ACIT, New Delhi V. M/s. Ashok Kumar Dusad, New Delhi

ITA 3515/DEL/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7086 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 29-08-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 19-07-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MRS ANUSHA KHURANA SENIOR
• Assessee Lawyers: SURESH ANANTHARAMAN
• Section: 80HHC; 28

Judgement Text

BEFORE THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH A, NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.3515/DEL.2010 (ASSESSMENT YEAR : 2003-04) ACIT CIRCLE 24 (1), VS. M/S. ASHOK KUMAR DUSAD, NEW DELHI. A 13, GROUND FLOOR 2, GREEN PARK EXTN., NEW DELHI. (PAN NO.AACHA7173C) (APELLANT) (RESPONDENT) ASSESSEE BY : SHRI SURESH ANANTHARAMAN, CA DEPARTMENT BY : MRS. ANUSHA KHURANA, SENIOR DR O R D E R PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE ARISES OUT OF THE ORDER OF THE CIT (APPEALS)-XXV, NEW DELHI DATED 07.05.2010. THE GRO UNDS OF APPEAL TAKEN BY THE REVENUE IN THE APPEAL ARE AS UNDER :- 1. ON THE FACTS AND ON THE CIRCUMSTANCES F THE CAS E THE LD. CIT (A) HAS ERRED IN LAW AND ON THE FACTS IN HO LDING THAT THE FACE VALUE OF THE DEPB IS TO BE TAXED AS P ER PROVISIONS OF SECTION 28(IIID) OF THE INCOME TAX AC T WHEREAS THERE IS SPECIFIC PROVISIONS OF SECTION 28( IIID) RELATING TO THE PROFIT ON THE TRANSFER OF THE DEPB. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY OF THE GROUNDS OF APPEAL BEFORE OR DURING THE C OURSE OF HEARING OF THE APPEAL. ITA NO.3515/DEL/2010 2 2. THE ONLY ISSUE INVOLVED IN THE APPEAL IS REGARDI NG INCOME TO BE TREATED U/S 28(IIID) FOR THE DEDUCTION OF 80HHC WHE THER IT SHOULD BE ON THE FACE VALUE OF DEPB OR THE PROFIT ON TRANSFER OF THE DEPB. 3. THE ASSESSEE IS A HUF AND PROPRIETOR OF M/S. KRI SHNA ENTERPRISE, WHICH IS ENGAGED IN THE EXPORT OF TEXTILE FABRICS A ND MADE-UPS. THE ASSESSEE IS AN EXPORTER AND CLAIMING DEDUCTION U/S 80HHC. DURING THE YEAR, THE PROFIT FROM THE DEPB SCHEME ACCRUED TO TH E ASSESSEE AMOUNTING TO RS.65,73,883/-. THE AO DENIED THE BEN EFIT IN VIEW OF THE AMENDED PROVISIONS BY THE TAXATION LAW AMENDMENT AC T, 2005. THE CIT (A) DECIDED THE ISSUE BY CONSIDERING THE DECISI ON OF SPECIAL BENCH IN THE CASE OF TOPMAN EXPORTS VS. ITO [2009] 33 SOT 337 (MUM.)(SB) DATED 11.08.2009. 4. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE AND AF TER HEARING, WE HOLD THAT THE ISSUE HAS BEEN CONSIDERED BY THE HON' BLE MUMBAI HIGH COURT IN THE CASE OF CIT VS. KALPATARU COLOURS AND CHEMICALS, 328 ITR 451 (BOM.) WHEREIN THE HON'BLE HIGH COURT HAS DECID ED THE ISSUE AS UNDER :- UNDER SUB-SECTION (1) OF SECTION 80HHC OF THE INCOME-TAX ACT, 1961, A DEDUCTION IS ALLOWED TO THE EXTENT OF PROFITS 'DERIVED BY THE ASSESSEE' FROM THE EXPOR T OF GOODS. SINCE THE DEDUCTION IS IN RESPECT OF PROFITS DERIVED FROM EXPORT, SUB-SECTION (3) LAID DOWN A FORMULA ON THE BASIS OF WHICH EXPORT PROFITS HAVE TO BE COMPUTED. UNDER CLAUSE (A) OF SUB-SECTION (3), THE EXPRESSION 'PROF ITS ITA NO.3515/DEL/2010 3 DERIVED FROM' IS DEFINED TO BE THE AMOUNT WHICH BEA RS 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 . HOWEVER, WHERE AN ASSESSEE CARRIES ON THE BUSINESS OF EXPORT OF TRADING GOODS, CLAUSE (B) DEFINES 'EXPORT PROFITS' TO BE THE EXPORT TURNOVER IN RESPECT OF SUCH TRADIN G GOODS WHICH IS TO BE REDUCED BY THE DIRECT AND INDIRECT C OSTS ATTRIBUTABLE TO THE EXPORT. IN THE APPLICATION OF T HE FORMULA TO A MANUFACTURER EXPORTER, CLAUSE (A) REFERS TO TH E PROFITS OF THE BUSINESS. THE EXPRESSION 'PROFITS OF THE BUSINESS' IN EXPLANATION (BAA) TO SECTION 80HHC MEANS PROFITS AS COMPUTED UNDER THE HEAD OF 'PROFITS AND GAINS OF BU SINESS OR PROFESSION' UNDER SECTIONS 28 TO 44D AND THEY AR E THEREUPON TO BE REDUCED TO THE EXTENT PROVIDED BY C LAUSES (1) AND (2). SECTION 28 ELUCIDATES INCOMES WHICH SH ALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD OF 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. CLAUSES (IIIA), ( IIIB) AND (IIIC) WERE INSERTED INTO THE SECTION BY THE FINANC E ACT OF 1990. BY THE FINANCE ACT OF 2005, PARLIAMENT INSERT ED 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 T O TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. AS REGARDS THE DEDUCTION UNDER SECTION 80HHC, THE LEGISLATURE SUBSTITUTED EXPLANATION (BAA) IN SECTIO N 80HHC SO AS TO EXCLUDE 90 PER CENT, OF THE PROFITS RECEIVED ON TRANSFER OF DEPB FROM THE PROFITS OF BUSINESS FO R THE PURPOSES OF SECTION 80HHC AND INSERTED THE SECOND A ND THIRD PROVISOS TO SECTION 80HHC(3). THE SECOND PROV ISO PROVIDED THAT IN THE CASE OF AN ASSESSEE HAVING AN EXPORT TURNOVER NOT EXCEEDING RS. 10 CRORES, THE PROFITS C OMPUTED UNDER SECTION 80HHC(3) SHALL BE INCREASED BY 90 PER CENT. OF THE SUM REFERRED TO IN SECTION 28(IIID). THE THI RD PROVISO PROVIDED THAT IN THE CASE OF AN ASSESSEE HAVING AN EXPORT TURNOVER EXCEEDING RS. 10 CRORES, THE PROFITS COMPU TED UNDER SECTION 80HHC(3) SHALL BE INCREASED BY 90 PER CENT. OF THE SUM REFERRED TO IN SECTION 28(IIID) SUBJECT TO THE TWO CONDITIONS SET OUT THEREIN. WHAT CONSTITUTES PROFIT S UNDER ITA NO.3515/DEL/2010 4 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 D EPB AS WELL AS THE AMOUNT RECEIVED IN EXCESS OF THE DEPB W OULD 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 THE DEPB CREDIT IS OFFERED TO TAX AS BUSINESS PROFITS UNDER SECTION 28(IIID) IN THE YEAR IN WHICH THE CREDIT ACCRUED TO THE ASSESSEE, THEN ANY FURTHE R PROFIT ARISING ON TRANSFER OF THE DEPB CREDIT WOULD BE TAX ED AS PROFITS OF BUSINESS UNDER SECTION 28(IIID) IN THE Y EAR IN WHICH THE TRANSFER OF THE DEPB CREDIT TOOK PLACE. THERE IS ANOTHER PERSPECTIVE FROM WHICH THE ISSUE CAN BE LOOKED AT. THE DEPB CREDIT TO WHICH AN EXPO RTER IS ENTITLED IS A FORM OF AN EXPORT INCENTIVE. NO PAR T OF THE CREDIT THAT IS AVAILABLE UNDER THE DEPB SCHEME CAN FALL FOR CLASSIFICATION UNDER CLAUSE (IIIB) OF SECTION 28 WH ICH DEALS WITH CASH ASSISTANCE, RECEIVED OR RECEIVABLE AGAINS T ANY SCHEME OF THE GOVERNMENT OF INDIA. CLAUSE (IIIB) WA S ENACTED AT A TIME WHEN THE EXPORT INCENTIVES THAT W ERE AVAILABLE WERE (I) IMPORT ENTITLEMENT LICENCES; (II ) CASH COMPENSATORY SUPPORT; AND (III) DUTY DRAWBACK. THE DEPB SCHEME WAS NOT IN EXISTENCE WHEN CLAUSE (IIIB) CAME TO BE ENACTED INTO SECTION 28 BY THE FINANCE ACT OF 1990. THE DEPB SCHEME WAS BROUGHT INTO EXISTENCE WITH EFFECT FROM APRIL 1, 1997. CLAUSE (IIID) OF SECTION 28 WAS INS ERTED BY THE AMENDING ACT OF 2005 WITH EFFECT FROM APRIL 1, 1998. THE VALUE OF THE DEPB CREDIT CANNOT BE REGARDED AS A CASH ASSISTANCE WHICH IS RECEIVED OR RECEIVABLE BY A PER SON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA. IT CANNOT BE INFERRED FROM THE SPEECH OF THE FINAN CE MINISTER THAT THE INSERTION OF CLAUSE (IIID) IN SEC TION 28 WAS MADE WITH A VIEW TO TAX ONLY THE AMOUNT WHICH HAS B EEN RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB CR EDIT. DEPB CREDIT WAS INTRODUCED WITH EFFECT FORM APRIL 1 , 1997, WHICH WAS AFTER THE INSERTION OF CLAUSE (IIIB ) IN ITA NO.3515/DEL/2010 5 SECTION 28 ; SECTION 28(IIIB) REFERS TO CASH ASSIST ANCE RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT PURSUA NT TO A SCHEME OF 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 WITHIN THE MEANING OF CLAUSE (IIIC) ; AN D WHEN SECTION 28(IIID) SPECIFICALLY DEALS WITH PROFITS RE ALISED ON THE TRANSFER OF THE DEPB CREDIT, IT WOULD BE IMPERM ISSIBLE AS A MATTER OF FIRST PRINCIPLE TO BIFURCATE THE FAC E VALUE OF THE DEPB AND THE AMOUNT RECEIVED IN EXCESS OF THE F ACE VALUE OF THE DEPB. THE ENTIRETY OF THE SALE CONSIDE RATION WOULD FALL WITHIN THE PURVIEW OF SECTION 28(IIID). CONSIDERING THESE FACTS AND DECISION OF HON'BLE HIG H COURT BEING DIRECT ON THE ISSUE, WE RESTORE THE ISSUE TO THE FILE OF A O TO DECIDE DE NOVO WHETHER ASSESSEE FULFILL ALL THE CONDITIONS AS PER AMENDED PROVISIONS W.E.F. 1.4.1998 . 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 29 TH DAY OF AUGUST, 2011 AFTER THE CONCLUSION OF THE HEARING. SD/- SD/- (I.P. BANSAL) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : THE 29 TH DAY OF AUGUST, 2011 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-XXV, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR/ITAT