DCIT, Circle - 7, Kolkata, Kolkata V. M/s. Creative Limited, Kolkata

ITA 1806/KOL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59608 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 20-09-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N O N E
• Keywords: Business income; Retrospective amendment; Question of law; Cost of acquisition
• Section: 131; 28; 80HHC

Judgement Text

, C , , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA ( ) . . , , . . . . !' # !' # !' # !' # , , ) [BEFORE SRI S.V. MEHROTRA, A.M. & SHRI N. VIJAYA K UMARAN, J.M.] $ $ $ $ / I.T.A NOS. 1803, 1804, 1805 & 1806/KOL/2010 ASSESSMENT YEAR : 2000-2001, 2002-2003, 2003-2004 & 2004-2005 DEPUTY COMMISSIONER OF INCOME TAX, -VS.- M/S. CREATIVE LIMITED, KOLKATA CIRCLE-7, KOLKATA (PAN : AABCC 0665 R) ( %& /APPELLANT ) ( '(%& / RESPONDENT ) FOR THE APPELLANT : N O N E FOR THE RESPONDEN T : ADJOURNMENT APPLICATION REJECTED # ) * + # ) * + # ) * + # ) * + /DATE OF HEARING : 11.01.2012 ,- * + ,- * + ,- * + ,- * + /DATE OF PRONOUNCEMENT : 03.02.2012 . / ORDER PER BENCH :- ALL THE APPEALS FILED BY THE REVENUE FOR ASSESSMENT YEARS 2001-01, 2002-03 TO 2004-05 ARE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME -TAX (APPEALS)-XIII, KOLKATA ALL DATED 06.07.2010. 2. THE FACTS ARE IDENTICAL IN ALL THE APPEALS THERE FORE, WE HAVE DECIDED TO DISPOSE OF THE SAME BY A COMMON ORDER FOR THE SAKE OF CONVENIENCE. WE NOW TAKE THE APPEAL BEING ITA NO. 1803/KOL./2010 FOR THE ASSESSMENT YEAR 2000-01. 3. ASSESSING OFFICER RE-OPENED THE ASSESSMENT FOR T HE FOLLOWING REASONS :- THE ASSESSEE IS AN EXPORTER OF LEATHER AND LEATHER GOODS. IT IS SEEN FROM THE RETURN OF INCOME THAT THE ASSESSEE HAS CLAIMED DEDU CTION OF RS.6,43,12,952/- U/S. 8OHHC OF THE INCOME-TAX ACT, 1961. WHILE CALCULATIN G THE DEDUCTION, THE ASSESSEE HAS CONSIDERED THE EXPORT BENEFITS OF RS.7,17,23,555/-. THE PROVISION OF SECTION 80HHC(3) WERE AMENDED BY T AXATION LAWS (AMENDMENT) ACT, 2005 WITH RETROSPECTIVE EFFECT FRO M 01/04/1998 INSERTING 2 ND , 3 RD & 4 TH TO THE PROVISION OF SECTION 80HHC AND ALSO INSERTIN G 5TH PROVISO TO SECTION 80HHC OF ITA NOS. 1803, 1804, 1805 & 1806/KOL./2010 2 THE INCOME-TAX ACT, 1961 WITH RETROSPECTIVE EFFECT FROM 01/04/1992. AS PER THIS AMENDMENT, THE DEDUCTION U/S. 80HHC OF THE INCOME-L AX ACT, 1961 ON PROFIT EARNED BY THE ASSESSEE COMPANY ON TRANSFER OF DEPB IS NOT ELI GIBLE FOR DEDUCTION U/S. 80HHC OF THE INCOME-TAX ACT, 1961 IF THE ASSESSEES EXPORT T URNOVER DURING THE RELEVANT PREVIOUS YEAR EXCEEDS RS.10 CRORES. IT IS SEEN FROM THE ASSESSEES RETURN OF INCOME THA T THE ASSESSEES EXPORT TURNOVER IS AT RS.56,84,04,296 WHICH IS MORE THAN R S.10 CRORE. HENCE, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S.80HHC OF THE INCOME TAX ACT, 1961 ON PROFIT ON TRANSFER OF DEPB. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR AY. 2004-05, A SUMMON U/S. 131 OF THE INCOME TAX ACT, 1961 WAS ISSUED ON 14/11 /2006 CALLING FOR CERTAIN INFORMATION INCLUDING DETAILS OF PROFIT ON TRANSFER OF DEPB. THE ASSESSEES A/R VIDE LETTER DATED 07/03/2006 SUBM ITTED IN DAK ON 09/03/2007 HAS FURNISHED CERTAIN DETAILS. FROM THIS REPLY, II IS SEEN THAT THE ASSESSEE HAS SOLD DEPB OF RS.48730441/-. THE DEPB IS GRANTED TO THE A SSESSEE ON ITS EXPORT PERFORMANCE. HENCE THE COST OF ACQUISITION OF DEPB IS RS. NIL. THE ENTIRE SALE PROCEED OF RS.48730441/- IS, THEREFORE, PROFIT ON SALE OF D EPB ON WHICH AMOUNT THE ASSESSEE COMPANY IS NOT ENTITLED FOR DEDUCTION U/S. 80HHC OF THE INCOME-LAX ACT, 1961, WHICH DEDUCTION THE ASSESSEE HAS CLAIMED IN THE RETURN AN D WAS ACCORDINGLY ALLOWED IN THE PROCESSING OF RETURN U/S. 143(1) OF THE LT. ACT. IT IS SEEN FROM WORKING NOTE ANNEXURE A TO FORM N O. 10CCAC AUDIT REPORT THAT THE TOTAL PROFIT OF THE BUSINESS ACTUALLY WO RKS OUT TO (-) RS.6698010/- [TOTAL PROFIT RS.57853189 -RS.64551199 (90% OF EXPORT BENEFIT OF RS.71 723555/-) . THE ASSESSEE HAS TREATED THIS LOSS AT RS. NIL. IT IS SEEN FROM A NNEXURE A TO FORM NO. 10CCAC AUDIT REPORT THAT THE ADJUSTED PROFIT OF THE BUSINESS IN COLUMN 13 [COL-5 PROFIT OF BUSINESS(-) RS.6698010- COL. 10 RS.218651] ACTUALLY WORKS OUT T O(-) RS.6919661. THE ASSESSEE HAS NOT MENTIONED ANY AMOUNT IN COLUMN -13 OF THE ANNEX URE A FOR THE QUERY REGARDING ADJUSTED PROFIT OF THE BUSINESS. ITA NOS. 1803, 1804, 1805 & 1806/KOL./2010 3 THE ASSESSEES PROFIT FROM EXPORT OF MANUFACTURE GO ODS WORKS OUT TO (-)RS.68,69,830/- AS UNDER :- ADJUSTED PROFIT OF BUSINESS (-) RS.6919661/- X ADJU STED EXPORT TURNOVER RS. 558608680/- (DIVIDED BY) ADJUSTED TOTAL TURNOVE R RS.562660571/- =(-) RS.68,69,830/-. IT IS SEEN THAT THE ASSESSEE HAS NOT CONSIDERED THI S LOSS OF RS.6869830/- FOR THE CALCULATION OF AMOUNT ELIGIBLE FOR DEDUCTION U/S. 8 0HHC OF THE I.T. ACT IN THE WORKING NOTES ATTACHED TO ANNEXURE A TO FORM NO. 10CCAC AUD IT REPORT. AS PER THE PROVISIONS OF NEWLY INSERTED 5TH PROVISO TO SECTION 80HHC(3) OF THE INCOME-TAX ACT, 1961, THIS LOSS IS TO BE SET OFF AG AINST THE ASSESSEES PROFIT FROM EXPORT OF TRADING GOODS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 80HHC OF THE INCOME-TAX ACT, 1961. IN VIEW OF THE ABOVE, THE ASSESSEES CLAIM OF DEDUC TION U/S. 80HHC OF THE I.T. ACT TO THE EXTENT OF RS.6869830/- IS NOT ADMISSIBLE WHICH DEDUCTION HAS BEEN ALLOWED TO THE ASSESSEE IN THE PROCESSING OF RETURN ON 06/02/2 002 U/S.143(1) OF THE I.T. ACT. 4. THE ASSESSING OFFICER COMPUTED DEDUCTION UNDER S ECTION 80HHC AS UNDER :- CALCULATION OF DEDUCTION UNDER SECTION 80HHC PROFIT FROM EXPORT OF TRADING GOODS + (ADJUSTED PRO FIT OF THE BUSINESS X ADJUSTED EXPORT TURNOVER/ADJUSTED TOTAL TURNOVER PLUS (90% OF EXPOR T INCENTIVES X EXPORT TURNOVER) / TOTAL TURNOVER = 218652 68,69,830 + (90% OF 22993113 X 568404295 .53)[DIVIDED BY] 572456187 = 218652 MINUS 6869830 PLUS 17052128.86 =( -) 6651178 + 17052128.86 = 1,04,00,950.86 90% OF RS.1,04,00,950.86 RS.93,60,855.77 THEREFORE, DEDUCTION UNDER SECTION 80HHC IS ALLOWAB LE TO THE EXTENT OF RS.93,60,856. ACCORDINGLY HE DETERMINED THE TOTAL INCOME AS UNDER :- ITA NOS. 1803, 1804, 1805 & 1806/KOL./2010 4 TOTAL INCOME AS PER COMPUTATION OF TOTAL INCOME FIL ED ALONG WITH THE RETURN..42,99,981/- ADD. DEDUCTION UNDER SECTION 80HHC ALLOWED EARLIER RS.6,43,12,952/- ______________________ RS.6,86,12,933/- LESS : DEDUCTION UNDER SECTION 80HHC ALLOWED RS. 93,60,856/- ______________________ ASSESSED TOTAL INCOME RS.5,92,52,07 7/- ROUNDED OFF TO RS.5,92,52,080/- THE ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(APPEAL S), WHO APPLYING THE PRINCIPLES LAID DOWN BY THE HONBLE ITAT, SPECIAL BENCH, KOLKATA IN THE CASE OF TOPMAN EXPORTS & OTHERS (2009) 318 ITR (AT) 87 RECOMPUTED THE TOTAL INCOME OF THE ASSESSEE AT RS.1,59,81,000/-. BEING AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL. 5. HAVING HEARD THE LD. D.R., WE FIND THAT THE DECI SION OF HONBLE ITAT, SPECIAL BENCH, KOLKATA IN THE CASE OF TOPMAN EXPORTS & OTHERS HAS BEEN REVERSED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS.- KALPATARU COLOU RS & CHEMICALS [2010] 328 ITR 451 (BOM.), INTER ALIA, OBSERVING AT PARA 27 TO 35 AS U NDER :- 27. PRIOR TO THE INSERTION OF CLAUSE (IIID) IN SEC TION 28, THE DISPUTE WAS WHETHER THE PROFITS OF BUSINESS SUCH AS THE AMOUNT RECEIVED ON TRANSFER OF DEPB WOULD CONSTITUTE EXPORT PROFIT FOR THE PURPOSES OF DEDUCTION UNDER SECTION 80HHC OR NOT. ACCORDING TO THE EXPORTERS, THE ENTIRE AMOUNT RECEIVED ON TRANSF ER OF A DEPB CREDIT WOULD CONSTITUTE EXPORT PROFIT AND, ACCORDING TO THE REVENUE, IT WOU LD NOT. THUS, THERE WAS NO DISPUTE THAT THE ENTIRE AMOUNT RECEIVED ON TRANSFER OF DEPB WAS PROFITS OF BUSINESS BUT THE DISPUTE WAS WHETHER OR NOT SUCH PROFITS WOULD CONST ITUTE EXPORT PROFITS. 28. BY THE FINANCE ACT OF 2005, PARLIAMENT RESOLVED THE CONTROVERSY BY INSERTING A SPECIFIC CLAUSE, NAMELY, CLAUSE (IIID) IN SECTION 2 8 TO THE EFFECT THAT PROFITS ON TRANSFER OF DEPB, I.E., THE AMOUNT RECEIVED ON TRANSFER OF DEPB IS INCOME CHARGEABLE TO TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR P ROFESSION'. AS REGARDS THE DEDUCTION UNDER SECTION 80HHC, THE LEGISLATURE SUBSTITUTED E XPLANATION (BAA) IN SECTION 80HHC SO AS TO EXCLUDE 90 PER CENT. OF THE PROFITS RECEI VED ON TRANSFER OF DEPB FROM THE PROFITS OF BUSINESS FOR THE PURPOSES OF SECTION 80H HC AND INSERTED THE SECOND AND THIRD PROVISOS TO SECTION 80HHC(3). BY THE SECOND P ROVISO, IT WAS PROVIDED THAT IN THE CASE OF AN ASSESSEE HAVING AN EXPORT TURNOVER NOT EXCEEDING 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). BY THE THIRD PROV ISO, IT WAS PROVIDED THAT IN THE CASE OF AN ASSESSEE HAVING AN EXPORT TURNOVER EXCEEDING RS . 10 CRORES, THE PROFITS COMPUTED ITA NOS. 1803, 1804, 1805 & 1806/KOL./2010 5 UNDER SECTION 80HHC(3) SHALL BE INCREASED BY 90 PE R CENT. OF THE SUM REFERRED TO IN SECTION 28(IIID) SUBJECT TO THE TWO CONDITIONS SET OUT THEREIN. 29. ADMITTEDLY, IN THE ASSESSMENT YEAR IN QUESTION, THE ASSESSEE HAD AN EXPORT TURNOVER EXCEEDING RS. 10 CRORES AND DID NOT FULFIL THE CONDITIONS SET OUT IN THE THIRD PROVISO TO SECTION 80HHC(3), INTRODUCED BY THE FINA NCE ACT OF 2005. AS A RESULT, THE ASSESSEE WAS NOT ENTITLED TO A DEDUCTION UNDER SEC TION 80HHC ON THE AMOUNT RECEIVED ON TRANSFER OF DEPB. 30. TO GET OVER THIS DIFFICULTY, THE ASSESSEE CONTE NDS THAT THE PROFITS ON TRANSFER OF DEPB IN SECTION 28(IIID) WOULD NOT INCLUDE THE FACE VALUE OF THE DEPB SO THAT THE ASSESSEE GETS A DEDUCTION UNDER SECTION 80HHC ON TH E FACE VALUE OF THE DEPB. THERE IS NO MERIT IN THE ABOVE CONTENTION FOR THE FOLLOW ING REASONS : (A) WHAT IS RECEIVED ON TRANSFER OF THE DEPB CREDIT IS THE PROFIT, BECAUSE DEPB CREDIT UNDER THE DEPB SCHEME IS GIVEN AT A PERCENTAGE OF THE FOB VALUE OF THE EXPORTS, SO AS TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY ON THE IMPORT CONTENT OF THE EXPORT PRODUCT. THE DEPB CREDIT IS ALSO GIVEN TO AN EXPORTER WHO H AS EXPORTED GOODS WITHOUT IMPORTING RAW MATERIALS REQUIRED FOR THE EXPORT. DE PB CREDIT IS GIVEN FOR PAYING CUSTOMS DUTY ON IMPORT OF GOODS WHICH MAY OR MAY N OT BE UTILIZED IN THE EXPORT OF GOODS. WHEN THE DEPB CREDIT IS NOT UTILIZED FOR PAY ING CUSTOMS DUTY BUT IS TRANSFERRED FOR ANY SUM, THEN SUCH SUM WOULD BE PROFITS ON TRAN SFER OF THE DEPB COVERED UNDER SECTION 28(IIID) ; (B) EVEN THE ASSESSEE HAS NOT DISPUTED BEFORE THE C OURT THAT THE ENTIRE AMOUNT RECEIVED ON TRANSFER OF THE DEPB IS BUSINESS INCOME CHARGEAB LE TO TAX AS PROFITS OF BUSINESS. HOWEVER, IT IS CONTENDED THAT THE FACE VALUE OF TH E DEPB WOULD NOT BE COVERED UNDER SECTION 28(IIID) BECAUSE IT IS A CREDIT EARNED BY T HE ASSESSEE. WHERE THE DUTY PAID IS RECEIVED BACK AS DUTY DRAWBACK IT IS ALSO AN AMOUNT EARNED BY THE ASSESSEE, BUT SUCH A RECEIPT IS STILL CONSIDERED AS PROFITS OF BUSINESS . SIMILARLY, THE AMOUNT REALIZED ON TRANSFER OF THE DEPB, BE IT EQUIVALENT TO THE FACE VALUE OF THE DEPB ; MORE THAN THE FACE VALUE OF THE DEPB ; OR LESS THAN THE FACE VALU E OF THE DEPB, WOULD BE PROFIT ON TRANSFER OF THE DEPB COVERED UNDER SECTION 28(IIID) ; (C) THE FACT THAT THE ASSESSEE HAD ACCOUNTED FOR TH E DEPB CREDIT IMMEDIATELY AFTER MAKING AN APPLICATION SEEKING THE DEPB CREDIT WOULD MAKE NO DIFFERENCE TO THE TAXABILITY OF THE ENTIRE AMOUNT RECEIVED ON TRANSFE R OF THE DEPB CREDIT UNDER SECTION 28(IIID). WHAT CONSTITUTES 'PROFITS' UNDER SECTION 28(IIID) IS THE AMOUNT RECEIVED ON TRANSFER OF THE DEPB CREDIT AND NOT THE AMOUNT OF CREDIT WHICH THE ASSESSEE WAS ENTITLED TO UNDER THE DEPB SCHEME. IN OTHER WORDS, THE AMOUNT EQUIVALENT TO THE FACE VALUE OF THE DEPB AS WELL AS THE AMOUNT RECEIVED I N EXCESS OF THE DEPB WOULD CONSTITUTE PROFITS OF BUSINESS UNDER SECTION 28(III D) AND MERELY BECAUSE, A PART OF SUCH PROFITS OF BUSINESS (FACE VALUE) WAS OFFERED TO TAX IN THE YEAR IN WHICH THE CREDIT ACCRUED TO THE ASSESSEE WOULD NOT BE A GROUND TO HO LD THAT SUCH PROFIT WAS NOT COVERED UNDER SECTION 28(IIID). WHERE THE FACE VALUE OF TH E DEPB CREDIT IS OFFERED TO TAX AS BUSINESS PROFITS UNDER SECTION 28(IIID) IN THE YEA R IN WHICH THE CREDIT ACCRUED TO THE ASSESSEE, THEN ANY FURTHER PROFIT ARISING ON TRANS FER OF THE DEPB CREDIT WOULD BE TAXED AS PROFITS OF BUSINESS UNDER SECTION 28(IIID) IN TH E YEAR IN WHICH THE TRANSFER OF THE DEPB CREDIT TOOK PLACE. THEREFORE, THE ARGUMENT OF THE ASSESSEE THAT IF THE FACE VALUE OF THE DEPB CREDIT IS HELD TO BE COVERED UNDER SECT ION 28(IIID), IT WOULD AMOUNT TO DOUBLE TAXATION IS WITHOUT ANY MERIT. ITA NOS. 1803, 1804, 1805 & 1806/KOL./2010 6 31. THERE IS ANOTHER PERSPECTIVE FROM WHICH THE ISS UE CAN BE LOOKED AT. THE DEPB CREDIT TO WHICH AN EXPORTER IS ENTITLED IS A FORM O F AN EXPORT INCENTIVE. THE SUPREME COURT IN RAVINDRANATHAN NAIR'S CASE [2007] 295 ITR 228 HAS HELD THAT ALL THE INCOMES WHICH FALL WITHIN CLAUSES (IIIA) TO (IIIE) OF SECTI ON 28 ARE 'INCENTIVE INCOMES'. AS AN INCENTIVE, THAT IS MADE AVAILABLE TO THE EXPORTER THERE IS NO COST THAT IS ATTACHED TO THE GRANT OF THE INCENTIVE. THE INCENTIVE, AS WE HAVE ALREADY NOTED, IS CALCULATED AS A PERCENTAGE OF THE FOB VALUE OF THE GOODS EXPORTED. THE TRIBUNAL, IN THE PRESENT CASE, RECOGNIZED THE DIFFICULTY IN REDUCING THE FACE VALU E OF THE DEPB CREDIT FROM THE SALE CONSIDERATION WHEN IT OBSERVED, IN PARAGRAPH 48 OF ITS JUDGMENT, THAT 'NO DOUBT THE EXPORTER DOES NOT DIRECTLY PURCHASE THE DEPB FROM T HE MARKET BY INCURRING ANY COST'. HAVING SO OBSERVED, THE TRIBUNAL STILL CONSIDERED IT APPROPRIATE TO HOLD THAT CLAUSE (IIID) WOULD ONLY REFER TO THE DIFFERENCE BETWEEN THE SALE CONSIDERATION AND THE VALUE OF THE DEPB CREDIT. WE FIND NO BASIS OR JUSTIFICATION FOR THE TRIBUNAL TO HAVE DONE SO. 32. WE DO NOT FIND ANY LOGICAL JUSTIFICATION IN BIF URCATING THE VALUE OF THE SALE CONSIDERATION REALIZED BY THE EXPORTER ON THE TRANS FER OF THE DEPB CREDIT. FOR ONE THING CLAUSE (IIID) OF SECTION 28 MUST COVER WITHIN ITS PURVIEW, THE ENTIRETY OF THE SALE CONSIDERATION WHICH IS REALIZED BY THE EXPORTER ON THE TRANSFER OF THE DEPB CREDIT SINCE THAT REPRESENTS THE PROFIT WHICH THE EXPORTE R OBTAINS ON THE TRANSFER OF THE CREDIT. NO PART OF THE CREDIT THAT IS AVAILABLE UNDER THE DEPB SCHEME CAN FALL FOR CLASSIFICATION UNDER CLAUSE (IIIB) OF SECTION 28 W HICH DEALS WITH CASH ASSISTANCE, RECEIVED OR RECEIVABLE AGAINST ANY SCHEME OF THE G OVERNMENT OF INDIA. AS THE LEGISLATIVE HISTORY OF THE PROVISION WOULD SHOW CL AUSE (IIIB) WAS ENACTED BY PARLIAMENT AT A TIME WHEN THE EXPORT INCENTIVES THAT WERE AVA ILABLE WERE (I) IMPORT ENTITLEMENT LICENCES ; (II) CASH COMPENSATORY SUPPORT ; AND (II I) DUTY DRAWBACK. THE DEPB SCHEME WAS NOT EVEN IN EXISTENCE WHEN CLAUSE (IIIB) CAME T O BE ENACTED INTO SECTION 28 BY THE FINANCE ACT OF 1990. THE DEPB SCHEME WAS BROUGHT I NTO EXISTENCE WITH EFFECT FROM APRIL 1, 1997. CLAUSE (IIID) OF SECTION 28 WAS INSE RTED BY THE AMENDING ACT OF 2005 WITH EFFECT FROM APRIL 1, 1998. THE VALUE OF THE DEPB C REDIT CAN BY NO MEANS BE REGARDED AS A CASH ASSISTANCE WHICH IS RECEIVED OR RECEIVAB LE BY A PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA. 33. THE TRIBUNAL HAS RELIED TO A CONSIDERABLE EXTEN T ON A SPEECH MADE BY THE THEN FINANCE MINISTER ON THE FLOOR OF PARLIAMENT IN SUPP ORT OF ITS CONCLUSION THAT ONLY THE PREMIUM REALIZED BY AN EXPORTER ON THE SALE OF THE DEPB CREDIT WOULD FALL WITHIN THE PURVIEW OF CLAUSE (IIID) OF SECTION 28 AND NOT THE FACE VALUE OF THE DEPB. THE ENTIRE APPROACH OF THE TRIBUNAL IS WITH RESPECT MISCONCEI VED AND UNSUSTAINABLE. THE FINANCE MINISTER SOUGHT TO INTRODUCE CLAUSE (IIID) IN SECT ION 28 IN VIEW OF THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF P & G E NTERPRISES [2005] 93 ITD 138 (DELHI). THE DISPUTE IN THAT CASE RELATED TO TAXING THE ENTIRE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB CREDIT AND NOT THE AMOUNT THAT WAS RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB CREDIT. AS A MATTER OF FACT IN T HAT CASE THE ASSESSEE HAD CLAIMED THAT THE ENTIRE RECEIPT ON THE TRANSFER OF THE DEPB CRE DIT INCLUDING THE FACE VALUE OF THE CREDIT AS PROFITS UNDER SECTION 28(IIIA). THE TRIB UNAL IN THAT CASE HELD THAT THE ENTIRETY OF THE AMOUNT WOULD BE COVERED BY SECTION 28(IV). HOWEVER, THE VIEW OF THE TRIBUNAL WAS THAT SINCE EXPLANATION (BAA) IN SECTION 80HHC D ID NOT ENVISAGE THE EXCLUSION OF PROFITS COVERED BY SECTION 28(IV), SUCH PROFITS COU LD NOT BE EXCLUDED WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC. HENCE, THERE WA S NO DISPUTE IN CONSIDERING THE ENTIRETY OF THE RECEIPTS ON THE TRANSFER OF THE DE PB CREDIT AS PROFITS OF BUSINESS. THE DISPUTE WAS ONLY IN NOT TREATING THE RECEIPTS BY W AY OF TRANSFER OF THE DEPB CREDIT AS EXPORT RECEIPTS WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC. CONSEQUENTLY, THE ITA NOS. 1803, 1804, 1805 & 1806/KOL./2010 7 ENTIRETY OF THE RECEIPTS ON THE TRANSFER OF THE DEP B CREDIT WHICH WAS SOUGHT TO BE INCLUDED IN SECTION 28(IV) WAS BROUGHT IN BY PARLI AMENTARY AMENDMENT IN THE FORM OF AN INSERTION OF CLAUSE (IIID) IN SECTION 28 WITH R ETROSPECTIVE EFFECT. THERE WAS NO CONTROVERSY REGARDING THE TAXABILITY OF THE QUANTU M OF RECEIPTS ON THE TRANSFER OF THE DEPB CREDIT. HENCE, FOR THESE REASONS WE ARE OF TH E VIEW THAT IT CANNOT BE INFERRED FROM THE SPEECH OF THE FINANCE MINISTER THAT THE I NSERTION OF CLAUSE (IIID) IN SECTION 28 WAS MADE WITH A VIEW TO TAX ONLY THE AMOUNT WHICH H AS BEEN RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB CREDIT. 34. THE SUBMISSION THAT PRIOR TO THE INSERTION OF C LAUSE (IIID) IN SECTION 28, THE FACE VALUE OF THE DEPB CREDIT REALIZED ON THE TRANSFER O F SUCH CREDIT CONSTITUTED EXPORT PROFITS, BUT NOT THE AMOUNT REALIZED IN EXCESS OF T HE FACE VALUE OF THE DEPB IS SIMILARLY WITHOUT ANY BASIS. THIS IS BECAUSE (I) THE OBJECT OF THE DEPB WAS TO FURNISH AN INCENTIVE TO EXPORTERS SO AS TO ADJUST THE CREDIT AGAINST THE CUSTOMS DUTY PAYABLE ON ANY GOODS IMPORTED INTO INDIA. HOWEVER, WHERE AN E XPORTER INSTEAD OF UTILIZING THE CREDIT TRANSFERS THE CREDIT AT A PREMIUM, IT CANNO T BE SAID THAT THE EXPORTER HAS UTILIZED THE CREDIT ; (II) THE LEGISLATURE CONSIDERS THAT T HE CUSTOMS DUTY AND EXCISE DUTY PAID ON RAW MATERIALS USED IN THE EXPORT PRODUCT, WHEN REPA ID OR REPAYABLE AS DUTY DRAWBACK, WOULD NOT CONSTITUTE EXPORT PROFIT. SIMILARLY, WHEN THE DEPB CREDIT IS NOT UTILIZED IN THE BUSINESS BUT IS TRANSFERRED FOR VALUE, THE AMO UNT RECEIVED ON THE TRANSFER WOULD BE BUSINESS PROFITS AND NOT EXPORT PROFITS IRRESPECTI VE OF WHETHER THE AMOUNT WHICH IS REALIZED IS EQUAL TO, LARGER THAN OR LESS THAN THE FACE VALUE OF THE DEPB CREDIT. PARLIAMENT HAS CONSIDERED THAT THE ENTIRETY OF THE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB SHALL CONSTITUTE PROFITS OF BUSINESS UNDE R SECTION 28(IIID). SINCE SUCH PROFITS ARE NOT EXPORT PROFITS PARLIAMENT DIRECTED THAT NIN ETY PER CENT. OF THOSE PROFITS WOULD BE EXCLUDED WHILE COMPUTING THE DEDUCTION UNDER SEC TION 80HHC ; (III) PARLIAMENT CONSIDERED THAT AN EXPORTER WHO INSTEAD OF UTILIZI NG THE DEPB CREDIT FOR PAYING CUSTOMS DUTY ON IMPORTED GOODS, MAKES A PROFIT BY TRANSFERRING THE DEPB, WOULD FORM A SEPARATE CLASS AND SEEKS TO TAX THE RECEIPTS ON THE TRANSFER OF THE DEPB CREDIT AS BUSINESS PROFITS AND NOT EXPORT PROFITS. EXPORTERS WHO TRANSFER THE DEPB CREDIT AND MAKE A PROFIT CANNOT BE PLACED ON PAR WITH THOSE EX PORTERS WHO UTILIZE THE CREDIT FOR PAYING THE CUSTOMS DUTY ON THE IMPORTED GOODS ; (IV ) THE FACT THAT PARLIAMENT DID NOT CONSIDER THE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB TO BE EXPORT PROFIT CANNOT BE A GROUND TO HOLD THAT THE RECEIPTS ON THE TRANSFER OF DEPB CREDIT ARE NOT BUSINESS PROFITS. COUNSEL APPEARING ON BEHALF OF THE ASSESSE E SUBMITS THAT THE ENTIRE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB CREDIT IS BUSI NESS PROFIT, BUT IT WAS CONTENDED THAT WHAT IS INCLUDED IN SECTION 28(IIID) IS THE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB CREDIT IN EXCESS OF THE FACE VALUE OF THE DEPB AND THE AMOUNT RECEIVED TO THE EXTENT OF THE FACE VALUE OF THE DEPB WOULD BE COVERED UNDER S ECTION 28(IIIB). THERE IS NO MERIT IN THIS CONTENTION BECAUSE (A) THE DEPB CREDIT WAS NOT IN EXISTENCE WHEN SECTION 28(IIIB) WAS INSERTED BY THE FINANCE ACT OF 1990. DEPB CREDIT WAS INTRODUCED WITH EFFECT FROM APRIL 1, 1997 WHICH WAS AFTER THE INSER TION OF CLAUSE (IIIB) IN SECTION 28 ; (B) SECTION 28(IIIB) REFERS TO CASH ASSISTANCE (BY WHA TEVER NAME CALLED) RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT PURSUANT TO A SCHEME O F THE GOVERNMENT. THE AMOUNT RECEIVED ON THE 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 (C) WHEN SECTION 28(IIID) SPECIFICALLY DEALS WITH PROFITS REALIZED ON THE TRANSFER OF THE DEPB CREDIT, IT WOULD BE IMPERMISSI BLE AS A MATTER OF FIRST PRINCIPLE TO BIFURCATE THE FACE VALUE OF THE DEPB AND THE AMOUNT RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB. ITA NOS. 1803, 1804, 1805 & 1806/KOL./2010 8 35. FOR ALL THESE REASONS, WE HAVE COME TO THE CONC LUSION THAT THE VIEW OF THE TRIBUNAL ON THE TWO QUESTIONS OF LAW FORMULATED BY THE REVENUE IS UNSUSTAINABLE. IN THE CIRCUMSTANCES, WE ALLOW THE APPEAL BY ANSWERING THE FIRST QUESTION OF LAW AS FORMULATED IN THE NEGATIVE. ACCORDINGLY, WE RESTORE THE MATTER TO THE FILE OF A SSESSING OFFICER TO DECIDE THE ISSUE DE NOVO IN THE LIGHT OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF KALPATARU COLOURS & CHEMICALS (SUPRA). 6. IN THE RESULT, ALL THE APPEALS FILED BY THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 03/02/2012. SD/- SD/- [N. VIJAYA KUMARAN / . . . . !' # !' # !' # !' # ] [S.V. MEHROTRA/ ( . . )] JUDICIAL MEMBER/ ACCOUNTANT MEMBER/ DATED : 03/ 02/ 2012 COPY OF THE ORDER FORWARDED TO: 1. M/S. CREATIVE LIMITED, 12, DARGAH ROAD, KOLKATA-17. 2 DCIT, CIRCLE-7, KOLKATA, P-7, CHOWRINGHEE SQUARE, K OLKATA-69 3. CIT(APPEALS)- ,KOLKATA 4. CIT, KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA (TRUE COPY) BY ORDER ASSISTANT REGISTRAR, I.T.A.T., KOLKATA LAHA, SR. P.S.