Kultilak Jain L/H of Late Sh. Davinder Jain, Ludhiana V. ACIT, Ludhiana

ITA 1030/CHANDI/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60944 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-07-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 23-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Assessee Lawyers: TEJ MOHAN SINGH N K AGGARWAL
• Section: 28; 143(3); 80HHC; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.1030 /CHD/2010 (ASSESSMENT YEAR: 2004-05) KULTILAK JAIN L/H OF LATE SH.DAVINDER JAIN VS. TH E A.C.I.T., PROP.M/S K.JAIN (INDIA), CIRCLE-V, MOONGFALI MANDI, LUDHIANA. LUDHIANA. PAN: ACRPJ9043M (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI TEJ MOHAN SINGH/ N.K. AGGARWAL RESPONDENT BY : SMT. JAISHREE SHARMA, DR DATE OF HEARING : 09.07.2012 DATE OF PRONOUNCEMENT : 13.07.2012 O R D E R PER SUSHMA CHOWLA, J.M. : THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-II, LUDHIANA D ATED 22.03.2010 RELATING TO ASSESSMENT YEAR 2004-05 AGAINST THE ORD ER PASSED U/S 143(3) OF INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER: 1. THAT THE LD. COMMISSIONER OF INCOME TAX (A)-II HAS ERRED IN NOT ALLOWING CLAIM OF DEDUCTION U/S 80-HHC OF THE INCOM E TAX ACT, 1961. 2. THAT THE LD. CIT(A) HAS FURTHER GROSSLY ERRED BO TH IN LAW AND ON FACTS IN HOLDING THAT SCRAP SALES WERE NOT A PART O F THE TOTAL TURNOVER. 3. GROUND NO.1 RAISED BY THE ASSESSEE IS IN RELATIO N TO THE CLAIM OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS DEDUCTION UNDER SECTION 80HH C OF THE ACT WAS DISALLOWED ON THE DEPB RECEIVABLES. FURTHER PROFIT S ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT WERE RECOM PUTED IN VIEW OF 2 THE DEDUCTION ALLOWED TO THE ASSESSEE UNDER SECTION 80IB OF THE ACT. THE ASSESSEE IS NOT IN APPEAL AGAINST THE SAID RECO MPUTATION OF ELIGIBLE PROFITS ENTITLED FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT, WHICH HAD BEEN RECOMPUTED BECAUSE OF THE CLAIM OF DEDUCTION U /S 80IB OF THE ACT ON THE SAID PROFITS OF THE BUSINESS. HOWEVER, THE ASSESSEE IS IN APPEAL IN RELATION TO THE ISSUE OF DEDUCTION UNDER SECTION 80 HHC OF THE ACT ON DEPB. 4. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT TH AT THE ISSUE IS COVERED BY THE RATIO LAID DOWN BY HON'BLE SUPREME C OURT IN TOPMAN EXPORTS VS. CIT [342 ITR 49 (SC)], WHEREAS THE LEAR NED D.R. FOR THE REVENUE POINTED OUT THAT THE DEPB PROFITS HAVE NOT BEEN RECEIVED BY THE ASSESSEE AND ARE RECEIVABLE AND CONSEQUENTLY THE DE NIAL OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE LIMITED ISSUE WHICH ARISES IN RELATION TO COMPUTATI ON OF DEDUCTION UNDER SECTION 80HHC OF THE ACT IS WITH REGARD TO THE DEPB RECEIPTS. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE RATIO LAI D DOWN BY THE HON'BLE SUPREME COURT IN TOPMAN EXPORTS VS. CIT (SUPRA) WHE REIN THE HON'BLE SUPREME COURT HELD AS UNDER: 12. IT WILL BE CLEAR FROM THE AFORESAID PROVISIONS OF SECTION 28 THAT UNDER CLAUSE (IIIB) CASH ASSISTANCE (BY WHATEVER NAME CAL LED) RECEIVED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA IS BY ITSELF INCOME CHARGEABLE TO INCOME TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. DEPB IS A KIND OF ASSISTANCE GIVEN BY THE GOVERNMENT OF INDIA TO AN E XPORTER TO PAY CUSTOMS DUTY ON ITS IMPORTS AND IT IS RECEIVABLE ONCE EXPOR TS ARE MADE AND AN APPLICATION IS MADE BY THE EXPORTER FOR DEPB. WE HA VE, THEREFORE, NO DOUBT THAT DEPB IS 'CASH ASSISTANCE' RECEIVABLE BY A PERS ON AGAINST EXPORTS UNDER THE SCHEME OF THE GOVERNMENT OF INDIA AND FALLS UND ER CLAUSE (IIIB) OF SECTION 28 AND IS CHARGEABLE TO INCOME TAX UNDER THE HEAD ' PROFITS AND GAINS OF BUSINESS OR PROFESSION' EVEN BEFORE IT IS TRANSFERR ED BY THE ASSESSEE. 13. UNDER CLAUSE (IIID) OF SECTION 28, ANY PROFIT ON T RANSFER OF DEPB IS CHARGEABLE TO INCOME TAX UNDER THE HEAD 'PROFITS AN D GAINS OF BUSINESS OR PROFESSION' AS AN ITEM SEPARATE FROM CASH ASSISTANC E UNDER CLAUSE (IIIB). THE WORD 'PROFIT' MEANS THE GROSS PROCEEDS OF A BUSINES S TRANSACTION LESS THE COSTS OF THE TRANSACTION. TO QUOTE FROM BLACK'S LAW DICTIONARY (FIFTH EDITION): 3 ' PROFIT . MOST COMMONLY, THE GROSS PROCEEDS OF A BUSINESS T RANSACTION LESS THE COSTS OF THE TRANSACTION, I.E. NET PROCEEDS. EXCESS OF REVENUES OVER EXPENSES FOR A TRANSACTION; SOMETIMES USED SYNONYMOUSLY WITH NET INCOME FOR THE PERIOD. GAIN REALIZED FROM BUSINESS OR INVESTMENT O VER AND ABOVE EXPENDITURES.' THIS COURT IN E.D. SASSOON & COMPANY LTD. AND OTHER S V. COMMISSIONER OF INCOME-TAX, BOMBAY CITY [1954] 26 ITR 27 (SC) HAS Q UOTED THE FOLLOWING OBSERVATIONS OF LORD JUSTICE FLETCHER MOULTON IN TH E SPANISH PROSPECTING COMPANY LIMITED [1911] I CH. 92 ON THE MEANING OF T HE WORD 'PROFITS': '. 'PROFITS' IMPLIES A COMPARISON BETWEEN THE STAT E OF A BUSINESS AT TWO SPECIFIC DATES USUALLY SEPARATED BY AN INTERVAL OF A YEAR. THE FUNDAMENTAL MEANING IS THE AMOUNT OF GAIN MADE BY THE BUSINESS DURING THE YEAR. THIS CAN ONLY BE ASCERTAINED BY A COMPARISON OF THE ASSETS O F THE BUSINESS AT THE TWO DATES.' 'PROFITS', THEREFORE, IMPLY A COMPARISON OF THE VAL UE OF AN ASSET WHEN THE ASSET IS ACQUIRED WITH THE VALUE OF THE ASSET WHEN THE ASSET IS TRANSFERRED AND THE DIFFERENCE BETWEEN THE TWO VALUES IS THE AMOUNT OF PROFIT OR GAIN MADE BY A PERSON. AS DEPB HAS DIRECT NEXUS WITH THE COST OF IMPORTS FOR MANUFACTURING AN EXPORT PRODUCT, ANY AMOUNT REALIZE D BY THE ASSESSEES OVER AND ABOVE THE DEPB ON TRANSFER OF THE DEPB WOULD RE PRESENT PROFIT ON THE TRANSFER OF DEPB. 14. WE ARE, THUS, OF THE CONSIDERED OPINION THAT WHILE THE FACE VALUE OF THE DEPB WILL FALL UNDER CLAUSE (IIIB) OF SECTION 28 OF THE ACT, THE DIFFERENCE BETWEEN THE SALE VALUE AND THE FACE VALUE OF THE DE PB WILL FALL UNDER CLAUSE (IIID) OF SECTION 28 OF THE ACT AND THE HIGH COURT WAS NOT RIGHT IN TAKING THE VIEW IN THE IMPUGNED JUDGMENT THAT THE ENTIRE SALE PROCEEDS OF THE DEPB REALIZED ON TRANSFER OF THE DEPB AND NOT JUST THE D IFFERENCE BETWEEN THE SALE VALUE AND THE FACE VALUE OF THE DEPB REPRESENT PROF IT ON TRANSFER OF THE DEPB. 15. WE MAY NOW POINT OUT THE ERRORS IN THE IMPUGNED JU DGMENT OF THE HIGH COURT. THE FIRST REASON GIVEN BY THE HIGH COURT IS THAT CLAUSE (IIIA) OF SECTION 28 TREATS PROFITS ON THE SALE OF AN IMPORT LICENSE AS INCOME CHARGEABLE 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 O N THE TRANSFER OF THE DEPB ANY DIFFERENTLY THAN THE PROFITS WHICH ARE MAD E ON THE SALE OF AN IMPORT LICENSE UNDER CLAUSE (IIIA) OF SECTION 28 OF THE ACT. IN TAKING THE VIEW THAT WHEN THE IMPORT LICENSE IS SOLD THE ENTIRE AMO UNT IS TREATED AS PROFITS OF BUSINESS, THE HIGH COURT HAS VISUALIZED A SITUATION WHERE THE COST OF ACQUIRING THE IMPORT LICENSE IS NIL. THE COST OF AC QUIRING DEPB, ON THE OTHER HAND, IS NOT NIL BECAUSE THE PERSON ACQUIRES IT BY PAYING CUSTOMS DUTY ON THE IMPORT CONTENT OF THE EXPORT PRODUCT AND THE DEPB W HICH ACCRUES TO A PERSON AGAINST EXPORTS HAS A COST ELEMENT IN IT. AC CORDINGLY, WHEN DEPB IS SOLD BY A PERSON, HIS PROFIT ON TRANSFER OF DEPB WO ULD BE THE SALE VALUE OF THE DEPB LESS THE FACE VALUE OF DEPB WHICH REPRESEN TS THE COST 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 P ERCENTAGE OF THE FOB VALUE OF THE EXPORTS SO AS TO NEUTRALIZE THE INCIDE NCE OF CUSTOMS DUTY ON THE IMPORT CONTENT OF THE EXPORT PRODUCTS, BUT THE EXPO RTER MAY NOT HIMSELF UTILIZE THE DEPB FOR PAYING CUSTOMS DUTY BUT MAY TRANSFER I T TO SOMEONE ELSE AND THEREFORE THE ENTIRE SUM RECEIVED ON TRANSFER OF DE PB WOULD BE COVERED UNDER CLAUSE (IIID) OF SECTION 28. THE HIGH COURT H AS FAILED TO APPRECIATE THAT DEPB REPRESENTS PART OF THE COST INCURRED BY A PERSON FOR MANUFACTURE OF THE EXPORT PRODUCT AND HENCE EVEN WHERE THE DEPB IS NOT UTILIZED BY THE EXPORTER BUT IS TRANSFERRED TO ANOTHER PERSON, THE DEPB CONTINUES TO REMAIN AS A COST TO THE EXPORTER. WHEN, THEREFORE, DEPB IS TRANSFERRED BY A PERSON, 4 THE ENTIRE SUM RECEIVED BY HIM ON SUCH TRANSFER DOE S 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 TH E FACE VALUE OF THE DEPB WAS OFFERED TO TAX IN THE YEAR IN WHICH THE CREDIT ACCRUED TO THE ASSESSEE AS BUSINESS PROFITS, THEN ANY FURTHER PROFIT ARISING O N TRANSFER OF DEPB WOULD BE TAXED AS PROFITS OF BUSINESS UNDER SECTION 28(IIID) IN THE YEAR IN WHICH THE TRANSFER OF DEPB TOOK PLACE. THIS VIEW OF THE HIGH COURT, IN OUR CONSIDERED OPINION, IS CONTRARY TO THE LANGUAGE OF SECTION 28 OF THE ACT UNDER WHICH 'CASH ASSISTANCE' RECEIVED OR RECEIVABLE BY ANY PER SON AGAINST EXPORTS SUCH AS THE DEPB AND 'PROFIT ON TRANSFER OF THE DEPB' AR E TREATED AS TWO SEPARATE ITEMS OF INCOME UNDER CLAUSES (IIIB) AND ( IIID) OF SECTION 28. IF ACCRUAL OF DEPB AND PROFIT ON TRANSFER OF DEPB ARE TREATED AS TWO SEPARATE ITEMS OF INCOME CHARGEABLE TO TAX UNDER CLAUSES (II IB) AND (IIID) OF SECTION 28 OF THE ACT, THEN DEPB WILL BE CHARGEABLE AS INCOME UNDER CLAUSE (IIIB) OF SECTION 28 IN THE YEAR IN WHICH THE PERSON APPLIES FOR DEPB CREDIT AGAINST THE EXPORTS AND THE PROFIT ON TRANSFER OF THE DEPB BY THAT PERSON WILL BE CHARGEABLE AS INCOME UNDER CLAUSE (IIID) OF SECTION 28 IN HIS HANDS IN THE YEAR IN WHICH HE MAKES THE TRANSFER. ACCORDINGLY, I F IN THE SAME PREVIOUS YEAR THE DEPB ACCRUES TO A PERSON AND HE ALSO EARNS PROFIT ON TRANSFER OF THE DEPB, THE DEPB WILL BE BUSINESS PROFITS UNDER CLAUS E (IIIB) AND THE DIFFERENCE BETWEEN THE SALE VALUE AND THE DEPB (FAC E VALUE) WOULD BE THE PROFITS ON THE TRANSFER OF DEPB UNDER CLAUSE (IIID) FOR THE SAME ASSESSMENT YEAR. WHERE, HOWEVER, THE DEPB ACCRUES TO A PERSON IN ONE PREVIOUS YEAR AND THE TRANSFER OF DEPB TAKES PLACE IN A SUBSEQUEN T PREVIOUS YEAR, THEN THE DEPB WILL BE CHARGEABLE AS INCOME OF THE PERSON FOR THE FIRST ASSESSMENT YEAR CHARGEABLE UNDER CLAUSE (IIIB) OF SECTION 28 A ND THE DIFFERENCE BETWEEN THE DEPB CREDIT AND THE SALE VALUE OF THE DEPB CRED IT WOULD BE INCOME IN HIS HANDS FOR THE SUBSEQUENT ASSESSMENT YEAR CHARGE ABLE UNDER CLAUSE (IIID) OF SECTION 28. THE INTERPRETATION SUGGESTED BY US, THEREFORE, DOES NOT LEAD TO DOUBLE TAXATION OF THE SAME INCOME, WHICH THE LEGIS LATURE 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 CON DITIONS SET OUT IN THE THIRD PROVISO TO SECTION 80HHC(3) OF THE ACT, THE ASSESSE ES WERE NOT ENTITLED 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 TRANSFER OF DEPB IN SECTION 28(IIID) WOULD NOT INCL UDE THE FACE VALUE OF THE DEPB SO THAT THE ASSESSEES GET A DEDUCTION UNDER SE CTION 80HHC ON THE FACE VALUE OF THE DEPB. THIS FINDING OF THE HIGH COURT I S NOT BASED ON AN ACCURATE UNDERSTANDING SCHEME OF SECTION 80HHC OF T HE ACT. 18 . THE RELEVANT PROVISIONS OF SECTION 80HHC ARE QUOT ED HEREINBELOW: 'SECTION 80HHC- DEDUCTION IN RESPECT OF PROFITS RET AINED FOR EXPORT BUSINESS.- [(1) WHERE AN ASSESSEE, BEING AN INDIAN COMPANY OR A PERSON (OTHER THAN A COMPANY) RESIDENT IN INDIA, IS ENGAGE D IN THE BUSINESS OF EXPORT OUT OF INDIA OF ANY GOODS OR MERCHANDISE TO WHICH T HIS SECTION APPLIES, THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVIS IONS OF THIS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSES SEE, [A DEDUCTION TO THE EXTENT OF PROFITS, REFERRED TO IN SUB-SECTION (1B), ] DERIVED BY THE ASSESSEE FROM THE EXPORT OF SUCH GOODS OR MERCHANDISE: ** ** ** (1B) FOR THE PURPOSES OF SUB-SECTIONS (1) AND (1A), THE EXTENT OF DEDUCTION OF THE PROFITS SHALL BE AN AMOUNT EQUAL TO- 5 (I) EIGHTY PER CENT THEREOF FOR AN ASSESSMENT YEA R BEGINNING ON THE 1ST DAY OF APRIL, 2001; (II) SEVENTY PER CENT THEREOF FOR AN ASSESSMENT Y EAR BEGINNING ON THE 1ST DAY OF APRIL, 2002; (III) FIFTY PER CENT THEREOF FOR AN ASSESSMENT YE AR BEGINNING ON THE 1ST DAY OF APRIL, 2003; (IV) THIRTY PER CENT THEREOF FOR AN ASSESSMENT YE AR 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 SUB SEQUENT ASSESSMENT YEAR.] ** ** ** (3) FOR THE PURPOSES OF SUB-SECTION (1),- (A) WHERE THE EXPORT OUT OF INDIA IS OF GOODS OR M ERCHANDISE MANUFACTURED [OR PROCESSED] BY THE ASSESSEE, THE PROFITS DERIVED FROM SUCH EXPORT SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINE SS, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH GOODS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE; ** ** ** PROVIDED THAT THE PROFITS COMPUTED UNDER CLAUSE (A) OR CLAU SE (B) OR CLAUSE (C) OF THIS SUB-SECTION SHALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEARS TO NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSE (IIIA) (NOT BEING PROFITS ON SALE OF A LICENCE ACQUIRED FROM ANY OTHER PERSON), AND CLAUSES (IIIB) AND (IIIC) OF SECTION 28, THE SAME PROPORTION AS THE EXPORT TU RNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE : PROVIDED FURTHER THAT IN THE CASE OF AN ASSESSEE HAVING EXPORT TURN OVER NOT EXCEEDING RUPEES TEN CRORES DURING THE PREVIOUS YEA R, 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, SH ALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEARS TO NINETY PER CENT OF ANY SU M REFERRED TO IN CLAUSE (IIID) OR CLAUSE (IIIE), AS THE CASE MAY BE, 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 ALSO THAT IN THE CASE OF AN ASSESSEE HAVING EXPORT TURN OVER EXCEEDING RUPEES TEN CRORES DURING THE PREVIOUS YEA R, 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, SH ALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEARS TO NINETY PER CENT OF ANY SU M REFERRED TO IN CLAUSE (IIID) OF SECTION 28, THE SAME PROPORTION AS THE EX PORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE AS SESSEE, IF THE ASSESSEE HAS NECESSARY AND SUFFICIENT EVIDENCE TO PROVE THAT,- (A) HE HAD AN OPTION TO CHOOSE EITHER THE DUTY DR AWBACK OR THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISS ION SCHEME; AND (B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO T HE CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY EN TITLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME : PROVIDED ALSO THAT IN THE CASE OF AN ASSESSEE HAVING EXPORT TURN OVER EXCEEDING RUPEES TEN CRORES DURING THE PREVIOUS YEA R, THE PROFITS COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THI S SUB-SECTION OR AFTER GIVING 6 EFFECT TO THE FIRST PROVISO, AS THE CASE MAY BE, SH ALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEARS TO NINETY PER CENT OF ANY SU M REFERRED TO IN CLAUSE (IIIE) OF SECTION 28, THE SAME PROPORTION AS THE EX PORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE AS SESSEE, IF THE ASSESSEE HAS NECESSARY AND SUFFICIENT EVIDENCE TO PROVE THAT- (A) HE HAD AN OPTION TO CHOOSE EITHER THE DUTY DRA WBACK OR THE DUTY FREE REPLENISHMENT CERTIFICATE, BEING THE DUTY REMISSION SCHEME; AND (B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO TH E CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY FR EE 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 RE PLENISHMENT CERTIFICATE, BEING THE DUTY REMISSION SCHEME CALCULATED IN THE M ANNER AS MAY BE NOTIFIED BY THE CENTRAL GOVERNMENT:] ** ** ** EXPLANATION.-FOR THE PURPOSES OF THIS SECTION,- (BAA) 'PROFITS OF THE BUSINESS' MEANS THE PROFITS O F THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION' AS REDUCED BY- (1) NINETY PER CENT OF ANY SUM REFERRED TO IN CLA USES (IIIA), (IIIB), (IIIC), (IIID) AND (IIIE) OF SECTION 28 OR OF ANY RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A S IMILAR NATURE INCLUDED IN SUCH PROFITS; AND (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 MAKE S IT CLEAR THAT AN ASSESSEE ENGAGED IN THE BUSINESS OF EXPORT OUT OF I NDIA OF ANY GOODS OR MERCHANDISE TO WHICH THIS SECTION APPLIES SHALL BE ALLOWED, IN COMPUTING HIS TOTAL INCOME, A DEDUCTION TO THE EXTENT 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 DIFFERENT ASSESSMENT YEAR S FROM THE ASSESSMENT YEARS 2001-2002 TO 2004-2005. SUB-SECTION (3)(A) OF SECTI ON 80HHC PROVIDES THAT WHERE THE EXPORT OUT OF INDIA IS OF GOODS OR MERCHA NDISE MANUFACTURED OR PROCESSED BY THE ASSESSEE, THE PROFITS DERIVED FROM SUCH EXPORTS SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH GOODS BEARS TO T HE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. IN COMMISSIONE R OF INCOME-TAX V. K. RAVINDRANATHAN NAIR [2007] 295 ITR 228 (SC), THE FO RMULA IN SUB-SECTION (3)(A) OF SECTION 80HHC WAS STATED BY THIS COURT TO BE AS FOLLOWS: PROFITS OF THE BUSINESS EXPORT TURNOVER PROFITS DERIVED FROM EXPORTS = TOTAL TURNOVER 20. EXPLANATION (BAA) UNDER SECTION 80HHC STATES THAT 'PROFITS OF THE BUSINESS' IN THE AFORESAID FORMULA MEANS THE PROFIT S OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSIN ESS OR PROFESSION' AS REDUCED BY (1) NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSES (IIIA), (IIIB), (IIIC), (IIID) AND (IIIE) OF SECTION 28 OR OF ANY R ECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RE CEIPT OF SIMILAR NATURE INCLUDING ANY SUCH RECEIPTS AND (2) THE PROFITS OF ANY BRANCH, OFFICE, 7 WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESSE E SITUATED OUTSIDE INDIA. THUS, NINETY PER CENT OF THE DEPB WHICH IS 'CASH AS SISTANCE' AGAINST EXPORTS AND IS COVERED UNDER CLAUSE (IIIB) OF SECTION 28 WI LL GET EXCLUDED FROM THE 'PROFITS OF THE BUSINESS' OF THE ASSESSEE IF SUCH D EPB HAS ACCRUED TO THE ASSESSEE DURING THE PREVIOUS YEAR. SIMILARLY, IF DU RING THE SAME PREVIOUS YEAR, THE ASSESSEE HAS TRANSFERRED THE DEPB AND THE SALE VALUE OF SUCH DEPB IS MORE THAN THE FACE VALUE OF THE DEPB, THE D IFFERENCE BETWEEN THE SALE VALUE OF THE DEPB AND THE FACE VALUE OF THE DE PB WILL REPRESENT THE PROFIT ON TRANSFER OF DEPB COVERED UNDER CLAUSE (II ID) OF SECTION 28 AND NINETY PER CENT OF SUCH PROFIT ON TRANSFER OF DEPB CERTIFICATE WILL GET EXCLUDED FROM 'PROFITS OF THE BUSINESS'. BUT, WHERE THE DEPB ACCRUES TO THE ASSESSEE IN THE FIRST PREVIOUS YEAR AND THE ASSESSE E 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 EXCLU DED FROM THE 'PROFITS OF THE BUSINESS'. THUS, WHERE THE NINETY PER CENT OF T HE FACE VALUE OF THE DEPB DOES NOT GET EXCLUDED FROM 'PROFITS OF THE BUSINESS ' UNDER EXPLANATION (BAA) AND ONLY NINETY PER CENT OF THE DIFFERENCE BETWEEN THE FACE VALUE OF THE DEPB AND THE SALE VALUE OF THE DEPB GETS EXCLUDED FROM ' PROFITS OF THE BUSINESS', THE ASSESSEE GETS A BIGGER FIGURE OF 'PROFITS OF TH E BUSINESS' AND THIS IS POSSIBLE WHEN THE DEPB ACCRUES TO THE ASSESSEE IN O NE PREVIOUS YEAR AND TRANSFER OF THE DEPB TAKES PLACE 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 UNDER SUBSECTIO N (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 SECTI ON 80HHC, THE ADDITIONS AS MENTIONED IN FIRST, SECOND, THIRD AND FOURTH PRO VISO 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), (III B) AND (IIIC) OF SECTION 28 ARE ADDED IN THE SAME PROPORTION AS EXPORT TURNOVER BEA RS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. IN THIS FIRST PROVISO, THERE IS NO ADDITION OF ANY SUM REFERRED TO IN CLAUSE (IIID) OR CLAUSE (IIIE). HENCE, PROFIT ON TRANSFER OF DEPB OR DFRC ARE NOT TO BE ADDED UND ER THE FIRST PROVISO. WHERE THEREFORE IN THE PREVIOUS YEAR NO DEPB OR DFR C ACCRUES TO THE ASSESSEE, HE WOULD NOT BE ENTITLED TO THE BENEFIT O F THE FIRST PROVISO TO SUB- SECTION (3) OF SECTION 80HHC BECAUSE HE WOULD NOT H AVE ANY SUM REFERRED TO IN CLAUSE (IIIB) OF SECTION 28 OF THE ACT. THE SECO ND 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 PREVIOUS YEA R, AFTER GIVING EFFECT TO THE FIRST PROVISO, THE EXPORT PROFITS ARE TO BE INC REASED FURTHER BY THE AMOUNT WHICH BEARS TO NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSES (IIID) AND (IIIE) OF SECTION 28, THE SAME PROPORTION AS THE EX PORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE AS SESSEE. THE THIRD PROVISO TO SUB-SECTION (3) STATES THAT IN CASE OF AN ASSESSEE HAVING EXPORT TURNOVER EXCEEDING RS. 10 CRORES, SIMILAR ADDITION OF NINETY PER CENT OF THE SUMS REFERRED TO IN CLAUSE (IIID) OF SECTION 28 ONLY IF THE ASSESSEE HAS THE NECESSARY AND SUFFICIENT EVIDENCE TO PROVE THAT (A) HE HAD AN OPTION TO CHOOSE EITHER THE DUTY DRAWBACK OR THE DUTY ENTITLEMENT PASS BOOK SCH EME, BEING THE DUTY REMISSION SCHEME; AND (B) THE RATE OF DRAWBACK CRED IT ATTRIBUTABLE TO THE CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALL OWABLE UNDER THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISS ION SCHEME. THEREFORE, IF THE ASSESSEE HAVING EXPORT TURNOVER OF MORE THAN RS. 10 CRORES DOES NOT SATISFY THESE TWO CONDITIONS, HE WILL NOT BE ENTITL ED TO THE ADDITION OF PROFIT ON TRANSFER OF DEPB UNDER THE THIRD PROVISO TO SUB-SEC TION (3) OF SECTION 80HHC. 22. THE AFORESAID DISCUSSION WOULD SHOW THAT WHERE AN ASSESSEE HAS AN EXPORT TURNOVER EXCEEDING RS. 10 CRORES AND HAS MAD E PROFITS ON TRANSFER OF 8 DEPB UNDER CLAUSE (D) OF SECTION 28, HE WOULD NOT G ET THE BENEFIT OF ADDITION TO EXPORT PROFITS UNDER THIRD OR FOURTH PROVISO TO SUB-SECTION (3) OF SECTION 80HHC, BUT HE WOULD GET THE BENEFIT OF EXCLUSION OF A SMALLER FIGURE FROM 'PROFITS OF THE BUSINESS' UNDER EXPLANATION (BAA) T O SECTION 80HHC OF THE ACT AND THERE IS NOTHING IN EXPLANATION (BAA) TO SE CTION 80HHC TO SHOW THAT THIS BENEFIT OF EXCLUSION OF A SMALLER FIGURE FROM 'PROFITS OF THE BUSINESS' WILL NOT BE AVAILABLE TO AN ASSESSEE HAVING AN EXPORT TU RNOVER EXCEEDING RS.10 CRORES. IN OTHER WORDS, WHERE THE EXPORT TURNOVER O F AN ASSESSEE EXCEEDS RS. 10 CRORES, HE DOES 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 ULT IMATELY RESULTS IN COMPUTATION OF A BIGGER EXPORT PROFIT. THE HIGH COU RT, THEREFORE, WAS NOT RIGHT IN COMING TO THE CONCLUSION THAT AS THE ASSES SEE DID NOT HAVE THE EXPORT TURNOVER EXCEEDING RS. 10 CRORES AND AS THE ASSESSE E DID NOT FULFILL THE CONDITIONS SET OUT IN THE THIRD PROVISO TO SECTION 80HHC (III), THE ASSESSEE WAS NOT ENTITLED TO A DEDUCTION UNDER SECTION 80HHC ON THE AMOUNT RECEIVED ON TRANSFER OF DEPB AND WITH A VIEW TO GET OVER THI S DIFFICULTY THE ASSESSEE WAS CONTENDING THAT THE PROFITS ON TRANSFER OF DEPB UNDER 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 WILL BE LIABLE TO TAX AND WILL BE ENTITLED TO EXEMPTION FROM TAX ACCORDIN G TO THE STRICT LANGUAGE OF THE TAXING STATUTE AND IF AS PER THE WORDS USED IN EXPLANATION (BAA) TO SECTION 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, THE BENEFIT OF SUCH DEDUCTION CANNOT BE DENIED TO T HE ASSESSEE. 23. THE IMPUGNED JUDGMENT AND ORDERS OF THE BOMBAY HIG H COURT ARE ACCORDINGLY SET-ASIDE. THE APPEALS ARE ALLOWED TO T HE EXTENT INDICATED IN THIS JUDGMENT. THE ASSESSING OFFICER IS DIRECTED TO COMP UTE THE DEDUCTION UNDER SECTION 80HHC IN THE CASE OF THE APPELLANTS IN ACCO RDANCE WITH THIS JUDGMENT. THERE SHALL BE NO ORDER AS TO COSTS. IN LINE WITH THE ABOVE SAID, WE REMIT THE ISSUE BA CK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE SAME IN LINE WI TH THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN TOPMAN EXPORTS VS. CIT (SUPRA) AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ASSESSING OFFICER SHALL VERIFY THE FACTUM OF RECEIP T OF DEPB BY THE ASSESSEE AND DECIDE THE ISSUE IN ACCORDANCE WITH SE TTLED PRINCIPLES. GROUND NO.1 RAISED BY THE ASSESSEE IS THUS PARTLY A LLOWED. 6. GROUND NO.2 RAISED BY THE ASSESSEE IS AGAINST TH E EXCLUSION OF SCRAP SALES FROM THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. WE FIND THAT THE ISSUE I S SQUARELY COVERED BY THE RATIO LAID DOWN IN CIT VS. BICYCLE WHEELS (INDI A) [335 ITR 384 (P&H)] WHEREIN IT HAS BEEN LAID DOWN THAT WHERE THE SCRAP IS GENERATED FROM THE MANUFACTURING ACTIVITY CARRIED ON BY IT, T HE PROFITS ARISING ON ITS SALE ARE TO BE INCLUDED IN THE TOTAL TURNOVER W HILE COMPUTING 9 DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE ASSE SSEE IS ENGAGED IN THE MANUFACTURING OF BICYCLE AND SCRAP GENERATED BY IT IS CLAIMED TO BE FROM MANUFACTURING ACTIVITY. FOLLOWING THE RATIO L AID DOWN IN CIT VS. BICYCLE WHEELS (INDIA) (SUPRA), WE DIRECT THE ASSES SING OFFICER TO INCLUDE THE SCRAP SALE AS PART OF TOTAL TURNOVER, W HILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 3 TH JULY, 2012. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 13 TH JULY, 2012 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH