE LANGU AGE OF SECTION 28 OF THE ACT UNDER WHICH 'CASH ASSISTANCE' RECEIVED OR RECEIVABLE BY ANY PERSON AGAINST EXPORT S SUCH AS THE DEPB AND 'PROFIT ON TRANSFER OF THE DEPB' AR E -: 9: - 9 TREATED AS TWO SEPARATE ITEMS OF INCOME UNDER CLAUS ES (IIIB) AND (IIID) OF SECTION 28. IF ACCRUAL OF DEPB AND PROFIT ON TRANSFER OF DEPB ARE TREATED AS TWO SEPARATE ITE MS OF INCOME CHARGEABLE TO TAX UNDER CLAUSES (IIIB) AND ( IIID) OF SECTION 28 OF THE ACT, THEN DEPB WILL BE CHARGEABLE AS INCOME UNDER CLAUSE (IIIB) OF SECTION 28 IN THE YEA R IN WHICH THE PERSON APPLIES FOR DEPB CREDIT AGAINST TH E EXPORTS AND THE PROFIT ON TRANSFER OF THE DEPB BY T HAT PERSON WILL BE CHARGEABLE AS INCOME UNDER CLAUSE (I IID) OF SECTION 28 IN HIS HANDS IN THE YEAR IN WHICH HE MAK ES THE TRANSFER. ACCORDINGLY, IF IN THE SAME PREVIOUS YEAR THE DEPB ACCRUES TO A PERSON AND HE ALSO EARNS PROFIT O N TRANSFER OF THE DEPB, THE DEPB WILL BE BUSINESS PRO FITS UNDER CLAUSE (IIIB) AND THE DIFFERENCE BETWEEN THE SALE VALUE AND THE DEPB (FACE VALUE) WOULD BE THE PROFIT S ON THE TRANSFER OF DEPB UNDER CLAUSE (IIID) FOR THE SA ME ASSESSMENT YEAR. WHERE, HOWEVER, THE DEPB ACCRUES T O A PERSON IN ONE PREVIOUS YEAR AND THE TRANSFER OF DEP B TAKES PLACE IN A SUBSEQUENT PREVIOUS YEAR, THEN THE DEPB WILL BE CHARGEABLE AS INCOME OF THE PERSON FOR THE FIRST -: 10: - 10 ASSESSMENT YEAR CHARGEABLE UNDER CLAUSE (IIIB) OF S ECTION 28 AND THE DIFFERENCE BETWEEN THE DEPB CREDIT AND T HE SALE VALUE OF THE DEPB CREDIT WOULD BE INCOME IN HI S HANDS FOR THE SUBSEQUENT ASSESSMENT YEAR CHARGEABLE UNDER CLAUSE (IIID) OF SECTION 28. THE INTERPRETATI ON SUGGESTED BY US, THEREFORE, DOES NOT LEAD TO DOUBLE TAXATION OF THE SAME INCOME, WHICH THE LEGISLATURE MUST BE PRESUMED TO HAVE AVOIDED. 17. THE HIGH COURT HAS HELD THAT AS THE ASSESSEES HAD AN EXPORT TURNOVER EXCEEDING RS. 10 CRORES AND DID NOT FULFILL THE CONDITIONS SET OUT IN THE THIRD PROVISO TO SECTION 80HHC(3) OF THE ACT, THE ASSESSEES WERE NOT ENTITLE D TO A DEDUCTION UNDER SECTION 80HHC ON THE AMOUNT RECEIVE D ON TRANSFER OF DEPB AND TO GET OVER THIS DIFFICULTY THE ASSESSEES HAVE CONTENDED THAT THE PROFITS ON TRANSF ER OF DEPB IN SECTION 28(IIID) WOULD NOT INCLUDE THE FACE VALUE OF THE DEPB SO THAT THE ASSESSEES GET A DEDUCTION U NDER SECTION 80HHC ON THE FACE VALUE OF THE DEPB. THIS FINDING OF THE HIGH COURT IS NOT BASED ON AN ACCURA TE UNDERSTANDING SCHEME OF SECTION 80HHC OF THE ACT. -: 11: - 11 18 . THE RELEVANT PROVISIONS OF SECTION 80HHC ARE QUOT ED HEREINBELOW: 'SECTION 80HHC- DEDUCTION IN RESPECT OF PROFITS RETAINED FOR EXPORT BUSINESS.- [(1) WHERE AN ASSESSEE, BEING AN INDIAN COMPANY OR A PERSON (OTHER THAN A COMPANY) RESIDENT IN INDIA, IS ENGAGED IN THE BUSIN ESS OF EXPORT OUT OF INDIA OF ANY GOODS OR MERCHANDISE TO WHICH THIS SECTION APPLIES, THERE SHALL, IN ACCORDANCE WI TH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOW ED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, [A DEDU CTION TO THE EXTENT OF PROFITS, REFERRED TO IN SUB-SECTIO N (1B),] DERIVED BY THE ASSESSEE FROM THE EXPORT OF SUCH GOO DS OR MERCHANDISE: ** ** ** (1B) FOR THE PURPOSES OF SUB-SECTIONS (1) AND (1A), THE EXTENT OF DEDUCTION OF THE PROFITS SHALL BE AN AMOU NT EQUAL TO- (I) EIGHTY PER CENT THEREOF FOR AN ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2001; -: 12: - 12 (II) SEVENTY PER CENT THEREOF FOR AN ASSESSMENT YEA R BEGINNING ON THE 1ST DAY OF APRIL, 2002; (III) FIFTY PER CENT THEREOF FOR AN ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2003; (IV) THIRTY PER CENT THEREOF FOR AN ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2004,] AND NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2005 AND ANY SUBSEQUENT ASSESSMENT YEAR.] ** ** ** (3) FOR THE PURPOSES OF SUB-SECTION (1),- (A) WHERE THE EXPORT OUT OF INDIA IS OF GOODS OR MERCHANDISE MANUFACTURED [OR PROCESSED] BY THE ASSESSEE, THE PROFITS DERIVED FROM SUCH EXPORT SHAL L BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINE SS, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPE CT OF SUCH GOODS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE; ** ** ** -: 13: - 13 PROVIDED THAT THE PROFITS COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THIS SUB-SECTION SHALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEARS TO NINE TY PER CENT OF ANY SUM REFERRED TO IN CLAUSE (IIIA) (N OT BEING PROFITS ON SALE OF A LICENCE ACQUIRED FROM AN Y OTHER PERSON), AND CLAUSES (IIIB) AND (IIIC) OF SEC TION 28, THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE : PROVIDED FURTHER THAT IN THE CASE OF AN ASSESSEE HAVING EXPORT TURNOVER NOT EXCEEDING RUPEES TEN CRO RES DURING THE PREVIOUS YEAR, THE PROFITS COMPUTED UNDE R CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THIS SUB- SECTION OR AFTER GIVING EFFECT TO THE FIRST PROVISO, AS THE CASE MAY BE, SHALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEARS TO NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSE (IIID) OR CLAUSE (IIIE), AS THE CASE MAY BE, OF SECTION 28, THE SAME PROPORTION AS THE EXPORT TURNO VER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE : -: 14: - 14 PROVIDED ALSO THAT IN THE CASE OF AN ASSESSEE HAVING EXPORT TURNOVER EXCEEDING RUPEES TEN CRORES DURING THE PREVIOUS YEAR, THE PROFITS COMPUTED UNDER CLAUSE (A ) OR CLAUSE (B) OR CLAUSE (C) OF THIS SUB-SECTION OR AFT ER GIVING EFFECT TO THE FIRST PROVISO, AS THE CASE MAY BE, SH ALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEARS TO NINE TY PER CENT OF ANY SUM REFERRED TO IN CLAUSE (IIID) OF SECTION 28, THE SAME PROPORTION AS THE EXPORT TURNO VER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE, IF THE ASSESSEE HAS NECESSARY AND SUFFICIENT EVIDENCE TO PROVE THAT,- (A) HE HAD AN OPTION TO CHOOSE EITHER THE DUTY DRAWBACK OR THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME; AND (B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO THE CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME : -: 15: - 15 PROVIDED ALSO THAT IN THE CASE OF AN ASSESSEE HAVING EXPORT TURNOVER EXCEEDING RUPEES TEN CRORES DURING THE PREVIOUS YEAR, THE PROFITS COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THI S SUB-SECTION OR AFTER GIVING EFFECT TO THE FIRST PROVISO, AS THE CASE MAY BE, SHALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEARS TO NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSE (IIIE) OF SECTION 28, THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINES S CARRIED ON BY THE ASSESSEE, IF THE ASSESSEE HAS NECESSARY AND SUFFICIENT EVIDENCE TO PROVE THAT- (A) HE HAD AN OPTION TO CHOOSE EITHER THE DUTY DRAWBACK OR THE DUTY FREE REPLENISHMENT CERTIFICATE, BEING THE DUTY REMISSION SCHEME; AND (B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO THE CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT -: 16: - 16 ALLOWABLE UNDER THE DUTY FREE REPLENISHMENT CERTIFICATE, BEING THE DUTY REMISSION SCHEME. EXPLANATION.-FOR THE PURPOSES OF THIS CLAUSE, 'RATE OF CREDIT ALLOWABLE' MEANS THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY FREE REPLENISHMENT CERTIFICATE, BEING THE DUTY REMISSION SCHEME CALCULATED IN THE MANNER AS MAY BE NOTIFIED BY THE CENTRAL GOVERNMENT:] ** ** ** EXPLANATION.-FOR THE PURPOSES OF THIS SECTION,- (BAA) 'PROFITS OF THE BUSINESS' MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE 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) O F SECTION 28 OR OF ANY RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFITS; AND -: 17: - 17 (2) THE PROFITS OF ANY BRANCH, OFFICE, WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATE OUTSIDE INDIA' 19. SUB-SECTION (1) OF SECTION 80HHC QUOTED ABOVE MAKES IT CLEAR THAT AN ASSESSEE ENGAGED IN THE BUSI NESS OF EXPORT OUT OF INDIA OF ANY GOODS OR MERCHANDISE TO WHICH THIS SECTION APPLIES SHALL BE ALLOWED, IN COMPUTING HIS TOTAL INCOME, A DEDUCTION TO THE EXTE NT OF PROFITS REFERRED TO IN SUB-SECTION (1B), DERIVED BY HIM FROM THE EXPORT OF SUCH GOODS OR MERCHANDISE. SUB- SECTION (1B) OF SECTION 80HHC GIVES THE PERCENTAGES OF DEDUCTION OF THE PROFITS ALLOWABLE FOR THE DIFFEREN T ASSESSMENT YEARS FROM THE ASSESSMENT YEARS 2001- 2002 TO 2004-2005. SUB-SECTION (3)(A) OF SECTION 80 HHC PROVIDES THAT WHERE THE EXPORT OUT OF INDIA IS OF G OODS OR MERCHANDISE MANUFACTURED OR PROCESSED BY THE ASSESSEE, THE PROFITS DERIVED FROM SUCH EXPORTS SHA LL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINE SS, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPE CT OF SUCH GOODS BEARS TO THE TOTAL TURNOVER OF THE BUSIN ESS -: 18: - 18 CARRIED ON BY THE ASSESSEE. IN CIT V. K. RAVINDRANA THAN NAIR [2007] 295 ITR 228 / 165 TAXMAN 282 (SC), THE FORMULA IN SUB-SECTION (3)(A) OF SECTION 80HHC WAS STATED BY THIS COURT TO BE AS FOLLOWS: PROFITS DERIVED FROM EXPORTS = PROFITS OF THE BUSINESS EXPORT TURNOVER TOTAL TURNOVER 20. EXPLANATION (BAA) UNDER SECTION 80HHC STATES THAT 'PROFITS OF THE BUSINESS' IN THE AFORESAID FORMULA MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE H EAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' AS RE DUCED BY (1) NINETY PER CENT OF ANY SUM REFERRED TO IN CL AUSES (IIIA), (IIIB), (IIIC), (IIID) AND (IIIE) OF SECTIO N 28 OR OF ANY RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF SIMILAR NATURE INCL UDING ANY SUCH RECEIPTS AND (2) THE PROFITS OF ANY BRANCH , OFFICE, WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATED OUTSIDE INDIA. THUS, NINETY PER C ENT OF THE DEPB WHICH IS 'CASH ASSISTANCE' AGAINST EXPORTS AND IS COVERED UNDER CLAUSE (IIIB) OF SECTION 28 WI LL GET -: 19: - 19 EXCLUDED FROM THE 'PROFITS OF THE BUSINESS' OF THE ASSESSEE IF SUCH DEPB HAS ACCRUED TO THE ASSESSEE DURING THE PREVIOUS YEAR. SIMILARLY, IF DURING THE SAME PREVIOUS YEAR, THE ASSESSEE HAS TRANSFERRED THE DEP B AND THE SALE VALUE OF SUCH DEPB IS MORE THAN THE FA CE VALUE OF THE DEPB, THE DIFFERENCE BETWEEN THE SALE VALUE OF THE DEPB AND THE FACE VALUE OF THE DEPB WILL REPRESENT THE PROFIT ON TRANSFER OF DEPB COVERED UN DER CLAUSE (IIID) OF SECTION 28 AND NINETY PER CENT OF SUCH PROFIT ON TRANSFER OF DEPB CERTIFICATE WILL GET EXC LUDED FROM 'PROFITS OF THE BUSINESS'. BUT, WHERE THE DEPB ACCRUES TO THE ASSESSEE IN THE FIRST PREVIOUS YEAR AND THE ASSESSEE TRANSFERS THE DEPB CERTIFICATE IN THE SECOND PREVIOUS YEAR, AS APPEARS TO HAVE HAPPENED IN THE PRESENT BATCH OF CASES, ONLY NINETY PER CENT OF THE PROFITS ON TRANSFER OF DEPB COVERED UNDER CLAUSE (IIID) AND NOT NINETY PER CENT OF THE ENTIRE SALE VALUE INCLUDING THE FACE VALUE OF THE DEPB WILL GET EXCLUDED FROM THE 'PROFI TS OF THE BUSINESS'. THUS, WHERE THE NINETY PER CENT OF T HE FACE VALUE OF THE DEPB DOES NOT GET EXCLUDED FROM -: 20: - 20 'PROFITS OF THE BUSINESS' UNDER EXPLANATION (BAA) A ND ONLY NINETY PER CENT OF THE DIFFERENCE BETWEEN THE FACE VALUE OF THE DEPB AND THE SALE VALUE OF THE DEPB GE TS EXCLUDED FROM 'PROFITS OF THE BUSINESS', THE ASSESS EE GETS A BIGGER FIGURE OF 'PROFITS OF THE BUSINESS' A ND THIS IS POSSIBLE WHEN THE DEPB ACCRUES TO THE ASSESSEE I N ONE PREVIOUS YEAR AND TRANSFER OF THE DEPB TAKES PL ACE IN THE SUBSEQUENT PREVIOUS YEAR. THE RESULT IN SUCH CASE IS THAT A HIGHER FIGURE OF 'PROFITS OF THE BUSINESS ' BECOMES THE MULTIPLIER IN THE AFORESAID FORMULA UND ER SUBSECTION (3)(A) OF SECTION 80HHC FOR ARRIVING AT THE FIGURE OF PROFITS DERIVED FROM EXPORTS. 21. TO THE FIGURE OF PROFITS DERIVED FROM EXPORTS WORK ED OUT AS PER THE AFORESAID FORMULA UNDER SUB-SECTION (3)(A) OF SECTION 80HHC, THE ADDITIONS AS MENTIONED IN FIR ST, SECOND, THIRD AND FOURTH PROVISO UNDER SUB-SECTION (3) ARE MADE TO PROFITS DERIVED FROM EXPORTS. UNDER THE FIRST PROVISO, NINETY PER CENT OF THE SUM REFERRED TO IN CLAUSES (IIIA), (IIIB) AND (IIIC) OF SECTION 28 ARE ADDED I N THE SAME PROPORTION AS EXPORT TURNOVER BEARS TO THE TOTAL TU RNOVER -: 21: - 21 OF THE BUSINESS CARRIED ON BY THE ASSESSEE. IN THIS FIRST PROVISO, THERE IS NO ADDITION OF ANY SUM REFERRED T O IN CLAUSE (IIID) OR CLAUSE (IIIE). HENCE, PROFIT ON TR ANSFER OF DEPB OR DFRC ARE NOT TO BE ADDED UNDER THE FIRST PROVISO. WHERE THEREFORE IN THE PREVIOUS YEAR NO DE PB OR DFRC ACCRUES TO THE ASSESSEE, HE WOULD NOT BE ENTIT LED TO THE BENEFIT OF THE FIRST PROVISO TO SUB-SECTION (3) OF SECTION 80HHC BECAUSE HE WOULD NOT HAVE ANY SUM REFERRED TO IN CLAUSE (IIIB) OF SECTION 28 OF THE A CT. THE SECOND PROVISO TO SUB-SECTION (3) OF SECTION 80HHC STATES THAT IN CASE OF AN ASSESSEE HAVING EXPORT TURNOVER NOT EXCEEDING RS. 10 CRORES DURING THE PRE VIOUS YEAR, AFTER GIVING EFFECT TO THE FIRST PROVISO, THE EXPORT PROFITS ARE TO BE INCREASED FURTHER BY THE AMOUNT W HICH BEARS TO NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSES (IIID) AND (IIIE) OF SECTION 28, THE SAME P ROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. THE THIRD PROV ISO TO SUB-SECTION (3) STATES THAT IN CASE OF AN ASSESSEE HAVING EXPORT TURNOVER EXCEEDING RS. 10 CRORES, SIMILAR AD DITION -: 22: - 22 OF NINETY PER CENT OF THE SUMS REFERRED TO IN CLAUS E (IIID) OF SECTION 28 ONLY IF THE ASSESSEE HAS THE NECESSAR Y AND SUFFICIENT EVIDENCE TO PROVE THAT (A) HE HAD AN OPT ION TO CHOOSE EITHER THE DUTY DRAWBACK OR THE DUTY ENTITLE MENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME; AND (B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO THE CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME. THEREFORE, IF THE ASSESSEE HAVING EXPORT TURNOVER OF MORE THAN RS . 10 CRORES DOES NOT SATISFY THESE TWO CONDITIONS, HE WI LL NOT BE ENTITLED TO THE ADDITION OF PROFIT ON TRANSFER O F DEPB UNDER THE THIRD PROVISO TO SUB-SECTION (3) OF SECTI ON 80HHC. 22. THE AFORESAID DISCUSSION WOULD SHOW THAT WHERE AN ASSESSEE HAS AN EXPORT TURNOVER EXCEEDING RS. 10 CRORES AND HAS MADE PROFITS ON TRANSFER OF DEPB UND ER CLAUSE (D) OF SECTION 28, HE WOULD NOT GET THE BENE FIT OF ADDITION TO EXPORT PROFITS UNDER THIRD OR FOURTH PR OVISO TO SUB-SECTION (3) OF SECTION 80HHC, BUT HE WOULD GET THE -: 23: - 23 BENEFIT OF EXCLUSION OF A SMALLER FIGURE FROM 'PROF ITS OF THE BUSINESS' UNDER EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT AND THERE IS NOTHING IN EXPLANATION (BAA) T O SECTION 80HHC TO SHOW THAT THIS BENEFIT OF EXCLUSIO N OF A SMALLER FIGURE FROM 'PROFITS OF THE BUSINESS' WILL NOT BE AVAILABLE TO AN ASSESSEE HAVING AN EXPORT TURNOVER EXCEEDING RS.10 CRORES. IN OTHER WORDS, WHERE THE E XPORT TURNOVER OF AN ASSESSEE EXCEEDS RS. 10 CRORES, HE D OES NOT GET THE BENEFIT OF ADDITION OF NINETY PER CENT OF EXPORT INCENTIVE UNDER CLAUSE (IIID) OF SECTION 28 TO HIS EXPORT PROFITS, BUT HE GETS A HIGHER FIGURE OF PROFITS OF THE BUSINESS, WHICH ULTIMATELY RESULTS IN COMPUTATION O F A BIGGER EXPORT PROFIT. THE HIGH COURT, THEREFORE, WA S NOT RIGHT IN COMING TO THE CONCLUSION THAT AS THE ASSES SEE DID NOT HAVE THE EXPORT TURNOVER EXCEEDING RS. 10 C RORES AND AS THE ASSESSEE DID NOT FULFIL THE CONDITIONS S ET OUT IN THE THIRD PROVISO TO SECTION 80HHC (III), THE AS SESSEE WAS NOT ENTITLED TO A DEDUCTION UNDER SECTION 80HHC ON THE AMOUNT RECEIVED ON TRANSFER OF DEPB AND WITH A VIEW TO GET OVER THIS DIFFICULTY THE ASSESSEE WAS -: 24: - 24 CONTENDING THAT THE PROFITS ON TRANSFER OF DEPB UND ER SECTION 28 (IIID) WOULD NOT INCLUDE THE FACE VALUE OF THE DEPB. IT IS A WELL-SETTLED PRINCIPLE OF STATUTORY INTERPRETATION OF A TAXING STATUTE THAT A SUBJECT W ILL BE LIABLE TO TAX AND WILL BE ENTITLED TO EXEMPTION FRO M TAX ACCORDING TO THE STRICT LANGUAGE OF THE TAXING STAT UTE AND IF AS PER THE WORDS USED IN EXPLANATION (BAA) TO SE CTION 80HHC READ WITH THE WORDS USED IN CLAUSES (IIID) AN D (IIIE) OF SECTION 28, THE ASSESSEE WAS ENTITLED TO A DEDUCTION UNDER SECTION 80HHC ON EXPORT PROFITS, TH E BENEFIT OF SUCH DEDUCTION CANNOT BE DENIED TO THE ASSESSEE. 23. THE IMPUGNED JUDGMENT AND ORDERS OF THE BOMBAY HIGH COURT ARE ACCORDINGLY SET-ASIDE. THE APPEALS A RE ALLOWED TO THE EXTENT INDICATED IN THIS JUDGMENT. T HE ASSESSING OFFICER IS DIRECTED TO COMPUTE THE DEDUCT ION UNDER SECTION 80HHC IN THE CASE OF THE APPELLANTS I N ACCORDANCE WITH THIS JUDGMENT. THERE SHALL BE NO OR DER AS TO COSTS. -: 25: - 25 7. IT IS CRYSTAL CLEAR FROM THE ORDER OF THE HON'BLE SUPREME COURT THAT VERDICT GIVEN BY THE TRIBUNAL IN RESPECT OF DEPB RECEIPTS HAVE BEEN FULLY ACCEPTED BY THE HON'B LE SUPREME COURT BY REVERSING THE ORDER OF BOMBAY HIGH COURT. AS THE LD. CIT(A) HAS DECIDED THE ISSUE BY FULLY AP PLYING THE PROPOSITION LAID DOWN BY SPECIAL BENCH IN THE CASE OF TOPMAN EXPORTS (SUPRA), WHICH HAS BEEN AFFIRMED BY HON'BLE SUPREME COURT AS DISCUSSED ABOVE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE CIT(A). 8. THE CROSS OBJECTION RAISED BY THE ASSESSEE WAS NOT PRESSED, THE SAME IS, THEREFORE, DISMISSED IN LIMIN E. 9. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED . THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 19 TH APRIL , 2012. (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :19 TH APRIL, 2012. CPU* 1719