Jhawar Biotech Pvt.Ltd., Surat V. The Income tax Officer, Ward-1(3), Surat

ITA 17/AHD/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0188 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 21-10-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 02-01-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R K MALPANI
• Keywords: Capital asset; Retrospective amendment; Cost of acquisition; Competent authority; Set aside; Capital Gains
• Section: 80HHC; 54; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI T.K.SHARMA, JUDICIAL MEMBER AND SHRI D.C.AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 21/10/09 DRAFTED ON: 28 /10/09 1. ITA NO.17/AHD/2007 2. ITA NO.619/AHD/2007 ASSESSMENT YEARS : 2004-05 & 2003-04 RESPECTIVELY JHAWAR BIOTECH PVT.LTD. 823/2 ROAD NO.8 GIDC SACHIN NR. SAGAR HOTEL, SURAT VS. THE ITO WARD-1(3) SURAT PAN/GIR NO. : AAACJ 6024 A (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI R.K. MALPANI, CA RESPONDENT BY: SHRI ANIL KUMAR, CIT-DR O R D E R PER D.C.AGRAWAL , ACCOUNTANT MEMBER :- BOTH THESE APPEALS FILED BY THE ASSESSEE AGAINST T HE SEPARATE ORDERS OF THE LEARNED CIT(APPEALS)-I, SURAT DATED 23/10/2006 & 05/12/2006 PASSED FOR ASSESSMENT YEARS 2004-05 & 20 03-04 RESPECTIVELY, BY RAISING FOLLOWING GROUND IN ITS AP PEALS:- (A) IN ITA NO.17/AHD/2007 FOR ASSESSMENT YEAR 2004- 05 1. THAT THE HON'BLE CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE/REJECTION OF DEDUCTION U/S.80HHC OF TH E I.T.ACT, 1961 (THE ACT) BY WRONGLY INTERPRETING THE AMENDM ENTS MADE BY THE TAXATION LAWS (AMENDMENT) ACT, 2005 (THE AMEND MENT ACT). ITA NOS.17 & 19/A HD/2007 JHAWAR BIOTECH PVTG.LTD. VS. ITO ASST.YEARS 2004-05 & 2003-04 RESPECTIVELY - 2 - 2. THAT THE HON'BLE CIT(A) HAS ERRED IN UPHOLDING THE WORKING OF DEDUCTION U/S.80HHC DONE BY THE LEARNED A.O. AT RS. NIL AS PER THE AMENDMENT ACT BY WRONGLY INTERPRETING THE PROVI SIONS OF SAID AMENDMENT ACT. 3. THAT THE HON'BLE CIT(A) HAS ERRED IN OVERLOOKIN G AND NOT CONSIDERING THE APPELLANTS ARGUMENTS/SUBMISSION RE GARDING CORRECT INTERPRETATION OF THE PROVISION OF THE AMEN DMENT ACT PERTAINING TO SECTION 80HHC READ WITH SECTION 28 (I IID) OF THE ACT. 4. THE APPELLANT PRAYS FOR ALLOWING THE DEDUCTION U/S.80HHC BY CORRECTLY INTERPRETING THE PROVISION OF THE AMENDME NT ACT. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELET E OR MODIFY AND GROUND OF APPEAL. (B) IN ITA NO.619/AHD/2007 FOR ASSESSMENT YEAR 2003 -04 1. THAT THE HON'BLE CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE/REJECTION OF DEDUCTION U/S.80HHC OF TH E I.T.ACT, 1961 (THE ACT) BY WRONGLY INTERPRETING THE AMENDM ENTS MADE BY THE TAXATION LAWS (AMENDMENT) ACT, 2005 (THE AMEND MENT ACT). 2. THAT THE HON'BLE CIT(A) HAS ERRED IN REJECTING THE WORKING OF APPELLANT OF DEDUCTION U/S.80HHC AT RS.7,93,144/- A S PER THE AMENDMENT ACT BY WRONGLY INTERPRETING THE PROVISION S OF SAID AMENDMENT ACT. 3. THE APPELLANT PRAYS FOR ALLOWING THE DEDUCTION U/S.80HHC BY CORRECTLY INTERPRETING THE PROVISION OF THE AMENDME NT ACT. 4. WITHOUT PREJUDICE TO ABOVE, THE HON'BLE CIT(A) HAS ERRED IN NOT DELETING THE INTEREST CHARGED BY LEARNED A.O. U/S.2 34B, 234D AND WITHDRAWAL OF INTEREST U/S.244A OF THE I.T.ACT, 196 1. THE APPELLANT PRAYS AND CONTENDS THAT THESE INTERESTS CHARGED BY LEARNED A.O. ARE NOT ONLY WRONG ON FACTS AND IN LAW BUT ARE ALSO CONTRARY TO CIRCULAR NO.2/2006 DATED 17-01-2006 ISSUED BY THE C .B.D.T. ITA NOS.17 & 19/A HD/2007 JHAWAR BIOTECH PVTG.LTD. VS. ITO ASST.YEARS 2004-05 & 2003-04 RESPECTIVELY - 3 - 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELET E OR MODIFY ANY GROUND OF APPEAL. 2. FIRSTLY, WE TAKE UP THE ASSESSEES APPEAL FOR A SSESSMENT YEAR 2004- 05. 3. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS AS TO HOW THE DEDUCTION U/S.80-HHC SHOULD BE COMPUTED IN RESPECT OF FOLLO WING RECEIPTS:- SL.NO(S) PARTICULARS AMOUNT (RS.) 1. DEPB RECEIVED 1,74,27,933/- 2. EXCISE REFUND 94,46,782/- 3. DUTY DRAW BACK 43,484/- 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT ING OF TEXTILE FABRICS. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, TH E ASSESSEE HAS SHOWN TOTAL TURNOVER OF RS.13,81,46,922/- AND THE ENTIRE TURNOVER RELATES TO EXPORT SALES. THE GROSS PROFIT DECLARED IS RS.2,23 ,77,927/-. THE NET PROFIT IS SHOWN AT RS.41,44,235/- WHICH IS CLAIMED AS DEDUCTION U/S.80-HHC OF THE I.T. ACT, 1961. IN RESPECT OF DEP B, EXCISE REFUND AND DUTY DRAW BACK, TOTAL AMOUNTING TO RS.2,69,18,1 99/- AS DETAILED ABOVE, THE ASSESSING OFFICER CONSIDERED THE AMENDE D PROVISION OF SECTION 80HHC OF THE I.T. ACT, 1961 AMENDED BY THE TAXATION LAWS (AMENDMENT) ACT, 2005 WITH RETROSPECTIVE EFFECT FRO M 01/04/1998 AND, ITA NOS.17 & 19/A HD/2007 JHAWAR BIOTECH PVTG.LTD. VS. ITO ASST.YEARS 2004-05 & 2003-04 RESPECTIVELY - 4 - ACCORDINGLY, TREATED ONLY DUTY DRAW BACK AND EXCISE REFUND AS EXPORT INCENTIVES BUT DID NOT TREAT DEPB RECEIPTS AS EXPOR T INCENTIVES AND, ACCORDINGLY, WORKED GROSS TOTAL INCOME IN NEGATIVE FIGURE. BUT WHILE CALCULATING ADJUSTED PROFIT/LOSS OF THE BUSINESS, H E CONSIDERED 90% OF TOTAL EXPORT INCENTIVES INCLUDING DEPB AND REDUCED THEM FROM NET PROFIT AS PER PROFIT & LOSS ACCOUNT. THE CALCULATION OF A DJUSTED PROFIT & LOSS ACCOUNT WAS DONE AS UNDER:- PORFITS/LOSS OF BUSINESS: NET PROFIT AS PER P & L ACCOUNT : 42,12,3 30 LESS : AMOUNT INADMISSIBLE : (68,095) 90% OF EXPORT INCENTIVE : 2,42,26,379 90% OF OTHER INCOME : 3,09,932 2,44,68,216 (-2,02,55,8 86) ADJUSTED PROFITS/LOSS OF BUSINESS: NET PROFIT/LOSS OF BUSINESS: -2,02,55,886 LESS : PROFIT & LOSS OF TRADING GOODS 17,87,183 (- 2,20,43,069) HENCE, DEDUCTION U/S.80HHC - NIL 5. THE LEARNED CIT(APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. ACCORDING TO LEARNED CIT(APPEALS), AS PER AMENDED PROVISIONS OF SECTION 80HHC OF THE I.T. ACT, 1961, THE PROFIT ON SALE OF DEPB CREDITS OR DFRC WILL BE TREATED AT PAR WITH THE DUT Y DRAW BACK FOR THE ITA NOS.17 & 19/A HD/2007 JHAWAR BIOTECH PVTG.LTD. VS. ITO ASST.YEARS 2004-05 & 2003-04 RESPECTIVELY - 5 - PURPOSES OF PROPORTIONATE INCREASE OF PROFITS DERIV ED FROM EXPORTS COMPUTED IN CLAUSE(A) OR CLAUSE(B) OR CLAUSE(C) OF SECTION 80HHCD(3) OF THE I.T. ACT, 1961. FOR THE SAKE OF CONVENIENCE, W E REPRODUCE THE SECTION 80HHC(3) OF THE I.T. ACT, 1961, AS UNDER:- SECTION 80HHC (3) FOR THE PURPOSES OF SUB-SECTION (1),-- (A) WHERE THE EXPORT OUT OF INDIA IS OF GOODS OR ME RCHANDISE MANUFACTURED OR PROCESSED BY THE ASSESSEE, THE PROFITS DERIVED FROM SUCH EXPORT 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 ; (B) WHERE THE EXPORT OUT OF INDIA IS OF TRADING GOO DS, THE PROFITS DERIVED FROM SUCH EXPORT SHALL BE THE EXPORT TURNOVER IN RESPECT OF SUCH TRADING GOODS AS REDUCED BY THE DIRECT COSTS AND INDIRECT COSTS ATTR IBUTABLE TO SUCH EXPORT ; (C) WHERE THE EXPORT OUT OF INDIA IS OF GOODS OR ME RCHANDISE MANUFACTURED OR PROCESSED BY THE ASSESSEE AND OF TRADING GOODS, THE PROFITS DERIVED FROM SUCH EXPORT SHALL,-- (I) IN RESPECT OF THE GOODS OR MERCHANDISE MANUFACT URED OR PROCESSED BY THE ASSESSEE, BE THE AMOUNT WHICH BEARS TO THE A DJUSTED PROFITS OF THE BUSINESS, THE SAME PROPORTION AS THE ADJUSTED E XPORT TURNOVER IN RESPECT OF SUCH GOODS BEARS TO THE ADJUSTED TOTAL T URNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE ; AND (II) IN RESPECT OF TRADING GOODS, BE THE EXPORT TUR NOVER IN RESPECT OF SUCH TRADING GOODS AS REDUCED BY THE DIRECT AND IND IRECT COSTS ATTRIBUTABLE TO EXPORT OF SUCH TRADING GOODS : PROVIDED THAT THE PROFITS COMPUTED UNDER CLAUSE (A) OR CLAUSE (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 HA VING EXPORT TURNOVER 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 S UM REFERRED TO IN CLAUSE ITA NOS.17 & 19/A HD/2007 JHAWAR BIOTECH PVTG.LTD. VS. ITO ASST.YEARS 2004-05 & 2003-04 RESPECTIVELY - 6 - (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 HAVIN G EXPORT TURNOVER 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 S UM 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 DRAW BACK OR THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISS ION SCHEME ; AND (B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO THE 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 HAVIN G EXPORT TURNOVER 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 S UM 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 DRAW BACK OR THE DUTY FREE REPLENISHMENT CERTIFICATE, BEING THE DUTY REMISSION SCHEME ; AND (B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO THE CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY FR EE REPLENISHMENT CERTIFICATE, BEING THE DUTY REMISSION SCHEME. PROVIDED ALSO THAT IN CASE THE COMPUTATION UNDER CL AUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THIS SUB-SECTION IS A LOSS, SUCH LOSS SHALL BE SET OFF AGAINST THE AMOUNT WHICH BEARS TO NINETY PER CENT. OF (A) ANY SUM REFERRED TO IN CLAUSE (IIIA) OR CLAUSE (IIIB) OR CLAUSE (IIIC), AS THE CASE MAY BE, OR (B) ANY SUM REFERRED TO IN CLAUSE (IIID) OR CLAUSE (IIIE), AS THE CASE MAY BE, OF SECTION 28, AS APPLICABLE IN THE CASE OF AN ASSESSE E REFERRED TO IN THE SECOND OR THE THIRD OR THE FOURTH PROVISO, AS THE CASE MAY BE, THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. ITA NOS.17 & 19/A HD/2007 JHAWAR BIOTECH PVTG.LTD. VS. ITO ASST.YEARS 2004-05 & 2003-04 RESPECTIVELY - 7 - EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, RATE OF CREDIT ALLOWABLE MEANS THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY F REE REPLENISHMENT CERTIFICATE, BEING THE DUTY REMISSION SCHEME CALCUL ATED IN THE MANNER AS MAY BE NOTIFIED BY THE CENTRAL GOVERNMENT ; ; EXPLANATION.--FOR THE PURPOSES OF THIS SUB-SECTION, -- (A) 'ADJUSTED EXPORT TURNOVER' MEANS THE EXPORT TUR NOVER AS REDUCED BY THE EXPORT TURNOVER IN RESPECT OF TRADING GOODS ; (B) 'ADJUSTED PROFITS OF THE BUSINESS' MEANS THE PR OFITS OF THE BUSINESS AS REDUCED BY THE PROFITS DERIVED FROM THE BUSINESS OF EXPORT OUT OF INDIA OF TRADING GOODS AS COMPUTED IN THE MANNER PROVIDED IN CLAUSE (B) OF SUB- SECTION (3) ; (C) 'ADJUSTED TOTAL TURNOVER' MEANS THE TOTAL TURNO VER OF THE BUSINESS AS REDUCED BY THE EXPORT TURNOVER IN RESPECT OF TRADIN G GOODS ; (D) 'DIRECT COSTS' MEANS COSTS DIRECTLY ATTRIBUTABL E TO THE TRADING GOODS EXPORTED OUT OF INDIA INCLUDING THE PURCHASE PRICE OF SUCH GOODS ; (E) 'INDIRECT COSTS' MEANS COSTS, NOT BEING DIRECT COSTS, ALLOCATED IN THE RATIO OF THE EXPORT TURNOVER IN RESPECT OF TRADING GOODS TO THE TOTAL TURNOVER ; (F) 'TRADING GOODS' MEANS GOODS WHICH ARE NOT MANUF ACTURED OR PROCESSED BY THE ASSESSEE. 6. THE SECOND, THIRD AND FOURTH PROVISO IN THIS SUB -SECTION WERE INSERTED BY THE TAXATION LAWS (AMENDMENT) ACT, 2005 WITH RETROSPECTIVE EFFECT FORM 01/04/1998 AND, HENCE, TH EY WOULD BE EFFECTIVE FOR THE ASSESSMENT YEAR 2004-05 ALSO. 7. THE LEARNED CIT(APPEALS) NOTED THAT THE ASSESSEE HAS ADMITTED BEFORE HIM THAT CONDITIONS LAID DOWN IN THIRD PROV ISO ARE NOT SPECIFIED. THE TURNOVER OF THE ASSESSEE WAS RS.31.81 CRORES WH ICH IS MORE THAN RS.10 CRORES AND, HENCE IT WAS ONLY THE THIRD PROVI SO WHICH WAS ITA NOS.17 & 19/A HD/2007 JHAWAR BIOTECH PVTG.LTD. VS. ITO ASST.YEARS 2004-05 & 2003-04 RESPECTIVELY - 8 - APPLICABLE IN THE CASE OF THE ASSESSEE. ONCE THE A SSESSEE HAS NOT SATISFIED CONDITIONS LAID DOWN IN THE THIRD PROVISO, THEN QUE STION OF INCREASING THE PROFITS AS PER CLAUSES (A), (B) & (C) BY 90% OF THE EXPORT INCENTIVES AS COVERED IN CLAUSE(IIID) OF SECTION 28 WOULD NOT BE POSSIBLE. HE ACCORDINGLY CONFIRMED THE ORDER OF THE ASSESSING OF FICER. 8. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE RELIED ON THE ORDER OF ITAT SPECIAL BENCH MUMBAI I N THE CASE OF M/S.TOPMAN EXPORTS, MUMBAI VS. ITO & M/S.KALPATARU COLOURS & CHEMICALS VS. ADDL.CIT (BY WAY OF ITA NOS.5769/MUM/ 2006 & 5651/MUM/2006 ASSESSMENT YEARS 2002-03 & 2003-04 RE SPECTIVELY), DATED 11/08/2009. A PHOTOCOPY OF THE ORDER IS SUBM ITTED BEFORE US. RELYING ON ABOVE JUDGMENT, LEARNED AUTHORISED REPRE SENTATIVE OF THE ASSESSEE SUBMITTED THAT THE DEPB RECEIPTS HAS TO BE BROKEN INTO TWO PARTS; ONE IS THE FACE VALUE AND THE OTHER IS THE P ROFIT THEREON AT WHICH IT WAS SOLD. ACCORDINGLY, IT IS ONLY THE PROFITS ELE MENT OF DEPB RECEIPTS, WHICH ALONE WOULD BE DISALLOWED BY VIRTUE OF THIRD PROVISO TO SECTION 80HHC(3) OF THE I.T. ACT, 1961 AS ASSESSEE DOES NOT FULFILL TWO CONDITIONS LAID DOWN IN THAT THIRD PROVISO. SO FAR AS COST ELEMENT OR FACE VALUE OF DEPB LICENCE IS CONCERNED, WHICH IS ALSO PART OF THE RECEIPTS ON ITA NOS.17 & 19/A HD/2007 JHAWAR BIOTECH PVTG.LTD. VS. ITO ASST.YEARS 2004-05 & 2003-04 RESPECTIVELY - 9 - SALE THEREOF, IT WOULD BE COVERED BY THE FIRST PR OVISO AS THE COST ELEMENT WOULD FORM PART OF CASH ASSISTANCE AS MENTIONED IN SECTION 28(IIIB). ACCORDINGLY, 90% THEREOF WOULD BE ADDED TO THE EXPO RT PROFITS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.80HHC OF T HE I.T. ACT, 1961. 9. FURTHER, THE LEARNED AUTHORISED REPRESENTATIVE O F THE ASSESSEE SUBMITTED THAT THE SPECIAL BENCH IN ABOVE CASE HAS ANALYZED THE PROVISIONS OF SECTION 28(IIIB), (IIIC), (IIID) & (I IIE). ACCORDING TO HIM, SPECIAL BENCH HAS TREATED THE COST OF LICENCE AS CA SH ASSISTANCE BY VIRTUE OF THE WORDS USED IN SECTION 28(IIIB), I.E. CASH ASSISTANCE (BY WHATEVER NAME CALLED). ACCORDINGLY, THE COST ELEMENT OF TH E DEPB LICENCE SO SOLD WOULD BE COVERED BY U/S.28(IIIB) OF THE I.T. A CT, 1961 AS EXPORT BUSINESS PROFIT BEING CASH ASSISTANCE IN THE FORM O F DEPB LICENCE AND, THEREFORE, WOULD FALL UNDER THE FIRST PROVISO TO SE CTION 80HHC(3) OF THE I.T. ACT, 1961 AND, ACCORDINGLY, 90% OF THE COST VA LUE, THEREOF WOULD BE ADDED IN THE EXPORT PROFITS DECLARED BY THE ASSESSE E. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED ON THE ORDERS OF THE AUTHORITIES BELOW: ITA NOS.17 & 19/A HD/2007 JHAWAR BIOTECH PVTG.LTD. VS. ITO ASST.YEARS 2004-05 & 2003-04 RESPECTIVELY - 10 - 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN OUR CONSIDERED VIEW, THE ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT MUMBAI SPECIAL BENCH IN THE CASE OF M/S.TOPMAN EXPORTS(SUP RA). FOR THE SAKE OF CONVENIENCE, WE REPRODUCE THE OPERATIVE PART OF THE JUDGEMENT AS UNDER:- 43. THE MAJOR CONTROVERSY BEFORE US IS TO INTERPRE T SECTION 28 (IIID) IN WHICH THE EXPRESSION 'ANY PROFIT ON THE TRANSFER DU TY ENTITLEMENT PASS BOOK SCHEME' HAS BEEN USED. FROM THE FACTS OF THE CA SES UNDER CONSIDERATION IT IS NOTED THAT THE AO TREATED THE EN TIRE SALE PROCEEDS AS COVERED UNDER SECTION 28(IIID), AS AGAINST THE CASE O F THE ASSESSEE THAT ONLY THE PREMIUM OR THE PROFIT ELEMENT ON THE TRANSFE R OF DEPB BE CONSIDERED. TO PUT THE CONTROVERSY IN SIMPLE WORDS, IF, FOR EXAMPLE, THE ASSESSEE RECEIVED DEPB WORTH THE FACE VALUE OF RS.100 /- AND THEN SOLD IT FOR RS.110/-, THE ASSESSEE IS CONTENDING THAT ONLY A SUM OF RS.10/- IS TO BE INCLUDED UNDER CLAUSE (IIID), WHEREAS, T HE REVENUE'S CONTENTION IS THAT THE ENTIRE AMOUNT OF RS.110/- BE CONSI DERED. 44. THUS WE HAVE TO INTERPRET THE WORD 'PROFIT' AS F IELDED IN SECTION 28(IIID). AS NOTED SUPRA SECTION 28 HAS CLAUSES (I) T O (VI). ON A CAREFUL CIRCUMSPECTION OF THE LANGUAGE OF CLAUSE (IIIB) AND (III E), IT IS NOTED THAT THE REFERENCE IS TO THE GROSS SUM OF CASH ASSISTANC E AND DUTY DRAWBACK ETC. ON THE CONTRARY CLAUSES (IIIA), (IIID) AND (IIIE) USE THE WORD 'PROFIT' ON SALE/TRANSFER OF LICENCE/DEPB/DFRC. FROM H ERE, IT CAN BE EASILY INFERRED THAT THE EMPLOYMENT OF THE WORDS 'AN Y PROFIT OF TRANSFER' IN CLAUSES (IIID) AND (IIIE) OF SECTION 28 IN CONTRADI STINCTION TO THE OMISSION OF SUCH WORD PROFIT IN CLAUSES (IIIB AND IIIE) IS NOT WITHOUT ANY OBJECT. 45. THE PRINCIPLE RULE OF INTERPRETATION IS THAT MEAN ING IS TO BE GIVEN TO EACH AND EVERY WORD IN THE LANGUAGE OF SECTION. N O WORD CAN BE CLAIMED AS SUPERFLUOUS. EACH COMMA, FULL STOP OR EVERY SIGN OF PUNCTUATION HAS SIGNIFICANCE. IN OUR CONSIDERED OPIN ION THE NEED FOR INTERPRETATION WITH THE AID OF SOME EXTERNAL AIDS OF CONSTRUCTION OF A SECTION ARISES ONLY WHEN THERE IS SOME AMBIGUITY IN THE LANGUAGE OF ITA NOS.17 & 19/A HD/2007 JHAWAR BIOTECH PVTG.LTD. VS. ITO ASST.YEARS 2004-05 & 2003-04 RESPECTIVELY - 11 - SECTION AND THE INTENTION OF THE LEGISLATURE IS NOT PROPERLY CONVEYED WITH THE WORDS SO USED. IT HAS BEEN HELD BY THE HON'B LE SUPREME COURT IN NUMEROUS JUDGMENTS INCLUDING THE CASE OF FEDERATI ON OF ANDHRA PRADESH CHAMBERS OF COMMERCE & INDUSTRY & ORS ETC. V S STATE OF ANDHRA PRADESH & ORS. ETC. ETC. (2001) 165 CTR (SC) 672 (2001) 247 ITR 36 (SC) THAT THE TAXING STATUTE HAS TO BE STRICT LY CONSTRUED AND NOTHING CAN BE READ IN IT. IDENTICAL VIEW HAS BEEN TA KEN IN THE CASE OF PADMASUNDARA RAO (DECD.) & ORS. VS. STATE OF TAMIL NAD U & ORS (2002) 176 CTR (SC) 104 : (2002) 255 ITR 147 (SC) HOLDING THAT 'WHILE INTERPRETING A STATUTE LEGISLATIVE INTENTION MUST BE FOUND IN THE WORDS USED BY THE LEGISLATURE'. IN THE LIKE MANNER IT HAS B EEN REITERATED IN THE CASE OF COMMR. OF AGRL, IT VS. PLANTATION CORPORATION OF KERALA LTD. (2000) 164 CTR (SC) 502 : (2001) 247 ITR 155 (SC) THAT : 'SO LONG AS THERE IS NO AMBIGUITY IN THE STATUTORY LANGUAGE, RES ORT TO ANY INTERPRETATIVE PROCESS TO UNFOLD THE LEGISLATIVE INTE NT BECOMES IMPERMISSIBLE'. 46. COMING BACK TO THE ISSUE UNDER CONSIDERATION WE NOTE THAT THE LANGUAGE OF CLAUSE (IIID) AND (IIIE) OF SECTION 28 IS C RYSTAL CLEAR WHICH TALKS OF 'ANY PROFIT ON THE TRANSFER OF DEPB/DFRC. TH E REFERENCE IS NOT TO THE SALE PROCEEDS BUT TO THE PROFIT ON THE TRANSF ER OF DEPB/DFRC. A LINE OF DEMARCATION NEEDS TO BE DRAWN BETWEEN THE P ROVISIONS IN WHICH GROSS AMOUNT IS CONSIDERED AND THE PROVISIONS IN WH ICH ONLY THE PROFIT DEMERIT HAS BEEN THE SUBJECT MATTER OF CONSIDERATION . WE NEED NOT WANDER HERE AND THERE IN SEARCH OF SUCH DISTINCTION , WHICH IS HIGHLIGHTED FROM SECTION 28 ITSELF . APART FROM CLAUS ES (IIIB) AND (IIIC) TO SECTION 28, CLAUSES (IV) AND (VI) ALSO REFER TO THE I NCLUSION OF THE GROSS AMOUNT, AND NOT THE PROFIT ELEMENT THEREON, FURTHER TH E LEGISLATURE IS NOT OBLIVIOUS TO SUCH DISTINCTION BETWEEN THE GROSS AMO UNT AND THE PROFIT ELEMENT INASMUCH AS IT HAS USED THE APPROPRIATE WORD S WHEREVER IT INTENDED SO. IT IS AMPLY DEMONSTRATED FROM THE LANGUA GE OF SECTION 54 WHICH GRANTS DEDUCTION FROM THE CAPITAL GAINS BY PROV IDING THAT IT THE AMOUNT OF CAPITAL GAIN' IS GREATER THAN THE COST OF T HE RESIDENTIAL HOUSE SO PURCHASED OR CONSTRUCTED, THE DIFFERENTIAL AMOUNT S HALL BE CHARGED UNDER SECTION 45; AS AGAINST SECTION 54E WHICH PROVI DES DEDUCTION IN RESPECT OF LONG TERM CAPITAL ASSETS BY PROVIDING THAT IF THE COST OF THE NEW ASSET, IS NOT LESS THAN THE NET CONSIDERATION' IN RESPECT OF THE ORIGINAL ASSET, THE WHOLE OF SUCH CAPITAL GAIN SHALL NOT B E CHARGED UNDER SECTION 45. IF WE CAREFULLY PERUSE THE LANGUAGE OF SECTION 54 IN JUXTAPOSITION TO SECTION 54E IT CAN BE SEEN THAT WHE REAS THE FORMER SECTION PROVIDES DEDUCTION WITH REFERENCE TO THE INV ESTMENT OF THE AMOUNT OF CAPITAL GAIN, THE LATER SECTION GRANTS DEDUCTION WITH REFERENCE TO THE EXTENT OF INVESTMENT OF THE NET CONSIDERATIO N AND NOT THE CAPITAL GAIN. THUS, IT CAN BE VISUALIZED THAT THE LEGISLATURE IS NOT UNMINDFUL OF THE DISTINCTION BETWEEN 'SALE CONSIDERATION AND 'PRO FIT' AND HAS USED ITA NOS.17 & 19/A HD/2007 JHAWAR BIOTECH PVTG.LTD. VS. ITO ASST.YEARS 2004-05 & 2003-04 RESPECTIVELY - 12 - THE APPROPRIATE EXPRESSION TO EXHIBIT ITS INTENDMENT. R EVERTING TO THE LANGUAGE OF (IIID) OF SECTION 28 WE OBSERVE THAT IT RE FERS TO ANY PROFIT ON THE TRANSFER OF DEPB. THE WORDS USED IN THE PROVISION INDICATE THAT ONLY THE PROFIT ELEMENT ON THE TRANSFER OF DEPB IS TO BE C ONSIDERED UNDER THIS CLAUSE AND NOT THE SALE PROCEEDS ITSELF. THUS IN ORD ER TO FEE COVERED WITH THE SCOPE OF THIS CLAUSE, TWO THINGS ARE ESSEN TIAL. FIRST, THERE SHOULD BE TRANSFER OF THE DEPB AND SECOND, SUCH TRANS FER SHOULD RESULT INTO ANY PROFIT. UNLESS BOTH THE CONDITIONS ARE CUMULA TIVELY SATISFIED, THE TRANSACTION CANNOT FORM PART OF SECTION 28 (IIID). 47. THIS LEAVES US WITH THE DETERMINATION OF THE MEAN ING OF THE WORD 'PROFIT'. IN COMMON DIALECT THE WORD PROFIT' REFERS T O EXCESS OF SALE PROCEEDS OVER THE COST OF GOODS. THE WORD PROFIT' HA S ANOTHER SHADE ALSO, WHICH INVOLVES A COMPARISON BETWEEN THE STATE OF BUSINESS AT TWO SPECIFIC DATES AND THE EXCESS OF THE VALUE OF ASSET ON ONE DATE OVER THE OTHER, CONSTITUTES PROFIT. THEIR LORDSHIPS OF THE HON' BLE SUPREME COURT IN E.D. SASSOON & COMPANY (SUPRA) HAS LAID DOWN TO THIS EFFECT. 'THE WORD 'PROFITS' HAS IN MY OPINION A WELL DEFINED LEGAL MEANING, AND THIS MEANING CONSIDERS WITH THE FUNDAMENTAL CONCEPTIO N OF PROFITS IN GENERAL PARLANCE ALTHOUGH IN MERCANTILE PHRASEOLOGY TH E WORD MAY AT LIME BEAR MEANINGS INDICATED BY THE SPECIAL CONTEXT W HICH DEVIATE IN SOME RESPECTS FROM THIS FUNDAMENTAL SIGNIFICATION. 'P ROFITS' IMPLIES A COMPARISON BETWEEN THE STATE OF A BUSINESS AT TWO S PECIFIC DATES USUALLY SEPARATED BY AN INTERVAL YEAR. THE FUNDAMENTA L MEANING IS THE AMOUNT OF GAIN MADE BY THE BUSINESS DURING THE YEAR. THIS CAN ONLY BE ASCERTAINED BY A COMPARISON OF THE ASSETS OF THE BU SINESS AT THE TWO DATES'. 48. GOING BY THE CONCEPT OF COMPARISON OF THE ASSET S OF BUSINESS ON TWO DATES, IT CAN BE SEEN THAT AT THE STAGE OF RECEIP T OF DEPB ON ITS ACCRUAL THE FACE VALUE OF RS.100/- CONSTITUTED AN ASSET IN THE HANDS OF THE EXPORTER WHICH COULD BE UTILIZED BY HIM IN ANY OF THE WAYS OPEN TO HIM. IF THE EXPORTER CHOOSES TO SELL THE DEPB FOR RS. 11 0 AT A SUBSEQUENT DATE, THEN THE PREVAILING MARKET RATE AT THE TIME OF SALE, THAT IS RS. 110 SHALL REPRESENT THE VALUE OF ASSET ON SUCH DATE OF SALE. ACCORDINGLY, THE DIFFERENCE OF RS 10 BETWEEN THE VALU E OF TWO DATES, VIZ, ON THE DATE OF ITS SALE (RS.110/-) AND THE DATE WH EN IT WAS ACQUIRED ON ACCRUAL (RS.100/-), WILL CONSTITUTE PROFIT. EV EN GOING BY THE MEANING OF 'PROFIT' AS COMMONLY UNDERSTOOD REPRESEN TING EXCESS OF SALE PROCEEDS OVER COST, WE FIND THAT SIMILAR RESULT WILL FOLLOW. NO DOUBT THE EXPORTER DOES NOT DIRECTLY PURCHASE THE DEPB FROM T HE MARKET BY INCURRING ANY COST, BUT WHEN WE SEE THE SCHEME OF SE CTION 28 IN WHICH THE FACE VALUE OF DEPB, AT THE TIME OF MAKING APPLICAT ION, RESULTS INTO THE ACCRUAL OF INCOME AS INCLUDIBLE U/S 28(IIIB) AND TH E CORRESPONDING ITA NOS.17 & 19/A HD/2007 JHAWAR BIOTECH PVTG.LTD. VS. ITO ASST.YEARS 2004-05 & 2003-04 RESPECTIVELY - 13 - AMOUNT REPRESENTS THE VALUE OF DEPB, SUCH VALUE, WHICH IS IN THE NATURE OF AN ASSET, SHALL CONSTITUTE ITS COST WHEN DEPB IS MADE THE SUBJECT MATTER OF SALE AT A LATER DATE. THE FOLLOWING A CCOUNTING ENTRY SHALL BE PASSED IN THIS SITUATION. CASH/BANK DR RS. 110 TO DEPB RS. 100 TO PROFIT ON SALE OF DEPB RS. 10 [AT THE TIME OF SALE, THE INCOME OF RS. 10 SHALL ARISE TO THE ASSESSEE U/S 28(IIID) AS INCOME OF RS. 100 HAD ALREADY ACCRUED U/S 28(IIIB) AT TIME OF APPLICATION] 49. THE ABSURDITY IN THE RESULT CAN BE SEEN FROM THE C ONSEQUENCES FOLLOWING THE REASONING OF THE DEPARTMENT, THAT THE ENT IRE SALE PROCEEDS SHALL BE TAXABLE U/S 28(IIID) AT THE TIME OF SALE. IN SUCH A SITUATION THERE WILL BE DOUBLE TAXATION OF THE FACE VALUE OF DEPB, FIRST LY, WHEN APPLICATION FOR DEPB IS MADE RESULTING IN TO ACCRUA L OF INCOME U/S 28(IIIB) IF THE EXTENT OF US FACE VALUE AT RS. 100 AN D SUBSEQUENTLY WHEN DEPB IS SOLD FOR RS. 110, THE ENTIRE SALE CONSIDERATION OF RS. 110 SHALL STAND INCLUDED U/S 28(IIID) RESULTING INTO TOTAL INCOM E OF RS. 210 ON ACCOUNT OF THE TRANSACTION OF DEPB, AS AGAINST, THE REAL INCOME ONLY TO THE TUNE OF RS.110. .. .. 53. FROM THE ABOVE IT CAN BE NOTED THAT DEPB CREDIT S ALE IS DIFFERENT FROM THE PREMIUM ON THE DEPB AND SUCH PROFIT OR THE PREMIUM, IS NOT EXPORT PROFIT SINCE IT DOES NOT ARISE OUT OF EXPORT ACTIVITY OR IMPORT ACTIVITY AND ARISES BECAUSE OF TRADING IN A 'LICENSE ' WHICH HAS A PREMIUM IN THE MARKER SUCH PREMIUM OR PROFIT CANNOT TO BE COUNTED AS EXEMPTED EXPORT PROFIT AND SHOULD BE ADDED BACK AS TA XABLE PROFIT. THE SPEECH OF THE FINANCE MINISTER, AS EXTRACTED ABOVE, D IVULGES THE INTENTION OF THE SCOPE OF SECTION 28(IIID) AS COVERING ONLY THE PREMIUM ON SALE OF DEPB AND NOT THE FACE VALUE. . . 72. REVERTING TO THE MAIN QUESTION POSTED BEFORE THI S SPECIAL BENCH FOR CONSIDERATION AS TO WHETHER THE ENTIRE AMOUNT R ECEIVED ON SALE OF DEPB ENTITLEMENTS REPRESENTS PROFIT CHARGEABLE U/S 28 (IIID) OR SOME ARTIFICIAL COST IS TO BE INTERPOLATED, WE FIND THAT TH E RELEVANCE OF THIS QUESTION IS ONLY IN THE CONTEXT OF THE COMPUTATION OF DEDUCTION U/S 80HHC. WE HAVE HELD ABOVE THAT SUB-SECTION (3) DEALING WITH THE COMPUTATION OF THE PROFITS DERIVED FROM EXPORT OF G OODS OR MERCHANDIZE ITA NOS.17 & 19/A HD/2007 JHAWAR BIOTECH PVTG.LTD. VS. ITO ASST.YEARS 2004-05 & 2003-04 RESPECTIVELY - 14 - IS A COMPLETE CODE IN ITSELF, THUS THE COMPUTATION O F ELIGIBLE PROFITS IS TO BE MADE FIRMLY AS PER THIS SUB-SECTION WITH THE AID OF EXPLANATION AS INTERPRETED BY THE HON'BLE SUPREME COURT IN THE CASE OF HERO EXPORTS (SUPRA) AND K. RAVINDRANATHAN (SUPRA). THE AO HAS DENIE D THE DEDUCTION U/S 80HHC BY HOLDING THAT THE ENTIRE SALE P ROCEEDS OF DEPB FALL UNDER SECTION 28(IIID) AND SINCE IN THAT VIEW OF THE MATTER, THERE IS NO POSITIVE INCOME, THE DEDUCTION IS IMPERMISSIBLE. ON THE CONTRARY THE VIEW POINT OF THE ASSESSEE IS THAT THE FACE VALUE OF DEPB SHOULD BE REDUCED FROM THE COST OF PURCHASES AS IT IS GIVEN BY THE GOVERNMENT OF INDIA ONLY TO NEUTRALIZE THE INCIDENCE OF CUSTOM DUT Y. ON THE IMPORT CONTENT OF THE EXPORTS. WE HAVE EXAMINED THE FORMAT OF DEPB SCHEME AND COME TO THE CONCLUSION THAT THE FACE VALUE OF DEP B IS NOTHING BUT PARTIAL REIMBURSEMENT OF THE PURCHASE PRICE OF GOODS. O UR THIS VIEW IS BASED ON THE UNDERSTANDING OF THE SCHEME OF DEPB IN COMMERCIAL SENSE AND IN THE TIGHT OF THE FOREIGN TRADE POLICY OF THE GOVERNMENT OF INDIA. BUT WHEN WE COME TO THE COMPUTATION OF DEDUCTI ON AND THE PLACEMENT OF THE FACE VALUE OF DEPB IN THE SCHEME OF SECTION 80HHC, THE GENERAL VIEW BASED ON THE FOREIGN TRADE POLICY A BOUT THE REDUCTION OF SUCH AMOUNT FROM THE PURCHASE COST, FAILS. WE HAVE SEEN ABOVE THE SUB-SECTION (3) OF SECTION 80HHC IS COMPLETE CODE IN ITSELF IN SO FAR AS THE COMPUTATION OF THE ELIGIBLE PROFITS DERIVED FROM EXPORT ARE CONCERNED. THE MANDATE OF SUB-SECTION (3) HAS TO BE RELIGIO USLY FOLLOWED FOR DETERMINING THE AMOUNT OF ELIGIBLE PROFITS FOR DED UCTION AND AS SUCH THE GENERAL VIEW ABOUT THE UNDERSTANDING OF THE NATU RE OF DEPB WILL BE SUBDUED AND THE ONE BASED ON THE PRESCRIPTION OF TH IS PROVISION WILL COME TO FORE. IN THAT VIEW OF THE MATTER WE HOLD THAT THE FACE VALUE OF DEPB CANNOT BE REDUCED FROM THE COST OF PURCHASES A ND HAS TO BE CONSIDERED AS A SEPARATE SPECIES OF' BUSINESS 'INCO ME'. THUS ALL THE CONTENTIONS PUT FORWARD ON BEHALF OF THE ASSESSES A ND THE INTERVENERS ABOUT THE REDUCTION OF THE FACE VALUE OF DEPB HAVE B ECOME ACADEMIC IN THE CONTEXT OF SECTION 80HHC. SIMILARLY THE COMPARISO N OF DEPB WITH MODVAT, WHICH IS AN OFF-SHOOT OF THE BASIC CONTENTION OF REDUCTION OF THE DEPB VALUE FROM THE PURCHASES AND ALSO THE ARGUME NTS BY THE LD. AR TOWARDS THE REDUCTION OF THE FACE VALUE OF DEPB F ROM THE PURCHASE COST ON THE STRENGTH OF CERTAIN DECISIONS RENDERED IN THE FRAMEWORK OF SECTION 80IB, LOSE THEIR RELEVANCE IN THE PRESENT CONT EXT OF SECTION 80HHC AND HENCE NEED NOT BE EXAMINED. 73. IF THE INTENTION OF THE LEGISLATURE HAD BEEN TO ALLOW THE REDUCTION OF THE FACE VALUE OF DEPB FROM THE COST OF PURCHASES , AS HAS BEEN, CONTENDED BEFORE US, THEN THERE WAS NO NEED TO HAVE CLAUSES (IIIA) TO (IIIE) OF SECTION 28 AND ALSO THE FIRST TO FIFTH PRO VISOS TO SECTION 80HHC(3) ALONG WITH THE NECESSARY INGREDIENTS OF EXPLANATION BE LOW SECTION 80HHC(4C). WE HAVE HELD THAT THE FACE VALUE OF DEPB UND ER THE SCHEME OF THE INCOME-TAX ACT, 1961 FALLS UNDER SECTION 28(IIIB) AND THE ITA NOS.17 & 19/A HD/2007 JHAWAR BIOTECH PVTG.LTD. VS. ITO ASST.YEARS 2004-05 & 2003-04 RESPECTIVELY - 15 - PROFIT ELEMENT T ON THE SALE OF DEPB, THAT IS THE EXCE SS OF SALE PROCEEDS OVER THE FACE VALUE OF DEPB FALLS U/S 28(IIID). 'PROFITS OF BUSINESS' AS PER EXPLANATION (BAA) PROVIDES FOR THE EXCLUSION OF NINET Y PER CENT OF ANY SUM REFERRED TO IN SECTION 28(IIIA TO IIIE). THEN FIRST PRO VISO TO SUB-SECTION (3) STATES THAT THE PROFITS COMPUTED UNDER CLAUSES ( A) OR (B) OR (C) SHALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEARS TO T HE NINETY PER CENT OF ANY SUM REFERRED TO IN SECTION 28(IIIA, IIIB AND IIIE). IT MEANS THAT THE NINETY CENT OF THE FACE VALUE OF DE PB WHICH WAS REDUCED WHILE COMPUTING THE 'PROFITS OF THE BUSINESS ' SHALL STAND INCLUDED WHEN EFFECT IS GIVEN TO FIRST PROVISO. IF WE GO WITH THIS ARGUMENT THAT THE FACT VALUE OF DEPB IS TO BE REDUCE D FROM THE COST OF PURCHASE THEN IN THE CASE OF MERCHANT EXPORTER WITH TURNOVER OF LESS THAN RS.10 CRORES, AN ANOMALOUS SITUATION WILL CROP UP INASMU CH AS THE AMOUNT OF ELIGIBLE PROFIT WILL FAR EXCEED THE ACTUAL P ROFIT AS DEMONSTRATED BELOW. EXPORT TURNOVER RS. 1,000 COST OF GOODS SOLD - DIRECT COSTS (WITHOUT DEPB) - NO INDIRECT COSTS RS. 800 FACE VALUE OF DEPB RS 100 74. GOING BY SUB-SECTION (3)(B) THE PROFITS DERIVED FR OM SUCH EXPORT SHALL BE EXPORT TURNOVER MINUS THE DIRECT AND INDIREC T COSTS ATTRIBUTABLE TO SUCH EXPORT. GOING BY THE CONTENTION OF THE LD. AR, THE DIRECT COST WILL COME AL RS.700 (800 - 100) AS AGAINST THE EXPORT TURNOV ER AT RS.1,000 RESULTING INTO PROFITS DERIVED FROM EXPORT AS PER C LAUSE (B) OF SUB-SECTION (3) COMING, TO RS.300 I.E. RS.1,000 MINUS RS.700. WHEN WE F URTHER GIVE EFFECT TO THE FIRST PROVISO TO SUB-SECTION (3), THE PR OFIT OF RS.300 AS COMPUTED ABOVE WOULD REQUIRE TO BE FURTHER INCREASED BY THE NINETY PER CENT OF THE FACE VALUE OF DEPB. THE AMOUNT OF RS.90 (I .E. 90% OF RS.100 I.E FACE VALUE OF DEPB COULD, THEREFORE, BE ADDED AND T HE PROFIT AS DETERMINED IN CLAUSE (B) OF 80HHC(3) WILL COME AT RS.390 . AS AGAINST THAT WE FIND THE REAL PROFIT FROM EXPORT AFTER GIVIN G EFFECT TO THE DEPB BENEFIT IS ONLY RS.300 [1000 700 (800 - 100)]. THUS IT C AN BE EASILY ASCERTAINED THAT WHEREAS THE TOTAL BUSINESS FROM EXPO RT IS RS.300 BUT IF WE ACCEPT THE CONTENTION THAT THE FACE VALUE OF DEPB BE REDUCED FROM THE COST OF PURCHASES THEN THE AMOUNT OF PROFITS DE RIVED FROM EXPORT AS PER SECTION 80HHC(3)(B) WILL COME AT RS.390. OBVIOUSLY T HIS CALCULATION DEFIES ALL LOGICS AND IS INCAPABLE OF ACCEPTANCE DUE TO AWKWARD SITUATION CREATED BY DETERMINING THE PROFITS DERIVE D FROM EXPORT AT A FIGURE HIGHER THAN THE ACTUAL BUSINESS PROFIT, THE FO RMER AMOUNT, IN NO CASE CAN BE HIGHER THAN THE LATER. WE FIND THAT THE LOGIC BEHIND ITA NOS.17 & 19/A HD/2007 JHAWAR BIOTECH PVTG.LTD. VS. ITO ASST.YEARS 2004-05 & 2003-04 RESPECTIVELY - 16 - INTRODUCING CLAUSES (IIIA) TO (IIIE) TO SECTION 28 IS TO DE LINK THE EXPORT INCENTIVES FROM THE BUSINESS PROFITS WHILE CONTINUI NG THEM TO BE GOVERNED BY CHAPTER IV-D AT THE SAME TIME. THE NATURAL OUTCOME FOLLOWING THE PRESCRIPTION OF CLAUSES (IIIA) TO (IIIC) OF SECTION 28 ALONG WITH SECTION 80HHC(3) IS THAT ALL THE EXPORT INCENTIV ES INCLUDING THE DEPB AND DFRC ETC. BE CONSIDERED AS SEPARATE BUSINES S INCOME AND NOT TO REDUCE THEM FROM THE COST OF PURCHASES. 75. WE WILL NOW ENDEAVOR TO EVALUATE THE STAND POINT OF THE AO FROM ANOTHER ANGLE THAT THE ENTIRE AMOUNT OF SALE PROCEEDS IS COVERED UNDER CLAUSE (IIID) AND; NOT ONLY THE PROFIT ELEMENT. CONTINUIN G WITH THE ABOVE EXAMPLE, WHERE WE SUPPOSED THAT THE EXPORTER MADE EXP ORT TURNOVER OF RS. 1000/- AND HE EARNED RS.200/- FROM THE EXPORT TRANS ACTION IN ADDITION TO RS.100/- TOWARDS THE FACE VALUE OF DEPB. TH E AMOUNT OF PROFITS DERIVED FROM EXPORTS SHALL COME AT RS.300 AS P ER CLAUSE (BAA) OF EXPLANATION BELOW 80HHC(4C) READ WITH SUB-SECTION (3) IN CLUDING THE FIRST PROVISO. FURTHER SUPPOSE THAT THE SAID DEPB IS HELD AS SUCH AT THE CLOSE OF THE YEAR AND IS THEN SOLD IN THE SUCCEEDING YEAR FOR RS. 110. IF WE AGREE WITH THE VIEW POINT OF THE DEPARTMENT THAT A T THE TIME OF SALE OF DEPB, THE ENTIRE AMOUNT OF RS . 110/- IS INCLUDIB LE IN SECTION 28 (IIID) THEN IT WOULD MEAN THAT IN ORDER TO GIVE EFFEC T TO SUB-SECTION (3), FIRSTLY THE SUM OF RS.100/- WILL REQUIRE INCLUSION IN THE PROFITS AND GAINS OF BUSINESS OR PROFESSION' IN THE YEAR OF SALE, BECA USE THE QUESTION OF 90% EXCLUSION SHALL ARISE ONLY IF 100% IS INCLUDED IN T HE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAI NS OF BUSINESS OR PROFESSION'. THAT OBVIOUSLY CANNOT BE THE DONE BECAU SE THE SUM OF RS.100/- HAD ALREADY BEEN INCLUDED IN THE PROFITS AND GA INS OF BUSINESS OR PROFESSION' FOR THE LAST YEAR WHEN SUCH INCOME ACCRUED TO THE ASSESSEE U/S 28(IIIB). THE FURTHER INCLUSION OF RS.1 10/- IN SUCCEEDING YEAR AT THE TIME OF SALE IN THE 'PROFITS A ND GAINS OF BUSINESS OR PROFESSION' WOULD LEAD TO OBVIOUS INCONGRUITY AND AN IMPOSSIBLE SITUATION BECAUSE THE INCLUSION OF FACE VALUE OF RS.10 0/- IN THE PROFITS OF THE SECOND YEAR ALSO WILL AMOUNT TO DOUBLE TAXATION OF RS.100/- FIRSTLY IN THE YEAR ONE WHEN THE INCOME ON ACCOUNT OF THE FACE VALUE OF DEPB ACCRUED U/S 28(IIIB) AND THERE IN THE YEAR TWO AT THE TIME OF SALE U/S 28(IIID). . . 79. THE SECOND PROVISO TO SECTION 80HHC PROVIDES TH AT IN THE CASE OF AN ASSESSEE HAVING EXPORT TURNOVER NOT EXCEEDING RS . 10 CRORES DURING THE PREVIOUS YEAR, THE PROFITS COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (E) OF THIS SUB-SECTION OR AFTER GIVING EFFEC T TO THE FIRST PROVISO, AS THE CASE MAY BE, SHALL BE FURTHER INCREASED BY THE AMO UNT WHICH BEARS TO NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSE (IIID) OR CLAUSE (IIIC) OF ITA NOS.17 & 19/A HD/2007 JHAWAR BIOTECH PVTG.LTD. VS. ITO ASST.YEARS 2004-05 & 2003-04 RESPECTIVELY - 17 - SECTION 28, THE SAME PROPORTION AS THE EXPORT TURNOV ER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE . IN OTHER WORDS, IN THE CASE OF AN ASSESSEE WITH EXPORT TURNOVER NOT EXC EEDING RS. 10 CRORES, EVEN THE PROFIT ELEMENT OF RS.10/- IN THE ABOVE EXAMPLE ON THE SALE OF DEPB FOR RS.110/- WILL ALSO BE CONSIDERED AS ELI GIBLE FOR DEDUCTION DESPITE THE FACT THAT IT IS OUT OF THE TRAD ING OF DEPB ENTITLEMENT IN INDIA ONLY. BUT FOR THIS PROVISO NO PROFI T ON SALE OF DEPB OR DFRC COULD HAVE BEEN CONSIDERED FOR DEDUCTION UND ER THIS SECTION. IN CONTRAST TO IT THE THIRD AND FOURTH PROVISOS ARE APPLICABLE TO THE CASE OF THE ASSESSEE HAVING EXPORT TURNOVER EXCEEDING RUP EES TEN CRORES IN WHICH CASE THE PROFIT COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF SUB SECTION (3) OR AFTER GIVING EFFECT TO THE FIRST PROVISO, SHALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEARS 90% OF ANY SUM REFERRED TO IN SECTION 28(IIID) OR (IIIE) IN PROPORTION TO THE EXPORT TURNOVER TO THE TOTAL TURNOVER ONLY IF THE FURTHER TWO CONDITIONS ST IPULATED THEREIN ARE FULFILLED AND ALSO THE ASSESSEE HAS SUFFERED EVIDENCE TO PROVE THE FULFILLMENT OF SUCH CONDITIONS. IT IS THIS CATEGORY O F EXPORTERS WHICH HAS BEEN STATUTORILY DISCRIMINATED VIS A VIS THE SMALL EXP ORTERS HAVING TURNOVER NOT EXCEEDING RS. 10 CRORES. THEY SHALL NOT BE ENTITLED TO INCREASE IN THE QUANTUM OF DEDUCTION BY PROFIT AT TR ANSFER OF DEPB/DFRS WHICH IS OTHERWISE AVAILABLE TO SMALL EXPORTE RS, UNLESS THE TWO CONDITIONS AS SET OUT IN THESE PROVISOS ARE FULFI LLED. IN THE CASES UNDER CONSIDERATION IT IS AN ADMITTED POSITION THAT T HE TWO CONDITIONS AS SO SPECIFIED IN THIRD AND, FOURTH PROVISOS ARE NO T CAPABLE OF COMPLIANCE AND HENCE THE FURTHER INCREASE AS SUGGEST ED IN THESE TWO PROVISOS CANNOT BE MADE TO THE COMPUTATION OF DEDUC TION U/S.80HHC. THUS, IT IS APPARENT THAT THE STATUTORY DISCRIMINATIO N IS BETWEEN THE EXPORTERS HAVING EXPORT TURNOVER NOT EXCEEDING RS. 10 CRORES AND THOSE HAVING EXCEEDING RS. 10 CRORES. WHEREAS THE BENEFIT O F DEDUCTION IN RESPECT OF THE PROFIT OF SALE OF DEPB REALIZED FROM T HE INDIAN MARKET IS ALSO AVAILABLE TO SMALL EXPORTERS HAVING EXPORT TURNOVE R, IT IS NOT SO IN THE CASE OF THE LARGE EXPORTERS HAVING EXPORT TURNO VER EXCEEDING RS. 10 CRORES. THIS APPEARS TO BE THE ONLY REASON FOR INSER TING CLAUSES (IIID) AND (IIIE) TO SECTION 28 BY THE TAXATION, LAWS (AMENDME NT ACT, 2005), SIMULTANEOUS WITH THE INSERTION OF SECTION 3RD AND 4TH P ROVISOS. .. .. 89. THE QUESTION RAISED BEFORE THE SPECIAL BENCH HAS TWO PARTS. IN SO FAR AS THE FIRST PART: 'WHETHER THE ENTIRE AMOUNT RE CEIVED ON SALE OF DEPB ENTITLEMENTS REPRESENTS PROFIT CHARGEABLE UNDER S ECTION 28(IIID) OF THE INCOME TAX ACT, IS CONCERNED, WE ANSWER IT IN NEG ATIVE AND THE SECOND PART OF THE QUESTION OR THE PROFIT REFERRED TO THEREIN REQUIRES ANY ARTIFICIAL COST TO BE INTERPOLATED IS REPLIED IN AFFIR MATIVE TO THE EXTENT THAT THE FACE VALUE OF DEPB SHALL BE DEDUCTED FROM THE SALE PROCEEDS. AS REGARDS THE GROUNDS BASED IN THESE APPEALS AGAINS T THE DENIAL OF ITA NOS.17 & 19/A HD/2007 JHAWAR BIOTECH PVTG.LTD. VS. ITO ASST.YEARS 2004-05 & 2003-04 RESPECTIVELY - 18 - DEDUCTION U/S 80HHC, IN FULL OR PART, WE FIND THAT THE COMPUTATION OF PROFITS DERIVED FROM EXPORTS AND THE RESULTANT AMOU NT OF DEDUCTION UNDER THIS SECTION CAN BE MADE ONLY WHEN THE DECISIO N IS TAKEN ON THE AMOUNT AND THE TIMING OF TAXABILITY OF THE FACE VALUE OF DEPB AND THE PROFIT ON ITS SALE. ON THIS ISSUE WE HOLD THAT THE FACE VALUE OF DEPB IS CHARGEABLE TO TAX U/S 28(IIIB) AT THE TIME OF ACCRUAL O F INCOME, THAT IS, WHEN THE APPLICATION FOR DEPB IS FILED WITH THE COMP ETENT AUTHORITY PURSUANT TO EXPORTS AND PROFIT ON SALE OF DEPB REPRE SENTING THE EXCESS OF SALE PROCEEDS OF DEPB OVER ITS FACE VALUE IS LIABLE TO BE CONSIDERED U/S 28(IIID) AT THE TIME OF ITS SALE. WHATEVER IS SAID ABOUT DEPB SHALL ALSO HOLD GOOD FOR DFRC, ON BOTH ITS COMPONENTS, VIZ TH E FACE VALUE OF DFRC AND PROFIT ON ITS TRANSFER, EXCEPT FOR THE FACT TH AT THE PROFIT ON SALE OF DFRC SHALL BE CHARGED TO TAX U/S 28(IIIE). THERE IS NO DISPUTE ABOUT THE DUTY DRAWBACK, WHICH SHALL BE CHARGEABLE TO TAX AT TIME OF ACCRUAL OF INCOME U/S 28(IIIC) WHEN APPLICATION IS FILED WITH TH E COMPETENT AUTHORITY AFTER MAKING EXPORTS. SINCE THE NECESSARY F ACTS FOR THE DETERMINATION OF THE QUANTUM OF DEDUCTION U/S 80HHC, AS DISCUSSED ABOVE, ARE NOT AVAILABLE ON RECORD, WE, THEREFORE, SET ASIDE THE IMPUGNED ORDERS AND DIRECT THE AO TO COMPUTE THE AMO UNT OF RELIEF IN ACCORDANCE WITH THE VIEW EXPRESSED BY US HERE IN ABOVE. 12. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF TH E TRIBUNAL, WE HOLD THAT PROFIT ELEMENT ON DEPB LICENCE WILL BE C OVERED BY SECTION 28(IIID) AND, ACCORDINGLY, BY THIRD PROVISO TO SECT ION 80HHC(3) OF THE I.T. ACT, 1961 AS THE TURNOVER OF THE ASSESSEE EXCE EDS RS.10 CRORES THIS AMOUNT SHALL BE EXCLUDED FOR THE PURPOSE OF COMPUT ING DEDUCTION U/S.80HHC OF THE I.T. ACT, 1961, IF CONDITION LAID DOWN IN THAT PROVISO ARE NOT SATISFIED . THE FACE VALUE OF THE DEPB LIC ENCE WILL BE COVERED U/S.28(IIIB) OF THE I.T. ACT, 1961 AND, THEREFORE, 90% THEREOF WOULD BE ADDED TO THE EXPORT PROFITS AS PER FIRST PROVISO TO SECTION 80HHC(3) OF THE I.T. ACT, 1961. ITA NOS.17 & 19/A HD/2007 JHAWAR BIOTECH PVTG.LTD. VS. ITO ASST.YEARS 2004-05 & 2003-04 RESPECTIVELY - 19 - 13. IN ORDER TO COMPUTE DEDUCTION U/S.80HHC OF THE I.T. ACT, 1961 IN ACCORDANCE WITH THE DECISION OF ITAT SPECIAL BENCH IN THE CASE OF M/S.TOPMAN EXPORTS(SUPRA), WE RESTORE THE MATTER TO THE FILE OF ASSESSING OFFICER. 14. SINCE EXPORT INCENTIVES IN RESPECT OF OTHER ITE MS ARE NOT AGITATED BY THE ASSESSEE BEFORE US, HENCE, THEY ARE NOT ADJUDIC ATED INDEPENDENTLY. 15. IN THE RESULT, BOTH THE APPEALS OF THE ASSESS EE ARE TREATED AS ALLOWED, BUT FOR STATISTICAL PURPOSES. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 30/10/2009. SD/- SD/- ( T.K.SHARMA ) ( D.C.AGRAWAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 30 / 10 /2009 T.C. NAIR COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT 3. THE CIT CONCERNED. 4. THE L D. CIT(APPEALS)-I, SURAT 5. THE DR, AHMEDABAD BENCH. 6. THE GUARD FIL E. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD