ACIT Circle-31 (1), New Delhi V. Kavset Exports, Noida

ITA 1274/DEL/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3539 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 28-07-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 07-04-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: VIKAS GOEL
• Keywords: Opportunity of being heard; Question of law; Competent authority
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NOS. 1273 & 1274(DEL)/2008 ASSESSMENT YEARS: 2003-04 & 2004-05 ASSISTANT COMMISSIONER OF M /S KAVSET EXPORT, INCOME-TAX, CIRCLE 31(1), VS. 5 , PANCHSHEEL MARG, NEW DELHI. CHANAKYAPURI, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.K. CHAND, DR RESPONDENT BY : SHRI VIKAS GOEL, C.A. ORDER PER K.G. BANSAL : AM THESE TWO APPEALS OF THE REVENUE INVOLVE A COMM ON GROUND THAT THE LD. CIT(APPEALS) ERRED ON FACTS AND IN LAW WHILE DELETING PART DISALLOWANCE MADE BY THE AO IN COMPUTING DEDUCT ION U/S 80-HHC BY TREATING DEPB BENEFIT TO BE COVERED U/S 28(IIID) OF THE INCOME-TAX ACT, 1961. 2. BEFORE US, IT IS THE COMMON GROUND OF BOTH T HE PARTIES THAT THE ISSUE STANDS COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF KALPATARU COLOURS & CHEMICALS IN IT A NO. 2287 OF 2009 DATED 28/29-06-2010, REPORTED IN (2010) TIOL-48 2-HC-MUM-IT, ITA NOS. 1273 & 1274(DEL)/2008 2 WHEREIN IT WAS HELD THAT THE WHOLE OF THE AMO UNT RECEIVED BY AN ASSESSEE ON TRANSFER OF THE BENEFIT IS COVERED U/S 28(IIID). SINCE THE EXPORT TURNOVER OF THE ASSESSEE EXCEEDS THE SUM OF RS. 10.00 CRORE, THE WHOLE OF SUCH AMOUNT RECEIVED HAS TO BE TREATED UNDE R THIRD PROVISO TO SECTION 80HHC(3). 3. WE HAVE CONSIDERED THE SUBMISSIONS MADE BEFORE US. THE REVENUE HAD FORMULATED TWO QUESTIONS BEFORE THE HONBLE BOMBAY HIGH COURT IN THE AFORESAID CASE AS UNDER:- A) WHETHER THE TRIBUNAL IS JUSTIFIED IN HOLDIN G THAT THE ENTIRE AMOUNT RECEIVED ON THE SALE OF THE DUTY EN TITLEMENT PASSBOOK DOES NOT REPRESENT PROFITS CHARGEABLE U NDER SECTION 28(IIID) OF THE INCOME-TAX ACT, 1961 AND THAT THE FACE VALUE OF THE DUTY ENTITLEMENT PASSBOOK SHALL BE D EDUCTED FROM THE SALE PROCEEDS; B) WHETHER THE TRIBUNAL IS JUSTIFIED IN HOLDIN G THAT THE FACE VALUE OF THE DUTY ENTITLEMENT PASSBOOK IS CHARGEA BLE TO TAX UNDER SECTION 28(IIIB) AT THE TIME OF ACCRUAL OF INCOME I.E. WHEN THE APPLICATION FOR DUTY ENTITLEMENT PASSBO OK IS FILED WITH THE COMPETENT AUTHORITY PURSUANT TO THE EXPO RTS MADE AND THAT THE PROFITS ON THE SALE OF DUTY ENTITL EMENT PASSBOOK REPRESENTING THE EXCESS OF THE SALE PROCEEDS OVE R THE FACE VALUE IS LIABLE TO BE CONSIDERED UNDER SECTION 2 8(IIID) AT THE TIME OF SALE; ITA NOS. 1273 & 1274(DEL)/2008 3 3.1 THE HONBLE COURT SUSTAINED THE APPEAL FILE D BY THE REVENUE BY MAKING THE FOLLOWING OBSERVATIONS:- 33. THAT SUBMISSION THAT PRIOR TO INSERTION OF CLAUSE (IIID) IN SECTION 28, THE FACE VALUE OF THE DEPB CREDIT REALIZED ON THE TRANSFER OF SUCH CREDIT CONSTITUTED EXPORT PROFITS, BUT NOT THE AMOUNT REALIZED IN EXCESS OF THE FACE VALU E OF THE DEPB IS SIMILARLY WITHOUT ANY BASIS. THIS IS BECAUSE (I) THE OBJECT OF DEPB WAS TO FURNISH AN INCENTIVE TO EXPORT ERS SO AS TO ADJUST THE CREDIT AGAINST THE CUSTOMS DUTY PAYABLE ON ANY GOODS IMPORTED INTO INDIA. HOWEVER, WHERE AN EXPORTER INSTEAD OF UTILIZING THE CREDIT TRANSFERS THE CREDIT AT A PREMIUM, IT CANNOT BE SAID THAT THE EXPORTER H AS UTILIZED THE CREDIT; (II) THE LEGISLATURE CONSIDERS THAT THE CUSTOMS DUTY AND EXCISE DUTY PAID ON RAW MATERIALS USED IN THE EXPORT PRODUCT, WHEN REPAID OR REPAYABLE AS DUTY DRAW BACK, WOULD NOT CONSTITUTE EXPORT PROFIT. SIMILARLY, WHEN THE DEPB CREDIT IS NOT UTILIZED IN THE BUSINESS BUT IS TRANSFERRED FOR VALUE, THE AMOUNT RECEIVED ON THE TRANSFER WOULD BE BUSINESS PROFITS AND NOT EXPORT PROFITS IRRES PECTIVE OF WHETHER THE AMOUNT WHICH IS REALIZED IS EQUAL TO , LARGER THAN OR LESS THAN THE FACE VALUE OF THE DEPB CREDIT. PARLIAMENT HAS CONSIDERED THAT THE ENTIRETY OF THE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB SHALL CON STITUTE PROFITS OF BUSINESS UNDER SECTION 28(IIID). SINCE SUCH PROFITS ARE NOT EXPORT PROFITS PARLIAMENT DIRECTED THAT NI NETY PERCENT OF THOSE PROFITS WOULD BE EXCLUDED WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC; (III) PARLIAMENT CONSIDERED THAT AN EXPORTER WHO INSTEAD OF UTILIZING THE DEPB CREDIT FOR PAYING CUSTOMS DUTY ON IMPORTED GOODS, MAKES A PROFIT BY TRANSFERRING THE DEPB, WOULD FORM A SE PARATE CLASS AND SEEKS TO TAX THE RECEIPTS ON THE TRANSFER OF THE DEPB CREDIT AS BUSINESS PROFITS AND NOT EXPORT PROFITS. EXPORTERS WHO TRANSFER THE DEPB CREDIT AND MAKE A PROFIT CANNOT BE PLACED ON PAR WITH THOSE EXPORTERS WHO UTILIZE THE CREDIT FOR PAYING THE CUSTOMS DUTY ON T HE IMPORTED GOODS; (IV) THE FACT THAT PARLIAMENT DID NOT CO NSIDER THE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB TO B E EXPORT ITA NOS. 1273 & 1274(DEL)/2008 4 PROFIT CANNOT BE A GROUND TO HOLD THAT THE RECEI PTS ON THE TRANSFER OF DEPB CREDIT ARE NOT BUSINESS PR OFITS. COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITS T HAT THE ENTIRE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB C REDIT IS BUSINESS PROFIT, BUT IT WAS CONTENDED THAT WHAT IS INCLUDED IN SECTION 28(IIID) IS THE AMOUNT RECEIVED ON TH E TRANSFER OF THE DEPB CREDIT IN EXCESS OF THE FACE VALUE OF THE DEPB AND THE AMOUNT RECEIVED TO THE EXTENT OF THE F ACE VALUE OF THE DEPB WOULD BE COVERED UNDER SECTION 28(II IB). THERE IS NO MERIT IN THIS CONTENTION BECAUSE (A) THE DEPB CREDIT WAS NOT IN EXISTENCE WHEN SECTION 28 (II IB) WAS INSERTED BY THE FINANCE ACT OF 1990. DEPB CREDI T WAS INTRODUCED WITH EFFECT FROM 1 APRIL, 1997 WHICH W AS AFTER THE INSERTION OF CLAUSE (IIIB) IN SECTION 28; (B) S ECTION 28(IIIB) REFERS TO CASH ASSISTANCE (BY WHATEVER NAME CAL LED) RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT P URSUANT TO A SCHEME OF THE GOVERNMENT. THE AMOUNT RECEIVED O N THE TRANSFER OF THE DEPB CREDIT IS NOT RECEIVED B Y THE ASSESSEE FROM THE GOVERNMENT PURSUANT TO A SCHEME OF THE GOVERNMENT WITHIN THE MEANING OF CLAUSE (IIIC) AND (C) WHEN SECTION 28(IIID) SPECIFICALLY DEALS WITH PROFI TS REALIZED ON THE TRANSFER OF THE DEPB CREDIT, IT WOULD B E IMPERMISSIBLE AS A MATTER OF FIRST PRINCIPLE TO BIFURCATE TH E FACE VALUE OF THE DEPB AND THE AMOUNT RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB. 34. FOR ALL THESE REASONS, WE HAVE COME T O THE CONCLUSION THAT THE VIEW OF THE TRIBUNAL ON THE TWO QUEST IONS OF LAW FORMULATED BY THE REVENUE IS UNSUSTAINABLE. IN THE CIRCUMSTANCES, WE ALLOW THE APPEAL BY ANSWERING THE FIRST QUESTION OF LAW AS FORMULATED IN THE NEGATIVE. 35. IN SO FAR AS THE SECOND QUESTION IS CONCER NED, WE ARE NOT IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL THAT THE FACE VALUE OF THE DUTY ENTITLEMENT PASSBOOK REALIZE D ON THE TRANSFER OF THE ENTITLEMENT IS CHARGEABLE TO TAX UNDER SECTION 28(IIIB). WE HAVE ALREADY CLARIFIED THAT THE E NTIRETY OF THE SALE CONSIDERATION WOULD FALL WITHIN THE PURVIEW OF SECTION 28(IIID). WE ANSWER THE SECOND QUESTION OF LAW ACCORDINGLY ITA NOS. 1273 & 1274(DEL)/2008 5 IN THE AFORESAID TERMS. IN VIEW OF THE FINDINGS WHICH HAVE BEEN RECORDED IN THIS JUDGMENT, WE REMAND THE PROCEEDINGS TO THE ASSESSING OFFICER TO PASS FRESH ORDERS HAVI NG DUE REGARD TO THE QUESTIONS OF LAW WHICH HAVE BEEN DETERMINED IN THIS APPEAL. THE ASSESSING OFFICER WILL FURNIS H AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. AL L SUBMISSIONS ON FACTS MAY BE URGED BEFORE THE ASSESSING OFFICE R AND SHALL BE CONSIDERED IN ACCORDANCE WITH LAW. THE APPEA L IS ACCORDINGLY DISPOSED OF. IN THE CIRCUMSTANCES OF T HE CASE, THERE SHALL BE NO ORDER AS TO COSTS. 3.2 FOLLOWING THE AFORESAID JUDGMENT, IT IS HELD THAT THE WHOLE OF THE AMOUNT RECEIVED ON TRANSFER OF DEPB BENEFIT IS REQUIRED TO BE TREATED UNDER THE AFORESAID THIRD PROVISO. 4. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT SOON AFTER COMPLETION OF THE HEARING ON 28.07.2010. SD/- SD/- (RAJPAL YADAV) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 28TH JULY,2010. SP SATIA COPY OF THE ORDER FORWARDED TO:- M/S KAVSET EXPORT, NEW DELHI. ACIT, CIRCLE-31(1), NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.