GAUTAM STEEL, MUMBAI V. ITO 23(2)(3), MUMBAI

ITA 1700/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7668 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2002-2003
• Appeal Filed On: 13-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIJAY PANDIT
• Keywords: Business income; Competent authority
• Section: 80HHC; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, SENIOR VICE-PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NOS. 1699, 1700 & 1701/MUM/2009 (ASSESSMENT YEARS: 2001-02, 2002-03 & 2005-06) M/S. GAUTAM STEEL INCOME TAX OFFICER 23(2)(3) A1/6 JEEVAN NAGAR BANDRA KURLA COMPLEX MITHAGAR ROAD, MULUND (E) VS. BANDRA, MUMBAI MUMBAI 400081 PAN - AAAFG 3699 M APPELLANT RESPONDENT APPELLANT BY: SHRI VIJAY PANDIT RESPONDENT BY: SHRI MOHD. USMAN O R D E R PER B. RAMAKOTAIAH, A.M. THESE APPEALS ARE AGAINST THE ORDERS OF THE CIT(A)- XV, MUMBAI PERTAINING TO THE COMMON ISSUE OF ADDING THE VALUE OF UNSOLD DEPB LICENSE FOR THE PURPOSE OF DETERMINING BUSINESS INCOME OF T HE ASSESSEE WHEN THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACC OUNTING. FOR THE PURPOSE OF CLARITY THE APPEAL IN ITA NO.1699/MUM/09 IS CONS IDERED IN DETAIL. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY, IN TH E RELEVANT ASSESSMENT YEARS, WAS ENGAGED IN THE BUSINESS OF MA NUFACTURE AND EXPORT OF STAINLESS STEEL AND ALUMINIUM UTENSIL. IT HAD F ILED ITS RETURN OF INCOME DECLARING TOTAL INCOME AT RS.10,73,640/- AFTER CLAI MING DEDUCTION U/S. 80HHC OF RS.43,38,559/-. THE AO EXAMINED THE ASSES SEES CLAIM U/S. 80HHC IN RESPECT OF DEPB RECEIPTS AND NOTICED THAT DEPB OF RS.17,61,969/- WAS NOT SOLD BY THE ASSESSEE DURING THE YEAR. HE FURTHER OBSERVED THAT AS PER AMENDED PROVISIONS OF SECTION 28(IIID) AND PROVISO TO SECTION 80HHC(3), THE PROFIT EARNED ON SALE OF DEPB WAS NOT ELIGIBLE FOR DEDUCTION U/S. 80HHC. HE REQUIRED THE ASSESSEE TO EXPLAIN WHY CLAIM OF DEDUCTION U/S. 80HHC ON UNSOLD DEPB SHOULD NOT BE D ISALLOWED. IN REPLY, THE ASSESSEE SUBMITTED THAT DEDUCTION U/S. 80HHC MA Y BE ALLOWED AS THE ITA NO. 1699 TO 1701/MUM/2009 M/S. GAUTAM STEEL 2 ASSESSEE MAINTAINS THE BOOKS OF ACCOUNT ON MERCANTI LE BASIS. THE AO, WHILE COMPUTING THE DEDUCTION U/S. 80HHC, EXCLUDED VALUE OF THE UNSOLD DEPB. 3. LD CIT (A) REFERRING TO THE PROVISO TO SECTION 28(I IID) R.W. SECTION 80HHC(3) AMENDED RETROSPECTIVELY WITH EFFECT FROM 0 1.04.1998, HELD THAT IT IS THE PROFIT ON A TRANSFER OF DEPB LICENCE, WHICH HAS BEEN CONTEMPLATED UNDER THE IMPUGNED PROVISION. HE, ACCORDINGLY, HEL D THAT THE AMOUNT CREDITED ON ACCRUAL BASIS WITHOUT TRANSFERRING DEPB LICENCE COULD NOT FALL WITHIN THE PURVIEW OF SECTION 28(IIID). HE, THEREF ORE, UPHELD THE FINDINGS OF THE AO. 4. HAVING HEARD BOTH THE SIDES, WE FIND THAT THE ITAT MUMBAI (SB) IN THE CASE OF M/S. TOPMAN EXPORTS 318 ITR (AT) 87 (M UM)(SB) LAID DOWN THE POINT OF TIME AT WHICH, INCOME ON TRANSFER OF DEPB LICNECE WOULD ACCRUE. IT HAS BEEN, INTER ALIA, HELD AS UNDER:- IN SO FAR AS THE FIRST PART, WHETHER THE ENTIRE AM OUNT RECEIVED ON SALE OF DEPB ENTITLEMENTS REPRESENTS PROFIT CHAR GEABLE UNDER SECTION 28 (IIID) OF THE I.T.ACT, IS CONCERNED, WE ANSWER IT IN NEGATIVE AND THE SECOND OF THE QUESTION; OR THE PRO FIT REFERRED TO THEREIN REQUIRES ANY ARTIFICIAL COST TO BE INTERPOL ATED, IS REPLIED IN AFFIRMATIVE TO THE EXTENT THAT THE FACE VALUE OF DEPB SHALL BE DEDUCTED FROM THE SALE PROCEEDS. AS REGARDS THE GR OUNDS RAISED IN THESE APPEALS AGAINST THE DENIAL OF DEDUCTION U/ S. 80 HHC, IN FULL OR PART, WE FIND THAT THE COMPUTATION OF PR OFITS DERIVED FROM EXPORTS AND THE RESULTANT AMOUNT OF DEDUCTION UNDER THIS SECTION CAN BE MADE ONLY WHEN THE DECISION IS TAKEN ON THE AMOUNT AND THE TIMING OF TAXABILITY OF THE FACE VAL UE 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(IIID) AT THE TIME OF ACCRUAL OF INCOME THAT IS, WHEN APPLICATION FOR DEP B IS FILLED WITH THE COMPETENT AUTHORITY PURSUANT TO EXPORTS AN D PROFIT ON SALE OF DEPB REPRESENTING THE EXCESS OF SALE PROCEE DS 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 SHAL L ALSO HOLD GOOD FOR DFRC, ON BOTH ITS COMPONENTS, VIZ; THE FAC E VALUE OF DFRC AND PROFITS ON ITS TRANSFER, EXCEPT FOR THE FA CT THAT THE PROFIT ON SALE OF DFRC SHALL BE CHARGED TO TAX U/S. 28(IIID). THERE IS NO DISPUTE ABOUT THE DUTY DRAWBACK, WHICH SHALL BE CHARGEABLE TO TAX AT THE TIME OF ACCRUAL OF INCOME U/S.28(IIIC) WHEN APPLICATION IS FILED WITH THE COMPETENT AUTHOR ITY AFTER MAKING EXPORTS. ITA NO. 1699 TO 1701/MUM/2009 M/S. GAUTAM STEEL 3 SINCE IT WAS CHARGEABLE TO TAX U/S. 28 (IIID) AS HE LD BY THE ITAT (SB) IN THE CASE OF TOPMAN EXPORTS (SUPRA), WE, ACCORDINGLY, DI RECT THE AO TO RE- COMPUTE THE ADMISSIBLE DEDUCTION U/S. 80 HHC BY TRE ATING THE INCOME ACCRUED IN RESPECT OF DEPB LICENCE AT RS.17,61,969/ - BEING CHARGEABLE TO TAX U/S. 28(IIID). GROUND NOS. 1 & 2 ARE TREATED A S ALLOWED FOR STATISTICAL PURPOSES. 5. THE THIRD GROUND RAISED BY THE ASSESSEE FOR A.Y. 2001-02 REGARDING LEVYING OF INTEREST UNDER SECTION 220(2) WAS NOT PR ESSED, HENCE, THE SAME IS DISMISSED AS NOT PRESSED. ITA NO. 1700/MUM/2009 6. GROUND NOS. 1 & 2 RAISED IN THIS APPEAL ARE SIMI LAR TO GROUND NOS. 1 & 2 RAISED FOR A.Y. 2001-02 IN ITA NO. 1699/MUM/200 9. FOR THE REASONS DISCUSSED THEREIN THE MATTER IS RESTORED TO THE FIL E OF THE A.O. TO DO ACCORDINGLY. THE GROUNDS ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 1701/MUM/2009 7. GROUND NOS. 1 & 2 RAISED IN THIS APPEAL ARE SIMI LAR TO GROUND NOS. 1 & 2 RAISED FOR A.Y. 2001-02 IN ITA NO. 1699/MUM/200 9. FOR THE REASONS DISCUSSED THEREIN THE MATTER IS RESTORED TO THE FIL E OF THE A.O. TO DO ACCORDINGLY. THE GROUNDS ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 8. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSE SSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY 2010. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) SENIOR VICE-PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 12 TH FEBRUARY 2010