M/s. ACE IMPEX, MUMBAI V. ADDL. CIT. Rg. - 12(1), MUMBAI

ITA 165/MUM/2007

• Counselvise Citation: 16519914 RSA 2007
• Duration Of Justice: 4 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 25-07-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 05-01-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P NAIK
• Assessee Lawyers: ISHWAR PRAKASH RATHI
• Section: 80HHC; 28; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K MUMBAI BEFORE SHRI SUDHAKAR REDDY(AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO. 165/MUM/2007 ASSESSMENT YEAR-2003-04 M/S. ACE IMPEX, 104, NEW TEJPAL INDUSTRIAL PREMISES, ANDHERI KURLA ROAD, SAKINAKA,ANDHERI (E), MUMBAI-400 072 PAN-AAGF 0317A VS. THE ADDL. CIT 12(1), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ISHWAR PRAKASH RATHI RESPONDENT BY: SHRI P. NAIK DATE OF HEARING: 04.07.2011 DATE OF PRONOUNCEMENT: JULY, 2011 O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 31.10.2006 PASSED BY THE LD. CIT(A)-XII FOR THE ASS ESSMENT YEAR 2003-04. 2. GROUND NOS. 1 TO 6 RELATES TO DISALLOWANCE OF DE DUCTION U/S. 80HHC. 3. WE FIND THAT THIS ISSUE IS COVERED BY THE DECISI ON OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF KALPATARU COLOURS & CHEMI CALS REPORTED IN 233 CTR 313 WHICH READS AS FOLLOWS: AS REGARDS THE DEDUCTION UNDER SECTION 80HHC, THE LEGISLATURE SUBSTITUTED EXPLANATION (BAA) IN SECTION 80HHC SO AS TO EXCLUDE 90 PER CENT. OF THE PROFITS RECEIVED ON TRANSFER OF DEP B FROM THE PROFITS OF BUSINESS FOR THE PURPOSES OF SECTION 80H HC AND INSERTED ITA NO. 165/MUM/2007 2 THE SECOND AND THIRD PROVISOS TO SECTION 80HHC(3). THE SECOND PROVISO PROVIDED THAT IN THE CASE OF AN ASSESSEE HA VING AN EXPORT TURNOVER NOT EXCEEDING RS. 10 CRORES, THE PROFITS C OMPUTED UNDER SECTION 80HHC(3) SHALL BE INCREASED BY 90 PER CENT. OF THE SUM REFERRED TO IN SECTION 28(IIID). THE THIRD PROVISO PROVIDED THAT IN THE CASE OF AN ASSESSEE HAVING AN EXPORT TURNOVER EXCEE DING RS. 10 CRORES, THE PROFITS COMPUTED UNDER SECTION 80HHC(3) SHALL BE INCREASED BY 90 PER CENT. OF THE SUM REFERRED TO IN SECTION 28(IIID) SUBJECT TO THE TWO CONDITIONS SET OUT THEREIN. WHAT CONSTITUTES PROFITS UNDER SECTION 28(IIID) IS THE AMOUNT RECEIV ED ON TRANSFER OF THE DEPB CREDIT AND NOT THE AMOUNT OF CREDIT WHICH T HE ASSESSEE WAS ENTITLED TO UNDER THE DEPB SCHEME. IN OTHER WORD S, THE AMOUNT EQUIVALENT TO THE FACE VALUE OF DEPB AS WELL AS THE AMOUNT RECEIVED IN EXCESS OF THE DEPB WOULD CONSTITUTE PROF ITS OF BUSINESS UNDER SECTION 28(IIID) AND MERELY BECAUSE A PART OF SUCH PROFITS OF BUSINESS (FACE VALUE) WAS OFFERED TO TAX IN THE YEA R IN WHICH THE CREDIT ACCRUED TO THE ASSESSEE WOULD NOT BE A GROUN D TO HOLD THAT SUCH PRO-FIT WAS NOT COVERED UNDER SECTION 28(IIID) . WHERE THE FACE VALUE OF THE DEPB CREDIT IS OFFERED TO TAX AS BUSINE SS PROFITS UNDER SECTION 28(IIID) IN THE YEAR IN WHICH THE CREDIT AC CRUED TO THE ASSESSEE, THEN ANY FURTHER PROFIT ARISING ON TRANSF ER OF THE DEPB CREDIT WOULD BE TAXED AS PROFITS OF BUSINESS UNDER SECTION 28(IIID) IN THE YEAR IN WHICH THE TRANSFER OF THE DEPB CREDIT TO OK PLACE. THERE IS ANOTHER PERSPECTIVE FROM WHICH THE ISSUE C AN BE LOOKED AT. THE DEPB CREDIT TO WHICH AN EXPORTER IS E NTITLED IS A FORM OF AN EXPORT INCENTIVE. NO PART OF THE CREDIT THAT IS AVAILABLE UNDER THE DEPB SCHEME CAN FALL FOR CLASSIFICATION UN DER CLAUSE (IIIB) OF SECTION 28 WHICH DEALS WITH CASH ASSISTANCE, REC EIVED OR RECEIVABLE AGAINST ANY SCHEME OF THE GOVERNMENT OF INDIA. CLAUSE (IIIB) WAS ENACTED AT A TIME WHEN THE EXPORT INCENT IVES THAT WERE AVAILABLE WERE (I) IMPORT ENTITLEMENT LICENCES ; (I I) CASH COMPENSATORY SUPPORT ; AND (III) DUTY DRAWBACK. THE DEPB SCHEME WAS NOT IN EXISTENCE WHEN CLAUSE (IIIB) CAME TO BE ENACTED INTO SECTION 28 BY THE FINANCE ACT OF 1990. THE DEPB SCHE ME WAS BROUGHT INTO EXISTENCE WITH EFFECT FROM APRIL 1, 19 97. CLAUSE (IIID) OF SECTION 28 WAS INSERTED BY THE AMENDING ACT OF 2 005 WITH EFFECT FROM APRIL 1, 1998. THE VALUE OF THE DEPB CREDIT CA NNOT BE REGARDED AS A CASH ASSISTANCE WHICH IS RECEIVED OR RECEIVABLE BY A PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVE RNMENT OF INDIA. IT CANNOT BE INFERRED FROM THE SPEECH OF THE FINANC E MINISTER THAT THE INSERTION OF CLAUSE (IIID) IN SECTION 28 W AS MADE WITH A ITA NO. 165/MUM/2007 3 VIEW TO TAX ONLY THE AMOUNT WHICH HAS BEEN RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB CREDIT. DEPB CREDIT WAS I NTRODUCED WITH EFFECT FORM APRIL 1, 1997, WHICH WAS AFTER THE INSE RTION OF CLAUSE (IIIB) IN SECTION 28 ; SECTION 28(IIIB) REFERS TO C ASH ASSISTANCE RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT PURSUA NT TO A SCHEME OF THE GOVERNMENT. THE AMOUNT RECEIVED ON TH E TRANSFER OF THE DEPB CREDIT IS NOT RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT PURSUANT TO A SCHEME OF THE GOVERNMENT W ITHIN THE MEANING OF CLAUSE (IIIC) ; AND WHEN SECTION 28(IIID ) SPECIFICALLY DEALS WITH PROFITS REALISED ON THE TRANSFER OF THE DEPB CR EDIT, IT WOULD BE IMPERMISSIBLE AS A MATTER OF FIRST PRINCIPLE TO BIF URCATE THE FACE VALUE OF THE DEPB AND THE AMOUNT RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB. THE ENTIRETY OF THE SALE CONSIDER ATION WOULD FALL WITHIN THE PURVIEW OF SECTION 28(IIID). RESPECTFULLY FOLLOWING THE JURISDICTIONAL HIGH COU RT DECISION IN THE CASE OF KALPATARU COLOURS & CHEMICALS 233 CTR 313, WE DIS MISS THE GROUND RAISED BY THE ASSESSEE. 4. GROUND NOS. 7 & 8 RELATES TO APPEAL AGAINST DISA LLOWANCE OF DEDUCTION OF 10% OF DEPB LICENSES FROM THE INDIRECT COST. 5. THE ASSESSING OFFICER OBSERVED THAT WHILE CALCUL ATING THE DEDUCTION U/S. 80HHC, THE ASSESSEE HAS REDUCED 10% OF THE VALUE OF DEPB LICENCE OF RS. 2,95,00,136/- BEING RS. 29,50,014/- FROM THE INDIRE CT COST ON ACCOUNT OF THE EXPENSES INCURRED TO EARN THE EXPORT INCENTIVES AND CONSIDERED THE BALANCE INDIRECT COST WHILE COMPUTING THE PROFIT FROM THE EXPORT OF TRADING GOODS FOR THE PURPOSE OF SEC 80HHC.. WHILE PASSING THE ASSESSMEN T ORDER, THE AO DISALLOWED SUCH DEDUCTION AND TAKEN THE FIGURE OF THE INDIRECT COST OF RS. 2,25,26,552/-. HE HELD THAT AS PER THE PROVISO TO SUB-SEC. 3 TO SEC. 80HHC, THE ASSESSEE IS ELIGIBLE ONLY 90% OF THE EXPORT INCENTIVES AND NOT ON 100% O F THE INCENTIVES. 6. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD. CIT(A). THE LD. CIT(A) DISMISSED THE GROUND BY OBSERVING AS UNDER: ITA NO. 165/MUM/2007 4 THESE HAVE BEEN DONE BY THE AO IN ACCORDANCE WITH THE AMENDED PROVISIONS OF THE I.T. ACT AND THEREFORE THESE CONT ENTIONS ARE ALSO REJECTED. THE APPELLANT ALSO PLEADED TO KEEP THE APPEAL PROCE EDINGS IN ABEYANCE IN VIEW OF THE WRIT PETITIONS FILED BY ALL INDIA EXPORTERS GRIEVANCE FORUM ON THE QUESTION OF CONSTITUTIONAL V ALIDITY OF THE THIRD AND FOURTH PROVISO TO SEC. 80HHC(3) INSERTED BY THE TAXATION LAWS (AMENDMENT)ACT 2005. NOTHING WAS BROUGHT TO THE UNDERSIGNEDS KNOWLEDGE TO STATE WHETHER ANY COURT OF LAW HAS RESTRAINED THE CIT(A) IN GENERAL NOT TO PROCEED WITH THE APPEALS PENDING BEFORE THEM. S INCE THERE IS NO ORDER AS SUCH, EVEN INTERIM, AND THIS IS A HIGH DEM AND APPEAL FORMING THE PART OF TOP PRIORITY CASES, IT WAS DECI DED TO PROCEED WITH THE APPEAL. 7. AGGRIEVED, ASSESSEE IS ON APPEAL BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SHRI ISHWAR PRAKASH RATHI RELIED ON THE DE CISION OF THE APEX COURT IN THE CASE OF HERO EXPORTS 295 ITR 454. THE ISSUE IS DEDUCTION OF 10% TOWARDS INDIRECT COST IN EARNING INCENTIVE INCOME ON EXPORT IN COMPUTING DEDUCTION U/S. 80HHC. THE ASSESSEE HAS BEEN GIVEN DEDUCTION U/S. 80HHC BOTH FOR EXPORT OF MANUFACTURING GOODS AND FOR TRADING EXPORTS. DEDUC TION U/S. 80HHC IS TO BE COMPUTED SEPARATELY FOR MANUFACTURING AND TRADING E XPORTS. ONLY IN RESPECT OF EXPORT OF MANUFACTURING GOODS 90% OF INCENTIVE IS E XCLUDED FROM THE BUSINESS PROFITS UNDER EXPLANATION (BAA) OF SEC 80HHC. THE BALANCE 10% PRESUMABLY IS TO COVER THE EXPENSES IF ANY IN EARNING THE EXCLUDE D INCOME. IN RESPECT OF INCENTIVES MENTIONED IN SEC 28(IIIA) TO 28(IIID) BA LANCE 90% OF THE INCENTIVES ARE ALLOWED DEDUCTION U/S 80HHC UNDER PROVISO TO SEC 80 HHC(3). IT IS ONLY IN THE CASE OF TRADING EXPORT THE APEX COURT IN THE CASE OF HERO EXPORTS 295 ITR 454 (SUPRA) HELD THAT 10% OF THE INCENTIVE CAN BE ATTRI BUTABLE TO EXPENSES FOR EARNING THAT INCENTIVE AND HENCE HAS TO BE REDUCED FROM IND IRECT COST IN COMPUTING DEDUCTION U/S. 80HHC RELIEF FOR TRADING EXPORTS. T HEREFORE THE INCENTIVE RECEIVED HAS FIRST TO BE DETERMINED WHETHER THEY WERE RECEIV ED ON ACCOUNT OF EXPORT OF MANUFACTURING GOODS OR THEY ARE ATTRIBUTABLE TO TRA DING GOODS. THE INCENTIVE RECEIVED TOWARDS TRADING EXPORT HAS TO BE EXCLUDED FROM THE PROFITS DERIVED FROM EXPORT OF MANUFACTURING GOODS. IN COMPUTING RELIEF IN EXPORT TRADING GOODS, 10% ITA NO. 165/MUM/2007 5 OF INCENTIVE ATTRIBUTABLE TO TRADING EXPORTS WILL B E EXCLUDED FROM INDIRECT COST TAKEN FOR COMPUTING PROFIS FROM TRADING EXPORT. TH E AO SHALL RECOMPUTE DEDUCTION U/S. 80HHC BASED ON THE ABOVE DIRECTIONS. . 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED ORDER PRONOUNCED ON THIS DAY OF JULY, 2011 (J. SUDHAKAR REDDY) (AS HA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED .. JULY, 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR K BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI DATE INITIALS 1. DRAFT DICTATED ON: 14.07.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 21.7.2011 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: ITA NO. 165/MUM/2007 6