Bloom Decor Pvt.Ltd., Ahmedabad V. The Dy.CIT., Ahmedabad Circle-1, Ahmedabad

CO 73/AHD/2007

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 5557 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 7 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 21-01-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-12-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 13-04-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Keywords: Retrospective amendment; Cost of acquisition
• Section: 80HHC; 234B; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : A BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HON' BLE SHRI A.N. PAHUJA, A.M. ) C.O. NO. 72/AHD/2007 (ARISING OUT OF I.T.A. NO. 1027/AHD./2007) ASSESSMENT YEAR : 2002-2003 & C.O. NO. 73/AHD/2007 (ARISING OUT OF I.T.A. NO. 1028/AHD./2007) ASSESSMENT YEAR : 2003-2004 BLOOM DECOR PVT. LTD., AHMEDABAD -VS.- DEPUTY COMMISSIONER OF INCOME TAX, AHMEDABAD (PAN : AAACB 6221 B) CIRCLE-1, AHMEDABA D (CROSS OBJECTOR) (RESPONDENT) ASSESSEE BY : SHRI NITIN MEHTA, A.R . DEPARTMENT BY : SHRI R.K. DHANESTA, D.R . O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THESE CROSS OBJECTIONS ARE FILED BY THE ASSESSEE A GAINST THE ORDER DATED 11.12.2006 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VII, A HMEDABAD FOR THE ASSESSMENT YEARS 2002-03 & 2003-04 ON THE FOLLOWING IDENTICAL GROUND S :- (1) THAT THE LD. CIT(APPEALS) ERRED IN LAW AND ON FACTS IN DISALLOWING CLAIM OF THE DEDUCTION U/S. 80HHC BY CO NSIDERING THE CROSS OBJECTOR HAS NOT PROVED BY EVIDENCE THE C OMPLIANCE OF CONDITION UNDER RECENTLY AMENDED SECTION 80HHC OF T HE ACT. (2) THAT THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON F ACTS IN COMPUTING THE PROFIT OF THE BUSINESS OF THE CROSS O BJECTOR BY CONSIDERING FULL SALE VALUE OF RS.1,78,74,052/- OF DEPB LICENSE INSTEAD OF PROFIT ON SALE OF DEPB LICENSE RS.1,75, 542/- BECAUSE AS PER THE INCOME TAX ACT, 90% OF PROFIT ON SALE OF DEPB LICENSE IS TO BE CONSIDERED U/S. 28(IIID). (3) THAT LEARNED CIT(APPEALS) ERRED BY NOT CONSIDERING THE WRIT PETITION FILED IN THE COURT ACROSS THE COUNTRY QUES TIONING THE CONSTITUTIONAL VALIDITY AND THE VIRUS OF AMENDMENT OF SECTION 80HHC OF THE INCOME TAX ACT AND LEVYING INTEREST U/ S. 234B OF THE INCOME TAX ACT. 2 C.O. NOS. 72 & 73-AHD-2007 (IN ITA NOS. 1027 & 1028/AHD/2007) (4) THAT THE LEARNED CIT(APPEALS) HAS ERRED IN NOT SETT ING ASIDE PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE INCOME TA X ACT. 2. AT THE OUTSET, WE MAY POINT OUT THAT BOTH THE AP PEALS OF THE REVENUE, NAMELY ITA NOS. 1027 & 1028/AHD/2007 FOR THE ASSESSMENT YEARS 2002- 03 AND 2003-04 RESPECTIVELY WERE DISPOSED OF BY THE ITAT VIDE ORDER DATED 13.04.2007 . HOWEVER, THESE TWO CROSS OBJECTIONS ARE NOT LINKED WITH THOSE APPEALS THEREFORE THESE ARE D ECIDED BY THIS SEPARATE ORDER. 3. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF A SSESSEE SHRI NITIN MEHTA, LD. A.R APPEARED AND CONTENDED THAT IN BOTH THE CROSS OBJECTIONS, ON LY ONE ISSUE IS INVOLVED. IN THE ASSESSMENT ORDERS FOR BOTH THE ASSESSMENT YEARS, THE ASSESSING OFFICER HAS EXCLUDED 90% (SALE / TRANSFER) VALUE OF DEPB LICENSE AMOUNTING TO RS.1,78,74,052/- INSTEAD OF 90% OF PROFIT ON TRANSFER VALUE OF DEPB LICENSE RS.17,55,542/- FROM THE BUSINESS PR OFIT FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE INCOME TAX ACT, 1961. TH E LD. COUNSEL OF THE ASSESSEE INVITED OUR ATTENTION TO NEWLY INTRODUCED SECTION 28(IIID) AND CONTENDED THAT WHILE COMPUTING THE PROFIT OF BUSINESS, 90% OF THE PROFIT ON TRANSFER OF DEPB LIC ENSE SHOULD BE TAKEN INTO COMPUTATION WHEREAS THE ASSESSING OFFICER HAS CONSIDERED 90% OF THE TRANSFER VALUE OF DEPB LICENSE. IF 90% OF PROFIT ON THE TRANSFER OF DEPB LICENSE CONSIDERE D INSTEAD OF 90% OF TRANSFER VALUE OF DEPB LICENSE FOR COMPUTATION OF BUSINESS PROFIT, THEN BU SINESS PROFIT COMES TO RS.17,63,452/- INSTEAD OF BUSINESS LOSS OF RS.1,27,43,307/- FOR THE ASSESS MENT YEAR 2002-03. IT WAS ALSO CONTENDED THAT THE ASSESSEE HAD NO OPTION BUT TO CHOOSE EITHER DUT Y DRAWBACK OR DUTY ENTITLEMENT PASS BOOK SCHEME BECAUSE RATE OF DUTY DRAWBACK WAS NOT SPECIF IED IN THE SCHEDULE OF TABLE OF DUTY DRAWBACK RATES. THEREFORE, THE QUESTION OF THE RATE OF DRAW BACK CREDIT ALLOWABLE UNDER DEPB SCHEME DOES NOT ARISE AND AS SUCH THE SAID PROVISIO N DOES NOT APPLY TO THE ASSESSEE. THEREFORE, THE ASSESSEE IS ENTITLED TO HAVE THE BENEFIT TO FUR THER INCREASE THE PROFIT BY THE AMOUNT WHICH BEARS TO 90% OF ANY SUM REFERRED IN CLAUSE (IIID) O F SECTION 28, THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER. WHEREAS THE A SSESSING OFFICER HAS NOT CONSIDERED ELIGIBLE FOR INCREASED IN PROFIT BY 90% OF PROFIT ON TRANSFE R OF DEPB, AS THE ASSESSEE HAS NOT ESTABLISHED WITH SUFFICIENT EVIDENCE FOR THE SAID CLAIM. HE SUB MITTED THAT IF AT ALL THIS PROVISO IS NOT APPLICABLE AND THE ASSESSEE HAS NOT COMPLIED WITH C ONDITION, THEN ALSO ALLOWABLE DEDUCTION COMES TO RS.11,63,036/- INSTEAD OF NIL. 3 C.O. NOS. 72 & 73-AHD-2007 (IN ITA NOS. 1027 & 1028/AHD/2007) 4. ON THE OTHER HAND, SHRI R.K. DHANESTA, LD. D.R. APPEARING ON BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX (APPEALS). THE LD. D.R. POINTED OUT THAT ALL THE CONTENTIONS NOW RAISE D WERE RAISED AND CONSIDERED BY THE ITAT, SPECIAL BENCH, MUMBAI IN THE CASE OF KALPATARU COLO URS & CHEMICALS VS.- ADDITIONAL CIT REPORTED IN (2009) 318 ITR (AT) 87 (MUM.). HOWEVER, THE SAID DECISION IS REVERSED BY THE HON'BLE BOMBAY HIGH COURT AS REPORTED IN [2010] 328 ITR 451 (BOM.). THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNED ORDER IS IN CONFORMITY WITH THE VIEW TAKEN BY THE HON'BLE BOMBAY HIGH COURT IN ITS LATEST JUDGMENT DELIVERED ON 28/29.06.2010 IN THE CASE OF CIT VS.- KALPATARU COLOURS & CHEMIC ALS REPORTED IN [2010] 328 ITR 451 (BOM.). THE LD. D.R. POINTED OUT THAT AS PER THE DECISION O F THE HON'BLE BOMBAY HIGH COURT, THE ENTIRETY OF THE SALE CONSIDERATION WOULD FALL WITHIN THE PUR VIEW OF SECTION 28(IIID) OF THE INCOME TAX ACT, 1961. SINCE THE EXPORT TURNOVER OF ASSESSEE EXCEEDS RS.10 CRORES AND IT DID NOT FULFILL THE CONDITIONS SET OUT IN THIRD PROVISO TO SECTION 80HH C, IT IS NOT ENTITLED TO DEDUCTION UNDER SECTION 80HHC ON AMOUNT RECEIVED ON TRANSFER OF DEPB. THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS IN CONFORMITY WITH THE V IEW TAKEN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF KALPATARU COLOURS & CHEMICALS (SUPRA), THEREFORE, SAME MAY BE UPHELD. 5. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) IN HIS ORDER AT PARAS 5.4 TO 5.6 HAS HELD AS UNDER :- 5.4. I HAVE CONSIDERED THE ABOVE SUBMISSIONS. IT I S THE CONTENTION OF THE APPELLANT THAT AS PER NEWLY INTRODUCED SECTION 28(IIID), PROFIT O N TRANSFER OF DEPB SCHEME SHOULD BE INCLUDED AS INCOME AND IN CASE THE APPELLANT HAS AN EXPORT TURNOVER OF MORE THAN RS.10 CRORES IT WILL GET THE BENEFIT OF INCLUDING THE SAM E AS PER 3 RD PROVISO. THE APPELLANT HAS MADE A PROFIT OF RS.17,55,542/- ON TRANSFER OF DEPB LICENSE AS UNDER :- LICENSE VALUE : RS.1,61,18,510/- PROFIT ON SALE OF LICENSE : RS. 17,55,542/- TOTAL : RS.1,78,74,542/- HOWEVER, THE AO HAS TAKEN 1,78,74,052/- AS EXPORT I NCENTIVE AND REDUCED 90% OF THE SAME FROM PROFITS OF THE BUSINESS. ACCORDING TO THE APPELLANT, THE AO SHOULD TAKE ONLY 17,55.542/- WHICH IS PROFIT ON TRANSFER OF LICENSE. . I DON'T AGREE WITH THE ABOVE CONTENTIONS OF THE APPELLANT. DEPB LICENSE IS A BEN EFIT GIVEN TO EXPORTER UNDER A GOVERNMENT SCHEME AND IT HAS NO COST OF ACQUISITION AS THE APPELLANT WANTS TO PROVE. AT THE TIME OF GRANTING DEPB BENEFIT CERTAIN PARAMETER S ARE TAKEN INTO CONSIDERATION. THE ASSESSEE IS NOT REQUIRED TO PAY ANYTHING OR INCURRE D ANY EXPENDITURE FOR GETTING THE DEPE BENEFIT. IN OTHER WORDS, THE COST OF GETTING D EPB LICENSE: NIL. THE APPELLANT IS FREE TO USE IT FOR ITS OWN BUSINESS OR SELL IT. THE REFORE, WHEN HE SELLS DEPB LICENCE WHATEVER HE GET IS PROFIT. THE APPELLANTS CONTENTI ON IS THAT THE VALUE OF DEPB LICENCE CREDITED TO P & L ACCOUNT IS THE COST WHICH SHOULD BE DEDUCTED FROM SATE PRICE FOR 4 C.O. NOS. 72 & 73-AHD-2007 (IN ITA NOS. 1027 & 1028/AHD/2007) ASCERTAINING THE PROFIT ON SUCH TRANSFER. I DONT A GREE WITH THE ABOVE VIEW BECAUSE THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE TO ACQUIR E DEPB. THEREFORE, WHOLE SALES CONSIDERATION SHOULD BE TREATED AS PROFIT. THE AO'S ACTION ON THIS ACCOUNT IS UPHELD, 5.5 THE NEXT ARGUMENT OF THE APPELLANT IS THAT IT H AS NO OPTION TO CHOOSE DUTY DRAWBACK BECAUSE RATE OF DRAWBACK WAS NOT SPECIFIED IN THE S CHEDULE OF TABLE OF DRAWBACK RATES. THEREFORE, THERE, WAS NO SCOPE TO CHOOSE BETWEEN DU TY DRAW BACK AND DEPB SCHEME. CONSEQUENTLY, IT WILL NOT BE POSSIBLE TO PROVE THAT DUTY DRAWBACK RATE WAS HIGHER THAN DEPB CREDIT FN VIEW OF THE ABOVE THE CONDITIONS LAI D DOWN AS PER 3 RD PROVISO IS NOT APPLICABLE. THE APPELLANT IS ENTITLED TO FURTHER IN CREASE IN THE EXPORT PROFIT BY THE AMOUNT WHICH BEARS TO 90% OF ANY SUM REFERRED TO IN CLAUSE (IIID) OF SECTION 28 IN RESPECT OF GOODS EXPORTED BY THE APPELLANT. AS MENTIONED IN EA RLIER PARAGRAPHS, IN CASE OF APPELLANT HAVING EXPORT TURNOVER OF MORE THAN RS.10 CRORES, IWO CONDITIONS AS LAID DOWN IN SUB-CLAUSE (A) AND (B) TO THIRD PROVISO SHOULD B E SATISFIED SO THAT ASSESSEE CAN GET BENEFIT OF INCREASING EXPORT PROFIT BY DEPB INCOME. IT IS NOT PROVIDED IN THIS SECTION OR IN SECTION 28 THAT THOSE WHO CANNOT SATISFY THESE COND ITION OR THOSE WHO HAVE NO SCOPE FOR COMPARING THE DEPB DRAW BACK WITH DEPB SCHEME SHOUL D GEL THE BENEFIT. SINCE THE APPELLANT HERS FAILED TO SATISFY THE CONDITIONS, IT IS NOT ENTITLED TO THE BENEFIT. THERE IS NO SCOPE IN THE ABOVE PROVISION TO CONSIDER THE REASON S FOR NOT SATISFYING THESE CONDITIONS. IN VIEW OF THE ABOVE PROVISIONS OF LAW APPLICABLE W ITH RETROSPECTIVE EFFECT, I HOLD THAT AO IS JUSTIFIED IN NOT GIVING THIS BENEFIT TO THE APPE LLANT. THE APPELLANT'S CLAIM ON THIS GROUND IS REJECTED. 5.6. THE NEXT GROUND IS REGARDING NEGATIVE PROFIT. IT IS SUBMITTED THAT BY EXCLUDING DEPB INCOME FROM PROFIT OF THE BUSINESS, THE TOTAL COMPUTATION OF ELIGIBLE PROFIT HAS BECOME A NEGATIVE FIGURE FOR WHICH THE AO HAS N OT ALLOWED ANY DEDUCTION U/S 80HHC. THE ISSUE OF WORKING OUT PROFIT ELIGIBLE FOR DEDUCTION IS ONLY CONSEQUENTIAL IN VIEW OF THE DECISION TOKEN IN RESP ECT OF INCOME FROM DEPB SCHEME. AS APPELLANT'S GROUND ON ACCOUNT OF DEPB SC HEME HAS BEEN DISMISSED, THERE IS NO QUESTION OF GELLING RELIEF ON THIS GROU ND. HENCE, THIS GROUND IS REJECTED. IT IS PERTINENT TO NOTE THAT BEFORE US, THE LD. COU NSEL OF THE ASSESSEE IS MERELY RAISING VARIOUS PLEAS, WHICH WERE RAISED BEFORE THE ITAT, SPECIAL B ENCH, MUMBAI IN THE CASE OF KALPATARU COLOURS & CHEMICALS VS.- ADDITIONAL CIT REPORTED I N (2009) 318 ITR (AT) 87 (MUM.). THE SAID DECISION OF THE ITAT, SPECIAL BENCH, MUMBAI HA S BEEN REVERSED BY THE HON'BLE BOMBAY HIGH COURT AS REPORTED IN [2010] 328 ITR 451 (BOM.) . AS PER JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT, DEPB SALE PROCEEDS CANNOT BE BIFURCATED INTO PROFIT AND FACE VALUE. THE ENTIRE AMOUNT IS PROFIT FOR SECTION 80HHC READ WITH SECT ION 28(IIID). ADMITTEDLY, THE EXPORT TURNOVER OF THE ASSESSEE IS MORE THAN RS.10 CRORES AND IT DI D NOT FULFILL THE CONDITIONS SET OUT IN THE THIRD PROVISO TO SECTION 80HHC(3), THEREFORE, IT IS NOT E NTITLED TO DEDUCTION UNDER SECTION 80HHC ON THE AMOUNT RECEIVED ON TRANSFER OF DEPB. 5 C.O. NOS. 72 & 73-AHD-2007 (IN ITA NOS. 1027 & 1028/AHD/2007) 5.1. THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS IN CONFORMITY WITH THE RATIO OF DECISION OF THE HON'BLE BOMBAY HI GH COURT IN THE CASE OF KALPATARU COLOURS & CHEMICALS (SUPRA), WE THEREFORE, INCLINE TO UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE FOR BOTH THE ASSESSMENT YEARS UNDER APPEALS. CONSEQUENTLY GROUNDS NO. 1 & 2 OF CROSS OBJECTIONS FOR BOTH THE ASSESSME NT YEARS ARE DISMISSED. 6. NO SPECIFIC ARGUMENT WAS RAISED WITH REGARD TO P LEA RAISED IN GROUND NO. 3. EVEN OTHERWISE, THE LEVY OF INTEREST UNDER SECTION 234B IS MANDATORY THEREFORE GROUND NO. 3 IS ALSO REJECTED. 7. IN THE RESULT, BOTH THE CROSS OBJECTIONS FILED B Y THE ASSESSEE ARE DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 21.01.20 11 SD/- SD/- (A.N. PAHUJA) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21/ 01 / 2011 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A.) CONCERNED, (4) CIT CONCERNED, (5) D.R. , ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGI STRAR, ITAT, AHMEDABAD LAHA/SR.P.S.