M/s. J.B. Exports, Surat V. The Income tax Officer, Ward-4(1), Surat

ITA 18/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5694 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 17-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 02-01-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GAURAV BATHAM
• Assessee Lawyers: S N SOPARKAR
• Keywords: Bogus purchase; Capital asset; Cost of acquisition; Competent authority; Capital Gains
• Section: 80HHC; 80IB; 54; 28; 15

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI MAHAVIR SINGH, JM AND D.C.AGRAWAL, AM M/S J. B. EXPORTS, PLOT NO.270, NEAR KUMBHARIA BUS STAND, KADODARA ROAD, KUMBHARIA, SURAT. VS. INCOME-TAX OFFICER, WD 4(1), SURAT. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI S. N. SOPARKAR, AR REVENUE BY:- SHRI GAURAV BATHAM, DR O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS :- 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE AS MADE BY THE AO OF 25% OF PURCHASES OF GREY CLOTH MADE FROM SUPPLIERS OF G REY CLOTH TO WHOM PAYMENT WERE MADE BY CROSSED CHEQUES IN SPITE OF THE FOLLOWING FACTS THAT - THE APPELLANT BEING PRIMARILY ENGAGED IN THE BUSINESS OF EXPORTS, FINISHED FABRICS ARE EXPORTED OUT OF INDIA UNDER EX PORT INVOICES ALONG WITH COPY OF ARE-I, DULY CERTIFIED BY THE EXC ISE AUTHORITIES WITH REGARD TO THEIR QUALITY VIZ-A-VIZ THEIR VALUE, AND - THE RAW MATERIAL I.E. GREY CLOTH USED IN FINI SHED FABRICS EXPORTED OUT OF INDIA ARE FIRST PROCESSED BY A PROC ESS HOUSE AND ARE EITHER DIRECTLY PACKED AND DISPATCHED FOR EXPOR T FROM THE FACTORY OF THE PROCESSOR OR ARE RECEIVED BY THE APP ELLANT FROM THE PROCESSOR FOR FURTHER PROCESS, UNDER EXCISE PAI D INVOICE AND ITA NO.18/AHD/2007 ASST. YEAR :2003-04 2 UNDER PROPER CONTROL, PHYSICAL VERIFICATION & CERTI FICATION OF CENTRAL EXCISE AUTHORITIES, WHEREBY THOSE INVOICES OF PROCESSING ALSO INCLUDES THE VALUE OF GREY CLOTH PR OCESSED BY THE PROCESSOR. 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD . CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF THE TOTAL D EDUCTION U/S 80 HHC OF THE ACT AS MADE BY THE AO. 3. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD . CIT(A) HAS ERRED BY FAILING TO APPRECIATE THAT THE TAXATION LA WS (AMENDMENT) ACT, 2005 MAKES UNDUE DISTINCTION BETWE EN EXPORTERS ON THE BASIS OF TURNOVER AND AMENDS THE L AW BY LAYING DOWN VARIOUS CONDITIONS, ON A RETROSPECTIVE BASIS, WHICH IS UNCONSTITUTIONAL AND ULTRA-VIRES, REQUIRING OUTRIGH T ANNULMENT. 4. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD . CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE AMOUNT OF DEPB LICENSE RECEIVED BY THE APPELLANT IS NOTHING BUT RE IMBURSEMENT OF COST OF DUTIES SUFFERED BY THE INPUTS AND THUS, THE ENTIRE PROFIT EARNED BY THE APPELLANT IS DERIVED ONLY FROM EXPORT S AND IS FULLY ELIGIBLE FOR DEDUCTION U/S 80 HHC OF THE ACT. 5. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD . CIT(A) HAS ERRED ON SUSTAINING THE STAND OF THE AO IN EVEN OTH ERWISE EXCLUDING THE ENTIRE AMOUNT OF DEPB LICENSE INSTEAD OF EXCLUDING ONLY THE PROFIT IF ANY ON SALE THEREOF. 6. THAT ALL THE AFORESAID GROUNDS OF APPEAL REGARDING DISALLOWANCE OF DEDUCTION U/S 80 HHC ARE INDEPENDENT OF EACH OTH ER REQUIRING SEPARATE ADJUDICATION BY YOUR HONOURS. 2. THE LD. AR FOR THE ASSESSEE DID NOT PRESS GROUND NOS.2 & 3 AND HENCE THESE GROUNDS ARE REJECTED AS NOT PRESSED. 3. GROUND NO.1 RELATES TO ADDITION @ 25% ON UNPROVE D PURCHASES AND GROUND NOS.4 & 5 RELATE TO ALLOWANCE OF DEDUCTI ON UNDER SECTION 80 HHC ON SALE PROCEEDS OF DEPB LICENSE. 3 4. THE FACTS OF THE CASE ARE THAT ASSESSEE IS ENGAG ED IN THE BUSINESS OF EXPORT OF FABRICS. DURING THE YEAR UNDER CONSIDERAT ION ASSESSEE HAS SHOWN GP OF RS.2,67,85,969/- ON SALES RECEIPTS OF RS.45,5 2,26,496/- GIVING GP RATE OF 5.88% AS COMPARED TO GP OF RS.1,33,11,017/- ON SALE PROCEEDS OF RS.55,76,03,819/- GIVING GP RATE OF 8.45%. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO V ERIFIED PURCHASES FROM 18 PARTIES WHICH SHOWED AS LIABILITI ES IN THE BALANCE SHEET. OUT OF THESE 18 PARTIES LETTERS SENT U/S 133 (6) WERE RETURNED BACK FROM 10 PARTIES AS UNSERVED. THE DETAILS OF THESE 1 0 PARTIES ARE AS UNDER: 6. THE AO REQUIRED THE ASSESSEE TO PRODUCE THESE PA RTIES, BUT ASSESSEE DID NOT PRODUCE ANY ONE OF THEM. THE AO INSISTED ON HIS QUERY TO PRODUCE THESE 10 PARTIES. EVEN THEN THESE PARTIES W ERE NOT PRODUCED AND ONLY WRITTEN SUBMISSIONS WERE FILED. THE AO VERIFIE D THE PAYMENTS MADE TO THOSE PARTIES. HE FOUND THAT IN CASE OF 9 PARTIE S PAYMENTS WERE NOT RECEIVED BY THEM BUT WERE RECEIVED BY THIRD PARTIES . FROM THIS, THE AO NAME OF PARTY PURCHASE AMOUNT IN RS. 1. ADINATH TEXTILES 1,312,019/- 2. DREAM GIRL FABRICS 965,717/- 3. KOTHARI SILK TRADERS 852,016/- 4. PARESH TEXTILES 4,704,212/- 5. SAPNA FABRICS 849,785/- 6. RAJMANDIR TEXTILES 675,000/- 7. SHEEBA TEXTILES 1,181,491/- 8. BHAGWATI SILK TRADERS 1,38,6261/- 9. RELIABLE SILK MILLS 1,310,728/- 10. PRIYANKA FABRICS 529,049/- 4 INFERRED THAT NEITHER THE EXISTENCE OF THE PARTY WA S PROVED FROM WHOM PURCHASES HAD BEEN SHOWN NOR THE PAYMENTS TO THEM F OR THE ALLEGED PURCHASES HAVE BEEN PROVED. THE AO THEN ISSUED SHOW CAUSE NOTICE FOR REJECTING THE BOOKS OF ACCOUNTS AND INVOKING OF PRO VISIONS OF SECTION 145(3). IN THE WRITTEN REPLY, NO EXPLANATION WAS FU RNISHED REGARDING REJECTION OF BOOKS. BUT IT WAS SUBMITTED THAT THE A SSESSEE HAD MADE EXPORTS OF GOODS OUT OF INDIA AND, THEREFORE, PURCH ASES MUST HAVE BEEN MADE BY THE ASSESSEE. THE AO WAS NOT SATISFIED AND INFERRED THAT ONCE NEITHER THE PARTIES ARE TRACEABLE NOR THE PAYMENTS TO THEM ARE ESTABLISHED THEN BOOKS OF ACCOUNTS CAN BE REJECTED AND PROVISIO NS OF SECTION 145(3) CAN BE INVOKED. FOR ESTIMATING THE PROFITS THE AO A PPLIED RATIO OF DECISION OF THE TRIBUNAL IN ACIT VS. VIJAY PROTEINS 55 TTJ (AHD) 76, DISALLOWED 25% OF THE PURCHASES FROM THESE PARTIES MADE AT RS.96,62,066/- RESULTING IN AN ADDITION OF RS.24,15 ,517/-. 7. THE LD. CIT(A) CONFIRMED THE ADDITION BY OBSERVI NG AS UNDER :- I HAVE CONSIDERED THE SUBMISSIONS AND DO NOT FIND ANY MERITS IN THIS. THE ENTIRE FACTS HAVE BEEN BROUGHT OUT IN DETAIL IN THE ASSESSMENT ORDER AND THE APPELLANTS SUBMISSION THAT THE PAYMENT WAS MADE THROUGH THE BROKERS TO THE PARTIES FROM WHOM THE ALLEGED PURCHA SES WERE MADE DOES NOT APPEAR TO BE CORRECT. THE TOTAL PURCHASES MADE BY THE APPELLANT FROM THE ABOVE MENTIONED PARTIES RUN UP TO ALMOST A CROR E OF RUPEES WHICH IS MORE THAN 80% OF THE TOTAL PURCHASES MADE. THE APPE LLANT HAS ALSO CLAIMED THAT ALL THE PURCHASES WERE MADE THROUGH BR OKERS AND IF HIS PLEA IS ACCEPTED, THERE IS NO REASON WHY THE BALANCE OF 20% OF THE PURCHASES COULD BE PROVED AS GENUINE BY THE APPELLANT. WHEN T HE APPELLANT MAKES PURCHASES OF RAW MATERIAL FROM VARIOUS PARTIES, THA T TOO OF A HUGE AMOUNT OF APPROX. RS. 1 CRORE, IT IS A SOUND BUSINE SS PRACTICE TO KNOW THE SUPPLIERS AND NO PRUDENT BUSINESSMAN WOULD PURCHASE MATERIAL FROM AN UNKNOWN BEHIND THE SCENE PARTY. THEREFORE, THE APPE LLANTS CLAIM IN THIS REGARD IS WITHOUT ANY MERIT. WHILE THERE IS NO DOUB T THAT THE SAID MATERIALS WERE PURCHASED BY THE APPELLANT AND SUBSE QUENTLY SOLD WHICH TRANSACTIONS ARE ACCOUNTED IN THE BOOKS OF ACCOUNTS OF THE APPELLANT, 5 HOWEVER, IT IS ALSO A FACT THAT THE APPELLANT HAS N OT BEEN ABLE TO SUBSTANTIATE HIS CLAIM THAT THE SAID PURCHASES WERE MADE FROM THOSE PARTIES FROM WHOM THE PURCHASES WERE CLAIMED TO HAV E BEEN MADE SINCE NONE OF THE PARTIES WAS TRACEABLE AT THE ADDRESS GI VEN BY THE APPELLANT NOR COULD THE APPELLANT PRODUCE THESE PARTIES FOR V ERIFICATION OF THE SAID PURCHASES. IT IS THEREFORE, LIKELY THAT ALTHOUGH TH E APPELLANT MADE PURCHASES WHICH WERE SOLD SUBSEQUENTLY, THE PURCHAS ES WERE NOT MADE FROM THE PARTIES MENTIONED BY THE APPELLANT AND IT IS ONLY THE INFLATED BILLS/INVOICES WHICH WERE RECORDED BY THE APPELLANT IN HIS BOOKS OF ACCOUNTS. I AM OF THE CONSIDERED VIEW THAT ALTHOUG H THE PURCHASES WERE MADE BUT THESE WERE MADE FROM THIRD PARTIES AT A MU CH LOWER PRICE THAN THE PRICE MENTIONED IN THE BILLS OF THE PARTIES WHI CH WERE NON-EXISTENT OR NOT TRACEABLE. THEREFORE, THE AO WOULD BE LEFT WITH NO ALTERNATIVE BUT TO ESTIMATE THE QUANTUM OF INFLATION IN PURCHASE PRICE AND HAS RIGHTLY MADE A DISALLOWANCE OF 25% OF SUCH UNVERIFIABLE PURCHASE S FOLLOWING THE APPEAL DECISION OF JURISDICTIONAL BENCH OF HONBLE ITAT. IN VIEW OF THIS, DISALLOWANCE MADE BY THE AO OUT OF PURCHASES IS HER EBY CONFIRMED. 8. BEFORE US, LD. AR FOR THE ASSESSEE SUBMITTED THA T THE ASSESSEE HAS MADE PAYMENTS BY CROSSED CHEQUES TO THOSE PARTIES A ND THEREAFTER IT IS NOT THE CONCERN OF THE ASSESSEE AS TO WHAT THOSE PARTIE S DID WITH THE CHEQUES GIVEN BY THE ASSESSEE TO THEM. THEY MIGHT HAVE ENDO RSED TO OTHER PARTIES AGAINST PAYMENT DUE FROM THEM. BUT FOR THAT MATTER IT CANNOT BE INFERRED THAT ASSESSEE DID NOT MAKE THE PAYMENTS. IN THE ENT IRE DISCUSSION MADE BY THE AO OR LD. CIT(A) PURCHASE RATES ARE NOT DISPUTE D. THEREFORE, IT CANNOT BE SAID THAT ASSESSEE HAS PURCHASED GOODS FROM THES E PARTIES AT HIGHER RATES AS COMPARED TO MARKET OR AT HIGHER RATES AS C OMPARED TO PURCHASES FROM OTHER PARTIES. 9. SECONDLY IT WAS SUBMITTED THAT THERE IS NO ALLEG ATION OF THE AO THAT THE MONEY HAS COME BACK TO IT IN RESPECT OF SUCH PU RCHASES. FURTHER THESE PURCHASES WERE MADE THROUGH BROKERS AND BROKERAGE H AS BEEN PAID TO THEM WHICH HAS BEEN ALLOWED BY THE AO. ONCE THE BRO KERAGE IS ALLOWED 6 IN RESPECT OF SUCH PURCHASES THEN GENUINENESS OF TH ESE PURCHASES CANNOT BE DOUBTED. 10. THIRDLY, THE LD. AR ARGUED, THAT ALL THE GOODS SO PURCHASED ARE FINALLY EXPORTED AND SALES THROUGH THE EXPORTS HAVE BEEN ACCEPTED. FURTHER THERE IS CERTIFICATE GIVEN BY THE BROKERS T HAT THEY HAVE SOLD THE GOODS TO THE ASSESSEE. THE LD. AR REFERRED TO THE D ECISION OF TRIBUNAL IN SHRI TOTARAM B. SHARMA VS. ITO IN ITA NO.2239 & 229 1/AHD/2004 FOR ASST. YEAR 2001-02 PRONOUNCED ON 25.01.2008 WHEREIN IT IS HELD THAT PRINCIPLES LAID DOWN IN VIJAY PROTEINS FOR DISALLOW ING A PERCENTAGE OF PURCHASES WOULD BE APPLICABLE UNLESS FOLLOWING COND ITIONS ARE SATISFIED :- (A) IF THERE IS AN ALLEGATION OF SUPPRESSION OF SA LE PRICE OR SUPPRESSION OF VALUE OF CLOSING STOCK AND FOR THAT PURPOSE, THE ONUS IS ON THE REVENUE TO ESTABLISH THAT THE ASSESSEE HAS EITHER SUPPRESSE D THE SALE PRICE OR THE VALUE OF CLOSING STOCK EITHER QUANTUM-WISE OR VALU E-WISE, MEANING THEREBY THAT UNLESS AND UNTIL ANY OF THESE TWO INGR EDIENTS ARE ESTABLISHED BY THE REVENUE, THERE CANNOT BE ANY ADDITION FOR SO CALLED BOGUS/INGENUINE PURCHASES. (B) THERE IS ANOTHER WAY OF MAKING ADDITION AND THA T CAN BE ONLY WHEN THE REVENUE IS ABLE TO ESTABLISH THAT THE ASSESSEE HAS INFLATED THE PURCHASES-EITHER BY WAY OF VALUE OR BY WAY OF QUANT ITY. BUT SO FAR AS QUANTITY IS CONCERNED, THE ONUS IS O N THE ASSESSEE TO ESTABLISH THAT WHATEVER QUANTITY WAS PURCHASED, WAS EITHER SOLD OR WAS AVAILABLE IN CLOSING STOCK. (C) SO FAR AS INFLATION OF PURCHASE PRICE IS CONCER NED, HERE AGAIN, WE ARE OF THE OPINION THAT THE ONUS IS ON THE REVENUE TO ESTABLISH THIS FACT. (D) ANOTHER WAY OF MAKING ADDITION IN ASSESSEES HA NDS CAN BE IF REVENUE SUCCEEDS IN ESTABLISHING THAT THE PURCHASE PRICE PAID BY THE ASSESSEE THROUGH ITS BOOKS OF ACCOUNT HAS COME BACK TO THE ASSESSEE AND HERE AGAIN, WE ARE OF THE OPINION THAT ONUS IS ON T HE REVENUE TO ESTABLISH SUCH A FACT. 7 SINCE NONE OF THESE CONDITIONS ARE FULFILLED IN THE CASE OF THE PRESENT ASSESSEE, NO ADDITION COULD BE MADE. HE SUBMITTED T HAT THIS DECISION OF THE TRIBUNAL HAS BEEN CONFIRMED BY HON. GUJARAT HIG H COURT IN TAX APPEAL NO. 1344 OF 2008 WITH TAX APPEAL NO.1355 OF 2008 PRONOUNCED ON 9.2.2010. ONCE RATIO LAID DOWN IN THE JUDGEMENT OF THE TRIBUNAL IS CONFIRMED BY HON. HIGH COURT THEN THE ADDITION AS A RESULT OF ALLEGED BOGUS PURCHASES CAN BE MADE ONLY WHEN ANY OF THE CO NDITIONS LAID DOWN THEREIN IS SATISFIED. 11. ON THE BASIS OF ABOVE ARGUMENTS HE SUBMITTED TH AT ADDITION SO CONFIRMED BY LD. CIT(A) SHOULD BE DELETED. 12. AGAINST THIS, LD. DR SUBMITTED THAT IT IS NOT A CASE OF MERE ADDITION BASED ON THE DECISION IN THE CASE OF VIJAY PROTEINS (SUPRA) BUT IT IS A CASE OF REJECTION OF BOOKS OF ACCOUNT AND ESTIMATING THE PROFITS. THE AO SPECIFICALLY ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE BOOKS BE NOT REJECTED IN VIEW OF UNIDENTIFIED PARTIES AND UNVERI FIABLE PAYMENTS MADE TO THEM FOR ALLEGED PURCHASES. THE ASSESSEE DID NOT FURNISH ANY REPLY TO THE AO AND NOR EVEN BEFORE THE LD. CIT(A). THEREFOR E, AO HAD IN FACT REJECTED THE BOOKS OF ACCOUNT AND PROCEEDED TO ESTI MATE THE PROFIT. THOUGH HE HAS TAKEN THE BASIS OF MAKING DISALLOWANC E @ 25% ON THE ABOVE PURCHASES BUT IN FACT HE HAD ONLY ESTIMATED T HE PROFITS AFTER REJECTING THE BOOKS BECAUSE GP RATE DECLARED BY THE ASSESSEE WAS QUITE LOW BEING AT 5.88% AS COMPARED TO 8.45% LAST YEAR. THE ADDITION WOULD ONLY MAKE A DIFFERENCE OF 0.25% IN THE GP RATE WHIC H IS QUITE REASONABLE. 8 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE RATIO OF THE DECISION IN VIJAY PROTEINS WILL NOT BE APPLICABLE IN VIEW OF THE DECI SION IN TOTARAMS CASE (SUPRA) WHICH IS CONFIRMED BY HON. GUJARAT HIGH COU RT. BUT IT IS ALSO NOT DISPUTED THAT AO HAD REJECTED THE BOOKS U/S 145(3). HE HAD CALLED FOR THE ASSESSEES EXPLANATION THROUGH ORDER SHEET ENTRIES DATED 17.3.2006 AS MENTIONED BY HIM ON PAGE 4 OF HIS ASSESSMENT ORDER. THE ASSESSEE DID NOT SAY ANYTHING REGARDING REJECTION OF THE BOOKS. EVEN BEFORE LD. CIT(A) THERE IS NO REFERENCE OF ANY EXPLANATION ABOUT REJE CTION OF THE BOOKS. EVEN BEFORE US OUR ATTENTION IS NOT DRAWN TO ANY SU CH EXPLANATION. THEREFORE, UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE WHERE ASSESSEE IS NOT ABLE TO PROVE THE PURCHASES FROM THESE 9 PARTIE S OR TO IDENTIFY THESE PARTIES OR PAYMENTS MADE TO THEM THEN IT CANNOT BE SAID THAT PROFITS CAN BE CORRECTLY DEDUCED FROM SUCH SYSTEM OF ACCOUNTING . IT IS IMPORTANT TO KNOW IN RESPECT OF VERIFICATION OF PURCHASES AS TO WHAT QUALITY OF MATERIAL ASSESSEE HAD PURCHASED AND WHAT WAS THE MARKET RATE PREVAILING AT THAT TIME. WITHOUT HAVING COMPARABILITY OF THE QUALITY O F THE MATERIAL CLAIMED TO HAVE BEEN PURCHASED FROM THESE 9 PARTIES WITH OT HER PARTIES IT CANNOT BE SAID THAT ASSESSEE MUST HAVE CORRECTLY PURCHASED THE GOODS EVEN THOUGH PARTIES ARE NOT IDENTIFIABLE OR PAYMENT IS N OT TRACEABLE TO THEM. ACCORDINGLY, WE CONFIRM THE ACTION OF AUTHORITIES B ELOW IN REJECTING THE BOOKS AND INVOKING PROVISIONS OF SECTION 145(3). 14. REGARDING ESTIMATION OF PROFITS WE FIND THAT AS SESSEE HAS NOT EXPLAINED THE DECREASE IN GP FROM 8.45% TO 5.88%. O NLY APPARENT EXPLANATION IS THAT TURNOVER OF THE ASSESSEE HAS IN CREASED THREE FOLDS. THAT DOES NOT JUSTIFY THE FALL OF GP TO THE EXTENT IT HA S BEEN SHOWN BY THE ASSESSEE. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE UPHOLD THE ADDITION OF RS.10 LACS IN THE G P DECLARED BY THE 9 ASSESSEE. THE ASSESSEE GETS THE RESULTANT RELIEF. T HIS GROUND OF ASSESSEE IS PARTLY ALLOWED. 15. THE SECOND ISSUE IS ABOUT ALLOWABILITY OF DEDUC TION UNDER SECTION80 HHC ON SALE OF DEPB. WE HAVE CONSIDERED T HE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE ISSUE OF DEPB IS COVERED BY THE DECISION OF THE ITAT MUMBAI SPECIAL BENCH IN THE CASE OF TOPMAN EXPORTS VS. ITO (2009) 125 TTJ (MUMBAI) (SB) 289 WHICH IS REPRODUCED IN THE CASE O F JHAWAR BIOTECH (P) LTD. VS. ITO IN ITA NO.17/AHD/2007 & ITA NO.619 /AHD/2007 FOR ASST. YEARS 2004-05 AND 2003-04, PRONOUNCED ON 30.1 0.2009. FOR THE SAKE OF CONVENIENCE WE REPRODUCE PARA 11 TO 13 OF T HAT ORDER AS UNDER :- 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABL E ON RECORD. IN OUR CONSIDERED VIEW, THE ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT MUMBAI SPECIAL BENCH IN THE CASE OF M/S.TOP MAN EXPORTS (SUPRA). FOR THE SAKE OF CONVENIENCE, WE REPRODUCE THE OPERATIVE PART OF THE JUDGEMENT AS UNDER:- 43. THE MAJOR CONTROVERSY BEFORE US IS TO INTERPR ET 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 CASES UNDER CONSIDERATION IT IS NOTED THAT THE AO TREATED THE ENTIRE SALE PROCEEDS AS COVERED UNDER SECTION 28(IIID), AS AGAINST THE CASE OF THE ASSESSEE THAT ONLY THE PREMIUM OR THE PROFIT ELEMENT ON THE TRANSFER OF DEPB BE CONSIDERED. TO P UT THE CONTROVERSY IN SIMPLE WORDS, IF, FOR EXAMPLE, THE ASSESSEE RECEIVE D DEPB WORTH THE FACE VALUE OF RS.100/- AND THEN SOLD IT FOR RS.110/-, TH E ASSESSEE IS CONTENDING THAT ONLY A SUM OF RS.10/- IS TO BE INCLUDED UNDER CLAUS E (IIID), WHEREAS, THE REVENUE'S CONTENTION IS THAT THE ENTIRE AMOUNT OF R S.110/- BE CONSIDERED. 44. THUS WE HAVE TO INTERPRET THE WORD 'PROFIT' AS FIELDED IN SECTION 28(IIID). AS NOTED SUPRA SECTION 28 HAS CLAUSES (I) TO (VI). ON A CAREFUL CIRCUMSPECTION OF THE LANGUAGE OF CLAUSE (IIIB) AND (IIIE), IT IS NOTED THAT THE REFERENCE IS TO THE GROSS SUM OF CASH ASSISTANCE AND DUTY DRAWBACK ETC. ON THE CONTRARY CLAUSES (IIIA), (IIID) AND (IIIE) USE THE WORD 'PROFIT' ON SALE/TRANSFER OF LICENCE/DEPB/DFRC. FROM HERE, IT CAN BE EASILY INFE RRED THAT THE EMPLOYMENT OF THE WORDS 'ANY PROFIT OF TRANSFER' IN CLAUSES (IIID) AND (IIIE) OF 10 SECTION 28 IN CONTRADISTINCTION 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 ME ANING IS TO BE GIVEN TO EACH AND EVERY WORD IN THE LANGUAGE OF SECTION. NO WORD CAN BE CLAIMED AS SUPERFLUOUS. EACH COMMA, FULL STOP OR EVERY SIGN OF PUNCTUATION HAS SIGNIFICANCE. IN OUR CONSIDERED OPINION THE NEED FO R INTERPRETATION WITH THE AID OF SOME EXTERNAL AIDS OF CONSTRUCTION OF A SECTION ARISES ONLY WHEN THERE IS SOME AMBIGUITY IN THE LANGUAGE OF SECTION AND THE I NTENTION OF THE LEGISLATURE IS NOT PROPERLY CONVEYED WITH THE WORDS SO USED. IT HAS BEEN HELD BY THE HON'BLE SUPREME COURT IN NUMEROUS JUDGMENTS INCLUDI NG THE CASE OF FEDERATION OF ANDHRA PRADESH CHAMBERS OF COMMERCE & INDUSTRY & ORS ETC. VS STATE OF ANDHRA PRADESH & ORS. ETC. ETC. (2001) 165 CTR (SC) 672 (2001) 247 ITR 36 (SC) THAT THE TAXING STATUTE HAS TO BE S TRICTLY CONSTRUED AND NOTHING CAN BE READ IN IT. IDENTICAL VIEW HAS BEEN TAKEN IN THE CASE OF PADMASUNDARA RAO (DECD.) & ORS. VS. STATE OF TAMIL NADU & 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 BEEN REITER ATED 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, RESORT TO ANY INTERPRETATIVE PR OCESS TO UNFOLD THE LEGISLATIVE INTENT BECOMES IMPERMISSIBLE'. 46. COMING BACK TO THE ISSUE UNDER CONSIDERATION WE NOTE THAT THE LANGUAGE OF CLAUSE (IIID) AND (IIIE) OF SECTION 28 IS CRYSTAL CLEAR WHICH TALKS OF 'ANY PROFIT ON THE TRANSFER OF DEPB/DFRC. THE REFER ENCE IS NOT TO THE SALE PROCEEDS BUT TO THE PROFIT ON THE TRANSFER OF DEPB/ DFRC. A LINE OF DEMARCATION NEEDS TO BE DRAWN BETWEEN THE PROVISION S IN WHICH GROSS AMOUNT IS CONSIDERED AND THE PROVISIONS IN WHICH 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 SECT ION 28 ITSELF . APART FROM CLAUSES (IIIB) AND (IIIC) TO SECTION 28, CLAUSES (I V) AND (VI) ALSO REFER TO THE INCLUSION OF THE GROSS AMOUNT, AND NOT THE PROFIT E LEMENT THEREON, FURTHER THE LEGISLATURE IS NOT OBLIVIOUS TO SUCH DISTINCTION BE TWEEN THE GROSS AMOUNT AND THE PROFIT ELEMENT INASMUCH AS IT HAS USED THE APPR OPRIATE WORDS WHEREVER IT INTENDED SO. IT IS AMPLY DEMONSTRATED FROM THE LANG UAGE OF SECTION 54 WHICH GRANTS DEDUCTION FROM THE CAPITAL GAINS BY PROVIDIN G THAT IT THE AMOUNT OF CAPITAL GAIN' IS GREATER THAN THE COST OF THE RESID ENTIAL HOUSE SO PURCHASED OR CONSTRUCTED, THE DIFFERENTIAL AMOUNT SHALL BE CHARG ED UNDER SECTION 45; AS AGAINST SECTION 54E WHICH PROVIDES DEDUCTION IN RES PECT OF LONG TERM CAPITAL ASSETS BY PROVIDING THAT IF THE COST OF THE NEW ASS ET, IS NOT LESS THAN THE NET CONSIDERATION' IN RESPECT OF THE ORIGINAL ASSET, TH E WHOLE OF SUCH CAPITAL GAIN SHALL NOT BE CHARGED UNDER SECTION 45. IF WE CAREFU LLY PERUSE THE LANGUAGE OF SECTION 54 IN JUXTAPOSITION TO SECTION 54E IT CAN B E SEEN THAT WHEREAS THE FORMER SECTION PROVIDES DEDUCTION WITH REFERENCE TO THE INVESTMENT OF THE AMOUNT OF CAPITAL GAIN, THE LATER SECTION GRANTS DE DUCTION WITH REFERENCE TO THE EXTENT OF INVESTMENT OF THE NET CONSIDERATION AND N OT THE CAPITAL GAIN. THUS, IT CAN BE VISUALIZED THAT THE LEGISLATURE IS NOT UNMIN DFUL OF THE DISTINCTION BETWEEN 'SALE CONSIDERATION AND 'PROFIT' AND HAS US ED THE APPROPRIATE 11 EXPRESSION TO EXHIBIT ITS INTENDMENT. REVERTING TO THE LANGUAGE OF (IIID) OF SECTION 28 WE OBSERVE THAT IT REFERS 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 CONSIDERED UNDER THIS CLA USE AND NOT THE SALE PROCEEDS ITSELF. THUS IN ORDER TO FEE COVERED WITH THE SCOPE OF THIS CLAUSE, TWO THINGS ARE ESSENTIAL. FIRST, THERE SHOULD BE TRANSF ER OF THE DEPB AND SECOND, SUCH TRANSFER SHOULD RESULT INTO ANY PROFIT. UNLESS BOTH THE CONDITIONS ARE CUMULATIVELY SATISFIED, THE TRANSACTION CANNOT FORM PART OF SECTION 28 (IIID). 47. THIS LEAVES US WITH THE DETERMINATION OF THE M EANING OF THE WORD 'PROFIT'. IN COMMON DIALECT THE WORD PROFIT' REFERS TO EXCESS OF SALE PROCEEDS OVER THE COST OF GOODS. THE WORD PROFIT' HAS ANOTHE R 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 T HE 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 DEFINE D LEGAL MEANING, AND THIS MEANING CONSIDERS WITH THE FUNDAMENTAL CONCEPTION O F PROFITS IN GENERAL PARLANCE ALTHOUGH IN MERCANTILE PHRASEOLOGY THE WOR D MAY AT LIME BEAR MEANINGS INDICATED BY THE SPECIAL CONTEXT WHICH DEV IATE IN SOME RESPECTS FROM THIS FUNDAMENTAL SIGNIFICATION. 'PROFITS' IMPLIES A COMPARISON BETWEEN THE STATE OF A BUSINESS AT TWO SPECIFIC DATES USUALLY SEPARAT ED BY AN INTERVAL YEAR. THE FUNDAMENTAL MEANING IS THE AMOUNT OF GAIN MADE BY T HE BUSINESS DURING THE YEAR. THIS CAN ONLY BE ASCERTAINED BY A COMPARISON OF THE ASSETS OF THE BUSINESS 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 RECEIPT 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. 110 AT A SUBSEQUEN T DATE, THEN THE PREVAILING MARKET RATE AT THE TIME OF SALE, THAT IS RS. 110 SH ALL REPRESENT THE VALUE OF ASSET ON SUCH DATE OF SALE. ACCORDINGLY, THE DIFFERENCE O F RS 10 BETWEEN THE VALUE OF TWO DATES, VIZ, ON THE DATE OF ITS SALE (RS.110/-) AND THE DATE WHEN IT WAS ACQUIRED ON ACCRUAL (RS.100/-), WILL CONSTITUTE PRO FIT. EVEN GOING BY THE MEANING OF 'PROFIT' AS COMMONLY UNDERSTOOD REPRESEN TING EXCESS OF SALE PROCEEDS OVER COST, WE FIND THAT SIMILAR RESULT WIL L 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 SECTION 28 IN WHICH THE FACE VALUE OF DEPB, AT THE TIME OF MAKING APPLICATION, RESULTS IN TO THE ACCRUAL OF INCOME AS INCLUDIBLE U/S 28(IIIB) AND THE CORRESPONDING AMOUN T REPRESENTS THE VALUE OF DEPB, SUCH VALUE, WHICH IS IN THE NATURE OF AN ASSE T, SHALL CONSTITUTE ITS COST WHEN DEPB IS MADE THE SUBJECT MATTER OF SALE AT A L ATER DATE. THE FOLLOWING ACCOUNTING ENTRY SHALL BE PASSED IN THIS SITUATION. CASH/BANK DR RS. 110 TO DEPB RS. 100 TO PROFIT ON SALE OF DEPB RS. 10 12 [AT THE TIME OF SALE, THE INCOME OF RS. 10 SHALL AR ISE TO THE ASSESSEE U/S 28(IIID) AS INCOME OF RS. 100 HAD ALREADY ACCRUED U/S 28(III B) AT TIME OF APPLICATION] 49. THE ABSURDITY IN THE RESULT CAN BE SEEN FROM TH E CONSEQUENCES FOLLOWING THE REASONING OF THE DEPARTMENT, THAT THE ENTIRE SA LE PROCEEDS SHALL BE TAXABLE U/S 28(IIID) AT THE TIME OF SALE. IN SUCH A SITUATI ON THERE WILL BE DOUBLE TAXATION OF THE FACE VALUE OF DEPB, FIRSTLY, WHEN APPLICATIO N FOR DEPB IS MADE RESULTING IN TO ACCRUAL OF INCOME U/S 28(IIIB) IF T HE EXTENT OF US FACE VALUE AT RS. 100 AND SUBSEQUENTLY WHEN DEPB IS SOLD FOR RS. 110, THE ENTIRE SALE CONSIDERATION OF RS. 110 SHALL STAND INCLUDED U/S 2 8(IIID) RESULTING INTO TOTAL INCOME 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 SALE 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 I MPORT ACTIVITY AND ARISES BECAUSE OF TRADING IN A 'LICENSE' WHICH HAS A PREMI UM IN THE MARKER SUCH PREMIUM OR PROFIT CANNOT TO BE COUNTED AS EXEMPTED EXPORT PROFIT AND SHOULD BE ADDED BACK AS TAXABLE PROFIT. THE SPEECH OF THE FINANCE MINISTER, AS EXTRACTED ABOVE, DIVULGES THE INTENTION OF THE SCOP E OF SECTION 28(IIID) AS COVERING ONLY THE PREMIUM ON SALE OF DEPB AND NOT T HE FACE VALUE. . . 72. REVERTING TO THE MAIN QUESTION POSTED BEFORE TH IS SPECIAL BENCH FOR CONSIDERATION AS TO WHETHER THE ENTIRE AMOUNT RECEI VED ON SALE OF DEPB ENTITLEMENTS REPRESENTS PROFIT CHARGEABLE U/S 28 (I IID) OR SOME ARTIFICIAL COST IS TO BE INTERPOLATED, WE FIND THAT THE RELEVANCE OF T HIS 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 GOODS OR MERCHANDIZE IS A COMPLETE CODE IN ITSEL F, THUS THE COMPUTATION OF ELIGIBLE PROFITS IS TO BE MADE FIRMLY AS PER THIS S UB-SECTION WITH THE AID OF EXPLANATION AS INTERPRETED BY THE HON'BLE SUPREME C OURT IN THE CASE OF HERO EXPORTS (SUPRA) AND K. RAVINDRANATHAN (SUPRA). THE AO HAS DENIED THE DEDUCTION U/S 80HHC BY HOLDING THAT THE ENTIRE SALE PROCEEDS OF DEPB FALL UNDER SECTION 28(IIID) AND SINCE IN THAT VIEW OF TH E MATTER, THERE IS NO POSITIVE INCOME, THE DEDUCTION IS IMPERMISSIBLE. ON THE CONT RARY THE VIEW POINT OF THE ASSESSEE IS THAT THE FACE VALUE OF DEPB SHOULD BE R EDUCED FROM THE COST OF PURCHASES AS IT IS GIVEN BY THE GOVERNMENT OF INDIA ONLY TO NEUTRALIZE THE INCIDENCE OF CUSTOM DUTY. 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 DEPB IS NOTHING BUT PARTIAL REIMBURSE MENT OF THE PURCHASE PRICE OF GOODS. OUR THIS VIEW IS BASED ON THE UNDERSTANDI NG 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 COMPUT ATION OF DEDUCTION AND THE PLACEMENT OF THE FACE VALUE OF DEPB IN THE SCHE ME OF SECTION 80HHC, THE GENERAL VIEW BASED ON THE FOREIGN TRADE POLICY ABOU T 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 F AR AS THE COMPUTATION OF THE 13 ELIGIBLE PROFITS DERIVED FROM EXPORT ARE CONCERNED. THE MANDATE OF SUB-SECTION (3) HAS TO BE RELIGIOUSLY FOLLOWED FOR DETERMINING THE AMOUNT OF ELIGIBLE PROFITS FOR DEDUCTION AND AS SUCH THE GENERAL VIEW ABOUT TH E UNDERSTANDING OF THE NATURE OF DEPB WILL BE SUBDUED AND THE ONE BASED ON THE PRESCRIPTION OF THIS PROVISION WILL COME TO FORE. IN THAT VIEW OF THE MA TTER WE HOLD THAT THE FACE VALUE OF DEPB CANNOT BE REDUCED FROM THE COST OF PU RCHASES AND 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 BECOME ACADEMIC IN THE CONTEXT OF SECTION 80HHC. SIMILARLY THE COMPARISON OF DEPB WITH MODVAT, WHICH IS AN OFF-SHOOT OF THE BASIC CONTENTION OF REDUCTIO N OF THE DEPB VALUE FROM THE PURCHASES AND ALSO THE ARGUMENTS BY THE LD. AR TOWA RDS THE REDUCTION OF THE FACE VALUE OF DEPB FROM THE PURCHASE COST ON THE ST RENGTH OF CERTAIN DECISIONS RENDERED IN THE FRAMEWORK OF SECTION 80IB , LOSE THEIR RELEVANCE IN THE PRESENT CONTEXT 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 H AS BEEN, CONTENDED BEFORE US, THEN THERE WAS NO NEED TO HAVE CLAUSES (IIIA) T O (IIIE) OF SECTION 28 AND ALSO THE FIRST TO FIFTH PROVISOS TO SECTION 80HHC(3) ALO NG WITH THE NECESSARY INGREDIENTS OF EXPLANATION BELOW SECTION 80HHC(4C). WE HAVE HELD THAT THE FACE VALUE OF DEPB UNDER THE SCHEME OF THE INCOME-T AX ACT, 1961 FALLS UNDER SECTION 28(IIIB) AND THE PROFIT ELEMENT T ON THE SA LE OF DEPB, THAT IS THE EXCESS 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 NINETY PER CENT OF ANY SUM REFERRED TO IN SECTION 28(IIIA TO I IIE). THEN FIRST PROVISO 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 DEPB 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 REDUCED FROM THE COST OF PURCHASE THEN IN THE CASE OF MERCHANT EXPORTER WITH TURNOVER OF LESS THAN RS.10 CRORES, A N ANOMALOUS SITUATION WILL CROP UP INASMUCH AS THE AMOUNT OF ELIGIBLE PROFIT W ILL FAR EXCEED THE ACTUAL PROFIT 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 FROM SUCH EXPORT SHALL BE EXPORT TURNOVER MINUS THE DIRECT AND INDIRECT CO STS 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 TURNOVER A T RS.1,000 RESULTING INTO PROFITS DERIVED FROM EXPORT AS PER CLAUSE (B) OF SU B-SECTION (3) COMING, TO RS.300 I.E. RS.1,000 MINUS RS.700. WHEN WE FURTHER GIVE EFFECT TO THE FIRST 14 PROVISO TO SUB-SECTION (3), THE PROFIT OF RS.300 AS COMPUTED ABOVE WOULD REQUIRE TO BE FURTHER INCREASED BY THE NINETY PER C ENT OF THE FACE VALUE OF DEPB. THE AMOUNT OF RS.90 (I.E. 90% OF RS.100 I.E F ACE VALUE OF DEPB COULD, THEREFORE, BE ADDED AND THE PROFIT AS DETERMINED IN CLAUSE (B) OF 80HHC(3) WILL COME AT RS.390. AS AGAINST THAT WE FIND THE RE AL PROFIT FROM EXPORT AFTER GIVING EFFECT TO THE DEPB BENEFIT IS ONLY RS.300 [1 000 700 (800 - 100)]. THUS IT CAN BE EASILY ASCERTAINED THAT WHEREAS THE TOTAL BUSINESS FROM EXPORT IS RS.300 BUT IF WE ACCEPT THE CONTENTION THAT THE FAC E VALUE OF DEPB BE REDUCED FROM THE COST OF PURCHASES THEN THE AMOUNT OF PROFI TS DERIVED FROM EXPORT AS PER SECTION 80HHC(3)(B) WILL COME AT RS.390. OBVIOU SLY THIS CALCULATION DEFIES ALL LOGICS AND IS INCAPABLE OF ACCEPTANCE DU E TO AWKWARD SITUATION CREATED BY DETERMINING THE PROFITS DERIVED FROM EXP ORT AT A FIGURE HIGHER THAN THE ACTUAL BUSINESS PROFIT, THE FORMER AMOUNT, IN N O CASE CAN BE HIGHER THAN THE LATER. WE FIND THAT THE LOGIC BEHIND INTRODUCIN G CLAUSES (IIIA) TO (IIIE) TO SECTION 28 IS TO DE LINK THE EXPORT INCENTIVES FROM THE BUSINESS PROFITS WHILE CONTINUING THEM TO BE GOVERNED BY CHAPTER IV-D AT T HE 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 INCENT IVES INCLUDING THE DEPB AND DFRC ETC. BE CONSIDERED AS SEPARATE BUSINESS IN COME AND NOT TO REDUCE THEM FROM THE COST OF PURCHASES. 75. WE WILL NOW ENDEAVOR TO EVALUATE THE STAND POIN T OF THE AO FROM ANOTHER ANGLE THAT THE ENTIRE AMOUNT OF SALE PROCEE DS IS COVERED UNDER CLAUSE (IIID) AND; NOT ONLY THE PROFIT ELEMENT. CONTINUING WITH THE ABOVE EXAMPLE, WHERE WE SUPPOSED THAT THE EXPORTER MADE EXPORT TUR NOVER OF RS. 1000/- AND HE EARNED RS.200/- FROM THE EXPORT TRANSACTION IN A DDITION TO RS.100/- TOWARDS THE FACE VALUE OF DEPB. THE AMOUNT OF PROFITS DERIV ED FROM EXPORTS SHALL COME AT RS.300 AS PER CLAUSE (BAA) OF EXPLANATION B ELOW 80HHC(4C) READ WITH SUB-SECTION (3) INCLUDING THE FIRST PROVISO. F URTHER SUPPOSE THAT THE SAID DEPB IS HELD AS SUCH AT THE CLOSE OF THE YEAR AND I S THEN SOLD IN THE SUCCEEDING YEAR FOR RS. 110. IF WE AGREE WITH THE V IEW POINT OF THE DEPARTMENT THAT AT THE TIME OF SALE OF DEPB, THE ENTIRE AMOUNT OF RS . 110/- IS INCLUDIBLE IN SECTION 28 (IIID) THEN IT WOULD MEAN THAT IN ORD ER TO GIVE EFFECT TO SUB- SECTION (3), FIRSTLY THE SUM OF RS.100/- WILL REQUI RE INCLUSION IN THE PROFITS AND GAINS OF BUSINESS OR PROFESSION' IN THE YEAR OF SAL E, BECAUSE THE QUESTION OF 90% EXCLUSION SHALL ARISE ONLY IF 100% IS INCLUDED IN THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAI NS OF BUSINESS OR PROFESSION'. THAT OBVIOUSLY CANNOT BE THE DONE BECA USE THE SUM OF RS.100/- HAD ALREADY BEEN INCLUDED IN THE PROFITS AND GAINS OF BUSINESS OR PROFESSION' FOR THE LAST YEAR WHEN SUCH INCOME ACCRUED TO THE A SSESSEE U/S 28(IIIB). THE FURTHER INCLUSION OF RS.110/- IN SUCCEEDING YEAR AT THE TIME OF SALE IN THE 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' WOULD LEAD TO OBVIOUS INCONGRUITY AND AN IMPOSSIBLE SITUATION BECAUSE THE INCLUSION OF FACE VALUE OF RS.100/- IN THE PROFITS OF THE SECOND YEAR ALSO WIL L 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). . . 15 79. THE SECOND PROVISO TO SECTION 80HHC PROVIDES T HAT IN THE CASE OF AN ASSESSEE HAVING EXPORT TURNOVER NOT EXCEEDING RS. 1 0 CRORES DURING THE PREVIOUS YEAR, THE PROFITS COMPUTED UNDER CLAUSE (A ) OR CLAUSE (B) OR CLAUSE (E) OF THIS SUB-SECTION OR AFTER GIVING EFFECT TO T HE FIRST PROVISO, AS THE CASE MAY BE, SHALL BE FURTHER INCREASED BY THE AMOUNT WH ICH BEARS TO NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSE (IIID) OR CLA USE (IIIC) OF SECTION 28, THE SAME PROPORTION AS THE EXPORT TURNOVER 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 EXCEEDING RS. 10 CRORES, E VEN THE PROFIT ELEMENT OF RS.10/- IN THE ABOVE EXAMPLE ON THE SALE OF DEPB FO R RS.110/- WILL ALSO BE CONSIDERED AS ELIGIBLE FOR DEDUCTION DESPITE THE FA CT THAT IT IS OUT OF THE TRADING OF DEPB ENTITLEMENT IN INDIA ONLY. BUT FOR THIS PRO VISO NO PROFIT ON SALE OF DEPB OR DFRC COULD HAVE BEEN CONSIDERED FOR DEDUCTI ON UNDER THIS SECTION. IN CONTRAST TO IT THE THIRD AND FOURTH PROVISOS ARE APPLICABLE TO THE CASE OF THE ASSESSEE HAVING EXPORT TURNOVER EXCEEDING RUPEES TE N CRORES IN WHICH CASE THE PROFIT COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR C LAUSE (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 SE CTION 28(IIID) OR (IIIE) IN PROPORTION TO THE EXPORT TURNOVER TO THE TOTAL TURN OVER ONLY IF THE FURTHER TWO CONDITIONS STIPULATED THEREIN ARE FULFILLED AND ALS O THE ASSESSEE HAS SUFFERED EVIDENCE TO PROVE THE FULFILLMENT OF SUCH CONDITION S. IT IS THIS CATEGORY OF EXPORTERS WHICH HAS BEEN STATUTORILY DISCRIMINATED VIS A VIS THE SMALL EXPORTERS HAVING TURNOVER NOT EXCEEDING RS. 10 CROR ES. THEY SHALL NOT BE ENTITLED TO INCREASE IN THE QUANTUM OF DEDUCTION BY PROFIT AT TRANSFER OF DEPB/DFRS WHICH IS OTHERWISE AVAILABLE TO SMALL EXP ORTERS, UNLESS THE TWO CONDITIONS AS SET OUT IN THESE PROVISOS ARE FULFILL ED. IN THE CASES UNDER CONSIDERATION IT IS AN ADMITTED POSITION THAT THE T WO CONDITIONS AS SO SPECIFIED IN THIRD AND, FOURTH PROVISOS ARE NOT CAPABLE OF CO MPLIANCE AND HENCE THE FURTHER INCREASE AS SUGGESTED IN THESE TWO PROVISOS CANNOT BE MADE TO THE COMPUTATION OF DEDUCTION U/S.80HHC. THUS, IT IS APP ARENT THAT THE STATUTORY DISCRIMINATION IS BETWEEN THE EXPORTERS HAVING EXPO RT TURNOVER NOT EXCEEDING RS. 10 CRORES AND THOSE HAVING EXCEEDING RS. 10 CRO RES. WHEREAS THE BENEFIT OF DEDUCTION IN RESPECT OF THE PROFIT OF SALE OF DE PB REALIZED FROM THE INDIAN MARKET IS ALSO AVAILABLE TO SMALL EXPORTERS HAVING EXPORT TURNOVER, IT IS NOT SO IN THE CASE OF THE LARGE EXPORTERS HAVING EXPORT TU RNOVER EXCEEDING RS. 10 CRORES. THIS APPEARS TO BE THE ONLY REASON FOR INSE RTING CLAUSES (IIID) AND (IIIE) TO SECTION 28 BY THE TAXATION, LAWS (AMENDMENT ACT, 2005), SIMULTANEOUS WITH THE INSERTION OF SECTION 3RD AND 4TH PROVISOS. .. .. 89. THE QUESTION RAISED BEFORE THE SPECIAL BENCH H AS TWO PARTS. IN SO FAR AS THE FIRST PART: 'WHETHER THE ENTIRE AMOUNT RECEIVED ON SALE OF DEPB ENTITLEMENTS REPRESENTS PROFIT CHARGEABLE UNDER SEC TION 28(IIID) OF THE INCOME TAX ACT, IS CONCERNED, WE ANSWER IT IN NEGATIVE AND THE SECOND PART OF THE QUESTION OR THE PROFIT REFERRED TO THEREIN REQUIRES ANY ARTIFICIAL COST TO BE INTERPOLATED IS REPLIED IN AFFIRMATIVE TO THE EXTEN T THAT THE FACE VALUE OF DEPB SHALL BE DEDUCTED FROM THE SALE PROCEEDS. AS REGARD S THE GROUNDS BASED IN THESE APPEALS AGAINST THE DENIAL OF DEDUCTION U/S 8 0HHC, IN FULL OR PART, WE FIND THAT THE COMPUTATION OF PROFITS DERIVED FROM E XPORTS AND THE RESULTANT AMOUNT OF DEDUCTION UNDER THIS SECTION CAN BE MADE ONLY WHEN THE DECISION IS 16 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 T HAT THE FACE VALUE OF DEPB IS CHARGEABLE TO TAX U/S 28(IIIB) AT THE TIME OF ACCRU AL OF INCOME, THAT IS, WHEN THE APPLICATION FOR DEPB IS FILED WITH THE COMPETEN T AUTHORITY PURSUANT TO EXPORTS AND PROFIT ON SALE OF DEPB REPRESENTING 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 HO LD GOOD FOR DFRC, ON BOTH ITS COMPONENTS, VIZ THE FACE VALUE OF DFRC AND PROF IT ON ITS TRANSFER, EXCEPT FOR THE FACT THAT 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 APPL ICATION IS FILED WITH THE COMPETENT AUTHORITY AFTER MAKING EXPORTS. SINCE THE NECESSARY FACTS FOR THE DETERMINATION OF THE QUANTUM OF DEDUCTION U/S 80HHC , AS DISCUSSED ABOVE, ARE NOT AVAILABLE ON RECORD, WE, THEREFORE, SET ASI DE THE IMPUGNED ORDERS AND DIRECT THE AO TO COMPUTE THE AMOUNT OF RELIEF IN AC CORDANCE 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 B E COVERED BY SECTION 28(IIID) AND, ACCORDINGLY, BY THIRD PROVISO TO SECTION 80HHC(3) OF THE I.T. ACT, 1961 AS THE TURNOVER OF T HE ASSESSEE EXCEEDS RS.10 CRORES THIS AMOUNT SHALL BE EXCLUDE D FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.80HHC OF THE I. T. ACT, 1961, IF CONDITION LAID DOWN IN THAT PROVISO ARE NOT SATI SFIED . THE FACE VALUE OF THE DEPB LICENCE WILL BE COVERED U/S.28(II IB) OF THE I.T. ACT, 1961 AND, THEREFORE, 90% THEREOF WOULD BE ADDE D TO THE EXPORT PROFITS AS PER FIRST PROVISO TO SECTION 80HHC(3) OF THE I.T. ACT, 1961. 13. IN ORDER TO COMPUTE DEDUCTION U/S.80HHC OF THE I.T. ACT, 1961 IN ACCORDANCE WITH THE DECISION OF ITAT SPECI AL BENCH IN THE CASE OF M/S.TOPMAN EXPORTS(SUPRA), WE RESTORE THE M ATTER TO THE FILE OF ASSESSING OFFICER. THE ISSUE OF DEPB IS ACCORDINGLY COVERED BY THE ABO VE DECISION AND RESPECTFULLY FOLLOWING THAT WE RESTORE THE MATTER T O THE FILE OF AO FOR CALCULATING DEDUCTION UNDER SECTION 80HHC IN ACCORD ANCE WITH ABOVE DECISION. THIS GROUND IS ALLOWED FOR STATISTICAL PU RPOSES. 17 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 02/07/2010 SD/- SD/- (MAHAVIR SINGH) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 02/07/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD