Praveen Industries (P) LTd, V. Addl CIT Range -14,

ITA 3629/DEL/2007

• Counselvise Citation: [2006] 113 COUNSELVISE.COM (IT) 8670 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2006
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 12-12-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 13-08-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: R P MALL
• Keywords: Set aside
• Section: 80HHC; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F DELHI BEFORE SHRI R.P. TOLANI AND SHRI K.G. BANSAL ITA NO. 3629(DEL)/2007 ASSESSMENT YEAR: 2003-04 M/S PRAVEEN INDUSTRIES PVT. ADD ITIONAL COMMISSIONER OF LTD., 32, PHASE-II, INDL. ESTATE, VS. INCO ME-TAX, RANGE-14, BADLI, NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.P. MALL, ADVOCATE RESPONDENT BY : MS. Y. KAKKAR, SR. D.R DATE OF HEARIN G: 12.12.2011 DATE OF PRONOU NCEMENT: .12.2011. ORDER PER K.G. BANSAL : AM IN THIS CASE, THE TRIBUNAL HAD PASSED THE ORDER O N 30.10.2009, IN WHICH THE APPEAL OF THE ASSESSEE WAS PARTLY ALLOW ED. GROUND NOS. 1 AND 2 TO 2.4 WERE IN CONNECTION WITH THE COMPUTATION OF DEDUCTION U/S 80HHC. THE LD. COUNSEL FOR THE ASSESSEE HAD SUBMITTED THAT THIS ISSUE WAS COVERED BY THE DECISION OF SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASE OF TOPMAN EXPORTS VS. ITO, IN ITA NO. 576/MUM./200 6. THEREFORE, FOLLOWING THIS DECISION, THE AO WAS DIRECTED T O RECOMPUTED THE DEDUCTION WITH THE FOLLOWING REMARKS:- 4. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE SPECIAL BENCH WAS ITA NO. 3629(DEL)/2007 2 CONSTITUTED TO EXAMINE THE QUESTION THAT WHETHER TH E ENTIRE AMOUNT RECEIVED ON SALE OF DEPB ENTITLEMENTS REPRES ENTS PROFIT CHARGEABLE UNDER SECTION 28 (IIID) OF THE INCOME TA X ACT OR THE PROFIT REFERRED TO THEREIN REQUIRES ANY ARTIFICIAL COST TO BE INTERPOLATED? SO FAR AS IT RELATES TO FIRST PART OF THE QUESTION THAT WHETHER THE ENTIRE AMOUNT RECEIVED ON SALE OF DEPB ENTITLEMENTS REPRESENTS PROFIT CHARGEABLE UNDER SEC TION 28 (IIID) OF THE INCOME-TAX ACT, IT WAS ANSWERED IN NEGATIVE AND THE SECOND PART OF THE QUESTION OR THE PROFIT REFERRED TO THEREIN REQUIRED ANY REQUIRES ANY ARTIFICIAL COST TO BE INT ERPOLATED HAS BEEN REPLIED IN AFFIRMATIVE TO THE EXTENT THAT FACE VALUE OF DEPB SHALL BE DEDUCTED FROM SALE PROCEEDS. THEREFOR E, ACCEPTING THE REQUEST OF LD. AR THAT THE DEDUCTION U/S 80HHC HAS TO BE RECOMPUTED IN ACCORDANCE WITH THE SPECIAL BENCH DECISION, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO RE-COMPUTE DEDUCTION U/S 80HHC IN ACCORD ANCE WITH THE AFOREMENTIONED DECISION OF THE SPECIAL BENCH. W E DIRECT ACCORDINGLY. THESE GROUNDS ARE ALLOWED FOR STATISTI CAL PURPOSES. 1.1 THE REVENUE CARRIED THE MATTER IN APPEAL BEFOR E THE HONBLE DELHI HIGH COURT, WHO PASSED A CONSOLIDATED ORDER IN 26 CASES ON 18.02.2011. THE CASE OF THE ASSESSEE IS SERIALLY NUMBERED 1 0 WITH ITA NO. 957/2010. IT IS MENTIONED THAT THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL HAS BEEN REVERSED BY THE BOMBAY HIGH COURT IN THE CAS E OF CIT VS. KALPATARU COLOURS & CHEMICALS, 328 ITR 451. TH EREFORE, THE CASE HAS BEEN REMITTED TO THE TRIBUNAL FOR FRESH DECISIO N AFTER TAKING INTO ACCOUNT FACTUAL POSITION IN THE CASE. THE FINDINGS OF THE COURT ARE REPRODUCED BELOW:- 3. THE REVENUE HAD FILED THE APPEAL IN THE HIGH CO URT ADJUDICATE AT BOMBAY AGAINST THE AFORESAID DECISION OF THE ITA NO. 3629(DEL)/2007 3 SPECIAL BENCH OF THE ITAT. THE BOMBAY HIGH COURT HA S REVERSED THE DECISION OF THE TRIBUNAL AND THE JUDGM ENT OF THE BOMBAY HIGH COURT IS REPORTED AS COMMISSIONER OF INCOME TAX VS. KALPATARU COLOURS AND CHEMICALS, 328 ITR 451. 4. SINCE THE TRIBUNAL HAD SIMPLY FOLLOWED SPECIAL BENC H DECISION IN TOPMAN EXPORTS (SUPRA) WHICH STANDS OVER RULED, WE SET ASIDE THE ORDER PASSED BY THE TRIBUNAL IN ALL THESE CASES AND REMIT THE CASES BACK TO THE TRIBUNAL TO DECIDE THES E APPEALS ON MERITS AFTER TAKING INTO ACCOUNT FACTUAL POSITION I N ALL THESE CASES. 2. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE IN ITIALLY SOUGHT ADJOURNMENT ON THE GROUND THAT SHRI GAUTAM JAIN, W HO IS TO ARGUE THE CASE, IS TAKING LL.B EXAMINATION. THE APPLICATION WAS REJECTED FOR THE REASON THAT THE ISSUE IS SQUARELY COVERED IN THE DECISION OF KALPATARU COLOURS & CHEMICALS (SUPRA). THEREFORE, THE CASE WAS PROCEEDED WITH. 2.1 THE CASE OF THE LD. COUNSEL IS THAT THE MATTER MAY BE REMITTED TO THE A.O WITH A DIRECTION TO RECOMPUTED THE DEDUCTIO N IN THE LIGHT OF THE DECISION IN THE CASE OF KALPATARU COLOURS & CHEM ICALS. THIS IS ALSO THE CASE OF THE LD. SENIOR D.R. 2.2 THE HONBLE BOMBAY HIGH COURT IN THE AFORESAID DECISION INTER- ALIA HELD THAT THE BENEFIT RECEIVED UNDER DEPB SCHEME IS COVERED UNDER SECTION 28(IIID), AND THE WHOLE OF THE BENEFIT IS SO COVERED. THEREFORE, THE MATTER HAS TO BE DECIDED IN THE LIGHT OF THE THIRD PROVISO TO SECTION ITA NO. 3629(DEL)/2007 4 80HHC(3). IN THE LIGHT OF THE SUBMISSIONS OF T HE RIVAL PARTIES, THE MATTER IS RESTORED TO THE FILE OF THE AO FOR RE -COMPUTATION OF THE DEDUCTION U/S 80HHC. THE OPERATIVE PORTION OF THE DECISION ON PAGE NOS. 469 AND 470 AT PLACITUM 34 IS REPRODUCED BELOW:- THE SUBMISSION THAT PRIOR TO THE INSERTION OF CL. (IIID) IN S. 28, THE FACE VALUE OF THE DEPB CREDIT REALIZED ON THE T RANSFER OF SUCH CREDIT CONSTITUTED EXPORT PROFITS, BUT NOT THE AMOUNT REALIZED IN EXCESS OF THE FACE VALUE OF THE DEPB IS SIMILARLY WITHOUT ANY BASIS. THIS IS BECAUSE (I) THE OBJECT O F DEPB WAS TO FURNISH AN INCENTIVE TO EXPORTERS SO AS TO ADJUS T THE CREDIT AGAINST THE CUSTOMS DUTY PAYABLE ON ANY GOODS IMPOR TED INTO INDIA. HOWEVER, WHERE AN EXPORTER INSTEAD OF UTILI ZING THE CREDIT, TRANSFERS THE CREDIT AT A PREMIUM, IT CANNO T BE SAID THAT THE EXPORTER HAS UTILIZED THE CREDIT; (II) THE LEGI SLATURE CONSIDERS THAT THE CUSTOMS DUTY AND EXCISE DUTY PAI D ON RAW MATERIALS USED IN THE EXPORT PRODUCT, WHEN REPAID O R REPAYABLE AS DUTY DRAWBACK, WOULD NOT CONSTITUTE EXPORT PROFI T. SIMILARLY, WHEN THE DEPB CREDIT IS NOT UTILIZED IN THE BUSINES S BUT IS TRANSFERRED FOR VALUE, THE AMOUNT RECEIVED ON THE T RANSFER WOULD BE BUSINESS PROFITS AND NOT EXPORT PROFITS IR RESPECTIVE OF WHETHER THE AMOUNT WHICH IS REALIZED IS EQUAL TO, LARGER THAN OR LESS THAN THE FACE VALUE OF THE DEPB CREDIT. PAR LIAMENT HAS CONSIDERED THAT THE ENTIRETY OF THE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB SHALL CONSTITUTE PROFITS OF BU SINESS UNDER S. 28(IIID). SINCE SUCH PROFITS ARE NOT EXPORT PROF ITS PARLIAMENT DIRECTED THAT NINETY PER CENT OF THOSE PROFITS WOUL D BE EXCLUDED WHILE COMPUTING THE DEDUCTION UNDER S. 80HHC; (III) PARLIAMENT CONSIDERED THAT AN EXPORTER WHO INSTEAD OF UTILIZING 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 P ROFIT CANNOT BE PLACED ON PAR WITH THOSE EXPORTERS WHO UT ILIZE THE CREDIT FOR PAYING THE CUSTOMS DUTY ON THE IMPORTED GOODS; (IV) THE FACT THAT PARLIAMENT DID NOT CONSIDER THE AMOUN T RECEIVED ITA NO. 3629(DEL)/2007 5 ON THE TRANSFER OF THE DEPB TO BE EXPORT PROFIT CAN NOT BE A GROUND TO HOLD THAT THE RECEIPTS ON THE TRANSFER OF DEPB CREDIT ARE NOT BUSINESS PROFITS. COUNSEL APPEARING ON BEHA LF OF THE ASSESSEE SUBMITS THAT THE ENTIRE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB CREDIT IS BUSINESS PROFIT, BUT IT WAS C ONTENDED THAT WHAT IS INCLUDED IN S. 28(IIID) IS THE AMOUNT RECEI VED ON THE TRANSFER OF THE DEPB CREDIT IN EXCESS OF THE FACE V ALUE OF THE DEPB AND THE AMOUNT RECEIVED TO THE EXTENT OF THE F ACE VALUE OF THE DEPB WOULD BE COVERED UNDER S. 28(IIIB). THERE IS NO MERIT IN THIS CONTENTION BECAUSE (A) THE DEPB CREDIT WAS NOT IN EXISTENCE WHEN S. 28(IIIB) WAS INSERTED BY THE FINA NCE ACT OF 1990. DEPB CREDIT WAS INTRODUCED W.E.F. 1ST APRIL, 1997 WHICH WAS AFTER THE INSERTION OF CL. (IIIB) IN S. 28; (B) S. 28(IIIB) REFERS TO CASH ASSISTANCE (BY WHATEVER NAME CALLED) RECEIV ED 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 GOV ERNMENT PURSUANT TO A SCHEME OF THE GOVERNMENT WITHIN THE M EANING OF CL. (IIIC) AND (C). WHEN S. 28(IIID) SPECIFICALLY D EALS WITH PROFITS REALIZED ON THE TRANSFER OF THE DEPB CREDIT, IT WOU LD BE IMPERMISSIBLE AS A MATTER OF FIRST PRINCIPLE TO BIF URCATE THE FACE VALUE OF THE DEPB AND THE AMOUNT RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB. 3. IN THE RESULT, THE APPEAL IS TREATED AS DISMISSE D FOR STATISTICAL PURPOSE. SD/- SD/- (R.P. TOLANI) (K.G. BANSAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA COPY OF THE ORDER FORWARDED TO:- M/S PRAVEEN INDUSTRIES PVT. LTD., NEW DELHI. ADDL. CIT, RANGE-14, NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.