ACIT, Virudhunagar V. M/s. Natchiar Textile Enterprises, Rajapalayam

ITA 1102/CHNY/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64458 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 17-10-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 08-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR
• Assessee Lawyers: S SRIDHAR
• Section: 80HHC; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER] I.T.A.NO.1102/MDS/2010 ASSESSMENT YEAR : 2001-02 THE ACIT CIRCLE I VIRUDHUNAGAR VS M/S NAATCHIAR TEXTILE EXPORTERS 115/5 NORTH STREET CHATRAPATTI RAJAPALAYAM [PAN AAAFN 7765 P] ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.E.B.RENGARAJAN, JR. STANDING COUNSEL RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE DATE OF HEARING : 17-10-2012 DATE OF PRONOUNCEMENT : 19-10-2012 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REV ENUE AGAINST THE ORDER OF THE CIT(A) II, MADURAI, DATED 9.4.2010. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPE AL: 1. THE ORDER OF THE COMMISSIONER OF INCOME-TAX (A PPEALS) IS CONTRARY, TO THE LAW ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. I.T.A.NO.1102/2010 :- 2 -: 2. THE COMMISSIONER OF INCOMETAX (APPEALS) ERRED IN HOLDING THAT ONLY PROFIT ARISING ON DEPB ALONE SHOULD BE REDUCED FROM THE PROFITS OF THE BUSINESS. 3. THE COMMISSIONER OF INCOMETAX (APPEALS) FAILED T O NOTE THAT THE 90% OF ENTIRE SALE PROCEEDS OF DEPB SHOULD BE REDUCED FROM THE PROFIT OF THE BUSINESS SINCE THERE IS NO COST TO THE ASSESSEE IN RESPECT OF DEPB. 4. THE COMMISSIONER OF INCOMETAX (APPEALS) FAILED T O NOTE THAT THE ASSESSEE IS NOT ENTITLED TO AVAIL THE ADDI TIONAL DEDUCTION UNDER SECTION 80HHC(3) AS PER THIRD PROVI SO TO SECTION 80HCC(3) SINCE THE EXPORT TURNOVER OF ASSES SEE EXCEEDS RS.10 CRORES AND THE ASSESSEE DID NOT FULFI L THE CONDITIONS STIPULATED IN THE THIRD PROVISO. 5. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE ADD UCTED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDERS O F THE COMMISSIONER OF INCOME TAX(APPEALS) MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER RESTORED. 3. THE BRIEF FACTS OF THE CASE LEADING TO THE APPEAL A RE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A SSESSING OFFICER FOUND THAT THE ASSESSEE HAS DEDUCTED 90% OF PROFIT ON TRANSFER OF DEPB FOR ARRIVING AT PROFITS OF THE BUSINESS FOR D EDUCTION U/S 80HHC OF THE ACT. HE FOUND THAT THE PROFIT ON TRANSFER OF D EPB WAS TAKEN AT ` 14,47,274/- BY DEDUCTING DEPB VALUE FROM DEPB SALE VALUE. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE INCURRED NOT HING IN ACQUIRING THE DEPB CREDIT AND THEREFORE, THE ENTIRE SALE VALUE OF ` 2,27,03,166/- BECOMES PROFIT ON TRANSFER OF DEPB AND 90% OF THIS HAS TO BE DEDUCTED FOR ARRIVING AT PROFITS OF THE BUSINESS. HE ALSO OBSERVED THAT THE ASSESSEES TURNOVER EXCEEDS ` 10 CRORES AND NO EVIDENCE WAS PRODUCED TO SHOW THAT CONDITIONS STIPULATED IN 3 RD PROVISO TO SECTION I.T.A.NO.1102/2010 :- 3 -: 80HHC(3) ARE FULFILLED AND FURTHER ALLOWANCE IS ALS O NOT ALLOWABLE. HENCE, THE ASSESSING OFFICER DENIED DEDUCTION U/S 8 0HHC OF THE ACT. 4. ON APPEAL BEFORE THE CIT(A), THE ASSESSEE ARGUED TH AT ONLY 90% OUT OF THE PROFIT EARNED FROM THE SALE PROCEEDS OF DEPB CAN BE DISALLOWED AND NOT THE ENTIRE SALE PROCEEDS OF DEPB . IT WAS CONTENDED THAT THE ASSESSING OFFICER WAS WRONG IN A SSESSING THE ENTIRE SALE OF DEPB AS PROFIT WHICH WAS AGAINST THE ACT AS LAID DOWN UNDER SECTION 28(IIID) OF THE ACT. FOR THIS, RELIANCE WAS PLACED ON THE DECISION OF MUMBAI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF TOPMAN EXPORTS VS ITO IN I.T.A.NO. 5769/MUM/06, ORDER DATE D 11.8.2009. THE ASSESSEE FURTHER SUBMITTED THAT THE SUM OF ` 2,27,03,166/- WAS SALE PROCEEDS OF DEPB LICENCE AND NOT PROFIT ON TRA NSFER OF DEPB LICENCE. IT WAS SUBMITTED THAT THE FACE VALUE OF D EPB WAS ` 2,04,44,681/- WHICH WAS DECIDED BY THE DEPB LICENCE ISSUING AUTHORITY OF THE GOVERNMENT OF INDIA. THIS WAS SOLD FOR ` 2,18,91,955/- TO THIRD PARTIES RESULTING IN A PROFIT OF ` 14,47,274/-. IT WAS ALSO SUBMITTED THAT THE FACE VALUE OF ` 2,04,44,681/- REPRESENTS CASH ASSISTANCE AS PER SECTION 28(IIIB) AND ` 14,47,274/- ONLY REPRESENTS PROFITS ON SALE OF DEPB LICENCE COVERED BY SECTION 28(IIID) OF THE ACT . THEREFORE, IT WAS CONTENDED THAT THE ASSESSING OFFICER FAILED TO APPL Y FIRST PROVISO TO I.T.A.NO.1102/2010 :- 4 -: SECTION 80HHC(3) OF THE ACT TO ENHANCE THE PROFIT B Y 90% OF THE FACE VALUE OF DEPB OF ` 2,04,44,681/- U/S 28(IIIB) OF THE ACT. 5. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE, HELD THAT THE FACE VALUE OF DEPB LICENCE AMOUNTING TO ` 2,04,44,681/- IS COVERED BY SECTION 28(IIIB) AND QU ALIFIED FOR DEDUCTION UNDER FIRST PROVISO TO SECTION 80HHC OF THE ACT. H E ALSO OBSERVED THAT A SUM OF ` 14,47,274/- WAS OFFERED BY THE ASSESSEE AS PROFIT FROM TRANSFER OF DEPB LICENCE WHICH WAS INCLUDED UNDER S ALE OF DEPB LICENCE. HENCE, HE DIRECTED THE ASSESSING OFFICER TO ADD 90% OF THE FACE VALUE OF DEPB OF ` 2,04,44,681/- FOR QUANTIFYING THE DEDUCTION U/S 80HHC OF THE ACT UNDER FIRST PROVISO AS THE SAME IS COVERED BY CLAUSE (IIIB) TO SECTION 28 OF THE ACT. HE FURTHER OBSER VED THAT THE ASSESSEE HAS EARNED PROFIT OF ` 14,47,274/- OUT OF SALE OF DEPB LICENCE. SINCE SECTION 28(IIID) SPECIFIES PROFIT ON TRANSFER OF DE PB, ONLY PROFIT ARISING ON DEPB SHOULD BE REDUCED. HENCE, HE HELD THAT ONL Y PROFIT OF ` 14,47,274/- ON TRANSFER OF DEPB CAN BE REDUCED FROM THE PROFITS OF THE BUSINESS. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE ASSESSEE CLAIMED DEDUCTION U/S 80HHC OF ` 80,22,722/-. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS DE DUCTED 90% OF I.T.A.NO.1102/2010 :- 5 -: PROFIT ON TRANSFER OF DEPB FOR ARRIVING AT PROFIT O F BUSINESS FOR SECTION 80HHC PURPOSE WHICH IS THE SALE VALUE OF ` 2,27,03,166/- MINUS THE DEPB VALUE OF ` 2,04,44,681/- WHICH AMOUNTS TO ` 14,47,274/-. ACCORDING TO THE ASSESSING OFFICER, THE ENTIRE SALE VALUE OF ` 2,27,03,166/- BECOMES PROFIT ON TRANSFER OF DEPB AN D 90% OF THIS HAS TO BE DEDUCTED FOR ARRIVING AT PROFIT OF BUSINESS. HE ALSO OBSERVED THAT SINCE THE ASSESSEES EXPORT TURNOVER EXCEEDS ` 10 CRORES AND THE ASSESSEE HAS NOT FURNISHED EVIDENCES TO SHOW THAT T HE CONDITIONS STIPULATED IN THIRD PROVISION TO SECTION 80HHC(3) A RE FULFILLED, THE FURTHER ALLOWANCE WAS NOT ALLOWABLE. HENCE, HE DID NOT ALLOW DEDUCTION U/S 80HHC OF THE ACT. 7. ON APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE ASSESSING OFFICER, THE CIT(A) HELD THAT THE VALUE OF DEPB LIC ENCE AMOUNTING TO ` 2,04,44,681/- WAS COVERED BY SECTION 28(IIIB) AND W AS ELIGIBLE FOR DEDUCTION UNDER FIRST PROVISO TO SECTION 80HHC OF T HE ACT. HE ALSO OBSERVED THAT UNDER CLAUSE (IIID) TO SECTION 28 ONL Y THE PROFIT ON TRANSFER OF DEPB IS COVERED AND AS THERE WAS A PROF IT OF ` 14,47,274/- EARNED BY THE ASSESSEE ON TRANSFER OF DEPB, HE THE REFORE, DIRECTED THE ASSESSING OFFICER NOT TO TREAT THE ENTIRE SALE PROCEEDS OF DEPB AS THE PROFIT ON SALE OF DEPB LICENCE U/S 28(IIID) OF THE ACT. I.T.A.NO.1102/2010 :- 6 -: 8. BOTH THE PARTIES AGREED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY TH E DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS VS CIT, 247 CTR (SC) 353. THE VIEW ADOPTED BY THE CIT(A) IS IN CONFORMITY WITH THE VIEW EXPRESSED BY THE HON'BLE SUPREME COURT IN THE ABOVE QUOTED CASE AND THEREFORE, THE ORDER OF THE CIT(A) REQUIRE S NO INTERFERENCE BY US. HENCE, THE GROUNDS OF APPEAL OF THE REVENUE A RE DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON FRIDAY, THE 19 TH OF OCTOBER, 2012, AT CHENNAI. SD/- SD/- (V. DURGA RAO) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 19 TH OCTOBER, 2012 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR