GLOW EXPORT TRADING P.LTD, MUMBAI V. DCIT 8(1), MUMBAI

ITA 2939/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3860 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2003-2004
• Appeal Filed On: 30-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K SINHA
• Section: 143(3); 80HHC; 260A

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI , , !' !' !' !' # $% # $% # $% # $% , ,, , & & & & ' ' ' ' BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER . / ITA NO. 2939/MUM./2012 ( &) * '+* / ASSESSMENT YEAR : 200304 ) . / ITA NO. 2940/MUM./2012 ( &) * '+* / ASSESSMENT YEAR : 200203 ) M/S. GLOW EXPORT TRADING PVT. LTD. 102, PRATMESH APARTMENT NAVAKAR LANE, GINDIVALI ANDHERI (E), MUMBAI 400 099 .. ,- / APPELLANT ) V/S DY. COMMISSIONER OF INCOME TAX CIRCLE8(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... ./,- / RESPONDENT , . / PERMANENT ACCOUNT NUMBER AAACG3678F &) *1# 2 3 / ASSESSEE BY : MR. P.R. MAJITHIA A/W MR. B.R. MAJITHIA ' 2 3 / REVENUE BY : MR. D.K. SINHA )' 2 # / DATE OF HEARING 16.05.2013 $ 45+ 2 # / DATE OF ORDER 16.05.2013 $ $ $ $ / ORDER # $% # $% # $% # $% , ,, , & & & & 6 6 6 6 / PER AMIT SHUKLA, J.M. THE PRESENT APPEALS ARE PREFERRED BY THE ASSESSEE C HALLENGING THE IMPUGNED SEPARATE ORDERS OF EVEN DATE 2 ND SEPTEMBER 2011, PASSED BY THE LEARNED COMMISSIONER (APPEALS)XVI, MUMBAI, FOR THE QUANTUM OF M/S. GLOW EXPORT TRADING PVT. LTD. 2 ASSESSMENT PASSED UNDER SECTION 143(3) R/W 254 OF T HE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ), FOR THE ASSESSMENT YEARS 200203 AND 2003 04. SINCE THE ISSUES INVOLVED IN BOTH THE APPEALS A RE COMMON, THEREFORE, AS A MATTER OF CONVENIENCE, THESE APPEALS WERE HEAR D TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDE R. 2. THE SOLE DISPUTE IN THESE APPEALS IS DISALLOWANCE O F ` 27,78,862, FOR THE ASSESSMENT YEAR 200203 AND ` 58,44,160, FOR THE ASSESSMENT YEAR 200304, WHICH RELATE TO DEDUCTION UNDER SECTION 80 HHC BEING BAD IN LAW AS THE ASSESSEE WAS DEPRIVED OF MAKING COMPARISON O N THE DUTY DRAW BACK AND DEPB @ 90% OF THE PRODUCT BEING SOLD BY TH E ASSESSEE WERE NOT COVERED UNDER THE DUTY DRAW BACK. 3. FACTS IN BRIEF : IN THE PRESENT CASE, THE ASSESSMENT, IN BOTH THE YEARS UNDER APPEAL, WAS COMPLETED UNDER SECTION 143 (3) VIDE ORDERS OF EVEN DATE 28 TH FEBRUARY 2006, DETERMINING THE TOTAL INCOME AT ` 54,81,620, FOR THE ASSESSMENT YEAR 200304 AND ` 84,05,660, FOR THE ASSESSMENT YEAR 200203. IN THE SAID ASSESSMENT, CE RTAIN ADDITIONS WERE MADE ON ACCOUNT OF DISALLOWANCE OF DEDUCTION UNDER SECTION 80HHC OF ` 27,78,862, FOR THE ASSESSMENT YEAR 200304 AND ` 59,44,160, FOR THE ASSESSMENT YEAR 200203. BEING AGGRIEVED BY THE SAI D ORDERS, THE ASSESSEE PREFERRED APPEALS BEFORE THE LEARNED COMMI SSIONER (APPEALS), WHO, VIDE ORDER DATED 21 ST JULY 2006, DISMISSED THE ASSESSEES APPEALS. DURING THE COURSE OF SECOND APPELLATE PROCEEDINGS, THE TRIBUNAL, VIDE ORDER DATED 8 TH OCTOBER 2009, DIRECTED THE ASSESSING OFFICER TO RE COMPUTE AND CONSIDER THE FACE VALUE OF DEPB AS COVERED UNDE R SECTION 28(IIIB) AND THE PROFIT ON TRANSFER OF DEPB IN VIEW OF THE SPECI AL BENCH DECISION OF THE TRIBUNAL IN TOPMAN EXPORTS V/S ITO, [2009] 318 ITR (AT) 87 (MUM.) (S.B). AGAINST THE SAID ORDER, THE REVENUE PREFERRE D APPEAL UNDER SECTION 260A BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT W HEREIN THEIR LORDSHIPS, VIDE JUDGMENT DATED 13 TH JULY 2010, DISPOSED OFF THE APPEAL BY THE REVENUE DIRECTING THE ASSESSING OFFICER TO PASS AN ORDER IN ACCORDANCE WITH THE JUDGMENT OF BOMBAY HIGH COURT IN CIT V/S K ALPATARU COLOURS & CHEMICALS, [2010] 192 TAXMAN 435 (BOM.). THE ASSESS ING OFFICER, M/S. GLOW EXPORT TRADING PVT. LTD. 3 FOLLOWING THE JUDGMENT OF JURISDICTIONAL HIGH COURT , HELD THAT THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN TOPMAN EXPORTS LTD. (SUPRA), HAS BEEN REVERSED BY THE HIGH COURT AND, THEREFORE, NO RELIE F CAN BE GIVEN TO THE ASSESSEE. 4. THE LEARNED COMMISSIONER (APPEALS) ALSO, FOLLOWING THE JUDGMENT OF BOMBAY HIGH COURT IN KALPATARU COLOURS & CHEMICALS (SUPRA) DECIDED THE ISSUE AGAINST THE ASSESSEE AFTER DETAIL DISCUSSION APPEARING FROM PAGES5 TO 12 OF THE APPELLATE ORDER. 5. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT NOW T HE JUDGMENT OF BOMBAY HIGH COURT IN KALPATARU COLOURS & CHEMICALS (SUPRA) HAS BEEN REVERSED BY THE HON'BLE SUPREME COURT IN TOPMAN EXP ORTS LTD. V/S CIT, [2012] 342 ITR 049 (SC). 6. WE HAVE CAREFULLY CONSIDERED THE RELEVANT FINDINGS OF THE LEARNED COMMISSIONER (APPEALS) AND THE JUDGMENT OF HON'BLE SUPREME COURT AS RELIED UPON BY THE LEARNED COUNSEL. IN THIS CASE, T HE ASSESSING OFFICER AS WELL AS THE LEARNED COMMISSIONER (APPEALS) HAS FOLL OWED THE PRINCIPLES AND THE RATIO LAID DOWN BY THE BOMBAY HIGH COURT IN KALPATARU COLOURS & CHEMICALS (SUPRA) WHICH HAS REVERSED THE DECISION O F SPECIAL BENCH IN TOPMAN EXPORTS LTD. (SUPRA). NOW THE HON'BLE SUPREM E COURT HAS REVERSED THE DECISION OF BOMBAY HIGH COURT AFTER DI SCUSSING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TOPMAN EXPO RTS LTD. (SUPRA) AND KALPATARU COLOURS & CHEMICALS (SUPRA). THE HON'BLE SUPREME COURT HAS DISCUSSED THE CONCEPT OF DEPB AND THE RELEVANT PROV ISIONS OF SECTION 28, CLAUSE (IIIB) AND (IIID). THE RELEVANT FINDINGS OF THE HON'BLE SUPREME COURT, FOR THE SAKE OF READY REFERENCE, IS REPRODUCED HERE IN BELOW: ON A READING OF THE AFORESAID PARAS OF THE HAND BO OK ON DEPB AND THE EXPORT AND IMPORT POLICY OF THE GOVERNMENT OF I NDIA, 1997- 2002, IT IS CLEAR THAT THE OBJECTIVE OF DEPB SCHEME IS TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY ON THE IMPORT CONTENT OF THE EXPORT PRODUCTS. HENCE, IT HAS DIRECT NEXUS WITH THE COST OF THE IMPORTS MADE BY AN EXPORTER FOR MANUFACTURING THE EXPORT PR ODUCTS. THE NEUTRALIZATION OF THE COST OF CUSTOMS DUTY UNDER TH E DEPB SCHEME, HOWEVER, IS BY GRANTING A DUTY CREDIT AGAINST THE E XPORT PRODUCT AND THIS CREDIT CAN BE UTILIZED FOR PAYING CUSTOMS DUTY ON ANY ITEM WHICH IS FREELY IMPORTABLE. DEPB IS ISSUED AGAINST THE EX PORTS TO THE EXPORTER AND IS TRANSFERABLE BY THE EXPORTER. M/S. GLOW EXPORT TRADING PVT. LTD. 4 11. WE MAY NOW CONSIDER THE RELEVANT PROVISIONS OF S. 28 FOR DETERMINING WHETHER DEPB WILL FALL UNDER CL. (IIIB) OR UNDER CL. (IIID) OF S. 28. THE RELEVANT PROVISIONS OF S. 28 OF THE A CT ARE REPRODUCED HEREUNDER: XXX XXX XXX 12. IT WILL BE CLEAR FROM THE AFORESAID PROVISIONS OF S. 28 THAT UNDER CL. (IIIB) CASH ASSISTANCE (BY WHATEVER NAME CALLED ) RECEIVED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA IS BY ITSELF INCOME CHARGEABLE TO INCOME-TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION. DEPB IS A KIND OF ASSISTANCE GIVEN BY THE GOVERNMENT OF IND IA TO AN EXPORTER TO PAY CUSTOMS DUTY ON ITS IMPORTS AND IT IS RECEIVABLE ONCE EXPORTS ARE MADE AND AN APPLICATION IS MADE BY THE EXPORTER FOR DEPB. WE HAVE, THEREFORE, NO DOUBT THAT DEPB IS CA SH ASSISTANCE RECEIVABLE BY A PERSON AGAINST EXPORTS UNDER THE SC HEME OF THE GOVERNMENT OF INDIA AND FALLS UNDER CL. (IIIB) OF S . 28 AND IS CHARGEABLE TO INCOME-TAX UNDER THE HEAD PROFITS AN D GAINS OF BUSINESS OR PROFESSION EVEN BEFORE IT IS TRANSFERR ED BY THE ASSESSEE. 13. UNDER CL. (IIID) OF S. 28, ANY PROFIT ON TRANSF ER OF DEPB IS CHARGEABLE TO INCOME-TAX UNDER THE HEAD PROFITS AN D GAINS OF BUSINESS OR PROFESSION AS AN ITEM SEPARATE FROM CA SH ASSISTANCE UNDER CL. (IIIB). THE WORD PROFIT MEANS THE GROSS PROCEEDS OF A BUSINESS TRANSACTION LESS THE COSTS OF THE TRANSACT ION. 14. WE ARE, THUS, OF THE CONSIDERED OPINION THAT WH ILE THE FACE VALUE OF THE DEPB WILL FALL UNDER CL. (ILIB) OF S. 28 OF THE ACT, THE DIFFERENCE BETWEEN THE SALE VALUE AND THE FACE VALUE OF THE DE PB WILL FALL UNDER CL. (IIID) OF S. 28 OF THE ACT AND THE HIGH COURT W AS NOT RIGHT IN TAKING THE VIEW IN THE IMPUGNED JUDGMENT THAT THE E NTIRE SALE PROCEEDS OF THE DEPB REALIZED ON TRANSFER OF THE DE PB AND NOT JUST THE DIFFERENCE BETWEEN THE SALE VALUE AND THE FACE VALUE OF THE DEPB REPRESENT PROFIT ON TRANSFER OF THE DEPB. 15. WE MAY NOW POINT OUT THE ERRORS IN THE IMPUGNED JUDGMENT OF THE HIGH COURT. THE FIRST REASON GIVEN BY THE HIGH COURT IS THAT CL. (IIIA) OF S. 28 TREATS PROFITS ON THE SALE OF AN IM PORT LICENSE AS INCOME CHARGEABLE TO TAX AND WHEN THE LICENSE IS SO LD, THE ENTIRE AMOUNT IS TREATED AS PROFITS OF BUSINESS UNDER CL. (IIIA) OF S. 28 AND THUS THERE IS NO JUSTIFICATION TO TREAT THE AMOUNT WHICH IS RECEIVED BY AN EXPORTER ON THE TRANSFER OF THE DEPB ANY DIFF ERENTLY THAN THE PROFITS WHICH ARE MADE ON THE SALE OF AN IMPORT LIC ENSE UNDER CL. (IIIA) OF S. 28 OF THE ACT. IN TAKING THE VIEW THAT WHEN THE IMPORT LICENSE IS SOLD THE ENTIRE AMOUNT IS TREATED AS PRO FITS OF BUSINESS, THE HIGH COURT HAS VISUALIZED A SITUATION WHERE THE COST OF ACQUIRING THE IMPORT LICENSE IS NIL. THE COST OF ACQUIRING DE PB, ON THE OTHER HAND, IS NOT NIL BECAUSE THE PERSON ACQUIRES IT BY PAYING CUSTOMS DUTY ON THE IMPORT CONTENT OF THE EXPORT PRODUCT AN D THE DEPB WHICH ACCRUES TO A PERSON AGAINST EXPORTS HAS A COS T ELEMENT IN IT. ACCORDINGLY, WHEN DEPB IS SOLD BY A PERSON, HIS PRO FIT ON TRANSFER OF DEPB WOULD BE THE SALE VALUE OF THE DEPB LESS THE F ACE VALUE OF DEPB WHICH REPRESENTS THE COST OF THE DEPS. THE SEC OND REASON GIVEN BY THE HIGH COURT IN THE IMPUGNED JUDGMENT IS THAT UNDER THE DEPB SCHEME, DEPB IS GIVEN AT A PERCENTAGE OF THE F OB VALUE OF THE EXPORTS SO AS TO NEUTRALIZE THE INCIDENCE OF CU STOMS DUTY ON THE IMPORT CONTENT OF THE EXPORT PRODUCTS, BUT THE EXPO RTER MAY NOT M/S. GLOW EXPORT TRADING PVT. LTD. 5 HIMSELF UTILIZE THE DEPB FOR PAYING CUSTOMS DUTY BU T MAY TRANSFER IT TO SOMEONE ELSE AND THEREFORE THE ENTIRE SUM RECEIV ED ON TRANSFER OF DEPB WOULD BE COVERED UNDER CL. (HID) OF S. 28. THE HIGH COURT HAS FAILED TO APPRECIATE THAT DEPB REPRESENTS PART OF THE COST INCURRED BY A PERSON FOR MANUFACTURE OF THE EXPORT PRODUCT AND HENCE EVEN WHERE THE DEPB IS NOT UTILIZED BY THE EX PORTER BUT IS TRANSFERRED TO ANOTHER PERSON, THE DEPB CONTINUES T O REMAIN AS A COST TO THE EXPORTER. WHEN, THEREFORE, DEPB IS TRAN SFERRED BY A PERSON, THE ENTIRE SUM RECEIVED BY HIM ON SUCH TRAN SFER DOES NOT BECOME HIS PROFITS. IT IS ONLY THE AMOUNT THAT HE R ECEIVES IN EXCESS OF THE DEPB WHICH REPRESENTS HIS PROFITS ON TRANSFE R OF THE DEPB. 16. THE HIGH COURT HAS SOUGHT TO MEET THE ARGUMENT OF DOUBLE TAXATION MADE ON BEHALF OF THE ASSESSEES BY HOLDING THAT WHERE THE FACE VALUE OF THE DEPB WAS OFFERED TO TAX IN THE YE AR IN WHICH THE CREDIT ACCRUED TO THE ASSESSEE AS BUSINESS PROFITS, THEN ANY FURTHER PROFIT ARISING ON TRANSFER OF DEPB WOULD BE TAXED A S PROFITS OF BUSINESS UNDER S. 28(IIID) IN THE YEAR IN WHICH THE TRANSFER OF DEPB TOOK PLACE. THIS VIEW OF THE HIGH COURT, IN OUR CON SIDERED OPINION, IS CONTRARY TO THE LANGUAGE OF S. 28 OF THE ACT UNDER WHICH CASH ASSISTANCE RECEIVED OR RECEIVABLE BY ANY PERSON AG AINST EXPORTS SUCH AS THE DEPB AND PROFIT ON TRANSFER OF THE DEP B ARE TREATED AS TWO SEPARATE ITEMS OF INCOME UNDER CLS. (IIIB) AND (IIID) OF S. 28. IF ACCRUAL OF DEPB AND PROFIT ON TRANSFER OF DEPB ARE TREATED AS TWO SEPARATE ITEMS OF INCOME CHARGEABLE TO TAX UNDER CL S. (IIIB) AND (IIID) OF S. 28 OF THE ACT, THEN DEPB WILL BE CHARGEABLE A S INCOME UNDER CL. (IIIB) OF S. 28 IN THE YEAR IN WHICH THE PERSON APP LIES FOR DEPB CREDIT AGAINST THE EXPORTS AND THE PROFIT ON TRANSFER OF T HE DEPB BY THAT PERSON WILL BE CHARGEABLE AS INCOME UNDER CL. (HID) OF S. 28 IN HIS HANDS IN THE YEAR IN WHICH HE MAKES THE TRANSFER. A CCORDINGLY, IF IN THE SAME PREVIOUS YEAR THE DEPB ACCRUES TO A PERSON AND HE ALSO EARNS PROFIT ON TRANSFER OF THE DEPB, THE DEPB WILL BE BUSINESS PROFITS UNDER CL. (IIIB) AND THE DIFFERENCE BETWEEN THE SALE VALUE AND THE DEPB (FACE VALUE) WOULD BE THE PROFITS ON THE T RANSFER OF DEPB UNDER CL. (IIID) FOR THE SAME ASSESSMENT YEAR. WHER E, HOWEVER, THE DEPB ACCRUES TO A PERSON IN ONE PREVIOUS YEAR AND T HE TRANSFER OF DEPB TAKES PLACE IN A SUBSEQUENT PREVIOUS YEAR, THE N THE DEPB WILL BE CHARGEABLE AS INCOME OF THE PERSON FOR THE FIRST ASSESSMENT YEAR CHARGEABLE UNDER CL. (IIIB) OF S. 28 AND THE DIFFER ENCE BETWEEN THE DEPB CREDIT AND THE SALE VALUE OF THE DEPB CREDIT W OULD BE INCOME IN HIS HANDS FOR THE SUBSEQUENT ASSESSMENT YEAR CHA RGEABLE UNDER CL. (ILID) OF S. 28. THE INTERPRETATION SUGGESTED B Y US, THEREFORE, DOES NOT LEAD TO DOUBLE TAXATION OF THE SAME INCOME, WHI CH THE LEGISLATURE MUST BE PRESUMED TO HAVE AVOIDED. 17. THE HIGH COURT HAS HELD THAT AS THE ASSESSEES H AD AN EXPORT TURNOVER EXCEEDING RS.10 CRORES AND DID NOT FULFILL THE CONDITIONS SET OUT IN THE THIRD PROVISO TO S. 80HHC(3) OF THE ACT, THE ASSESSEES WERE NOT ENTITLED TO A DEDUCTION UNDER S. 80HHC ON THE AMOUNT RECEIVED ON TRANSFER OF DEPB AND TO GET OVER THIS D IFFICULTY THE ASSESSEES HAVE CONTENDED THAT THE PROFITS ON TRANSF ER OF DEPB IN S. 28(IIID) WOULD NOT INCLUDE THE FACE VALUE OF THE DE PB SO THAT THE ASSESSEES GET A DEDUCTION UNDER S. 80HHC ON THE FAC E VALUE OF THE DEPB. THIS FINDING OF THE HIGH COURT IS NOT BASED O N AN ACCURATE UNDERSTANDING SCHEME OF S. 8OHHC OF THE ACT. 7. IN VIEW OF THE PROPOSITION SETTLED BY THE HON'BLE S UPREME COURT, WE SET ASIDE THE IMPUGNED ORDERS PASSED BY THE LEARNED COMMISSIONER M/S. GLOW EXPORT TRADING PVT. LTD. 6 (APPEALS) AND ALLOW THE GROUND RAISED BY THE ASSESS EE FOR BOTH THE YEARS UNDER APPEAL. 8. 1 #7 &) *1# 2 8 '# 9 ) # : ; 8. IN THE RESULT, ASSESSEES APPEALS ARE TREATED AS ALLOWED. $ 2 45+ 8 <)7 16 TH MAY 2013 5 2 = ; ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH MAY 2013 SD/- RAJENDRA SINGH ACCOUNTANT MEMBER SD/- # # # # $% $% $% $% & & & & AMIT SHUKLA JUDICIAL MEMBER MUMBAI, <) <) <) <) DATED: 16 TH MAY 2013 $ 2 .&#> ?>+# / COPY OF THE ORDER FORWARDED TO : (1) &) *1# / THE ASSESSEE; (2) ' / THE REVENUE; (3) @ () / THE CIT(A); (4) @ / THE CIT, MUMBAI CITY CONCERNED; (5) >'C= .&#&) , , / THE DR, ITAT, MUMBAI; (6) =D* E / GUARD FILE. /># .&# / TRUE COPY $) / BY ORDER . . FG / PRADEEP J. CHOWDHURY '1H &) F' / SR. PRIVATE SECRETARY I / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI