Philco Exports, V. DCIT Circle 19 (1),

ITA 3832/DEL/2007

• Counselvise Citation: 383220114 RSA 2007
• Duration Of Justice: 4 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 29-11-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 11-09-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M VERMA
• Assessee Lawyers: O P SAPRA; SANDEEP SAPRA ARS
• Keywords: Retrospective amendment; Question of law
• Section: 80HHC; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI I BENC H BEFORE SHRI RAJPAL YADAV, JM & SHRI A.N. PAHUJA, A M ITA NOS.3832/DEL./2007 & 20/DEL/2008 ASSESSMENT YEARS:2003-04 & 2004-05 M/S PHILCO EXPORTS, 11,SSI ESTATE,GT KARNAL RAOD,DELHI V/S . DEPUTY C.I.T., CIRCLE- 19(1),NEW DELHI [PAN NO.: AABFP1417F] (APPELLANT) (RESPONDENT) ASSESSEE BY S/SHRI O.P.SAPRA & SANDEEP SAPRA, ARS REVENUE BY SHRI M.VERMA, DR DATE OF HEARING 29-11-2011 DATE OF PRONOUNCEMENT 29-11-2011 O R D E R A.N.PAHUJA:- THESE TWO APPEALS ONE FILED ON 12.9.2007 FOR THE A Y 2003-04 AND THE OTHER FILED ON 3.1.2008 FOR THE AY 2004-05 BY THE ASSESSEE AGAINST TWO SEPARATE ORDERS DATED 25.5.2007 AND 15.10.2007 OF THE LEARNED CIT(A)-XXVII, NEW DELHI ,RAISE SIMILAR ISSUE IN RESPECT OF CLAI M FOR DEDUCTION U/S 80HHC OF THE INCOME-TAX ACT,1961[HEREINAFTER REFERRED TO AS THE ACT] IN RELATION TO THE DEPB AMOUNT. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS FOR THE AY 2003-04 ARE THAT RETURN DECLARING INCOME OF ` ` 2,46,94,676/- FILED ON 29 TH OCTOBER, 2003 BY THE ASSESSEE, MANUFACTURER AND EXPORTER OF STAINLESS STEEL UTENSI LS, AFTER BEING PROCESSED U/S 143(1) OF THE ACT ,WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT, ISSUED ON 20.10.2004. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (A.O. IN SHORT), INTER ALIA, RESTRICTED THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80HHC OF THE ACT IN TERMS OF THE THIRD PROVISO INSERTED BY THE TAXATION LAWS (AMENDMENT) ACT, 2005 IN SECTION 80HHC(3) OF ITA NOS.3832/DEL./2007 & 20/ DEL/2008 2 THE ACT W.E.F. 1.4.1998 AND DID NOT INCREASE TH E PROFITS BY THE AMOUNT STIPULATED IN THE SAID PROVISO IN RESPECT OF DEPB INCOME. SIMILAR FINDINGS WERE RECORDED BY THE AO IN THE AY 2004-05.ON APPEAL, THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO IN THESE TWO ASSESSMENT YEARS, T HE ASSESSEE, ADMITTEDLY, HAVING NOT FULFILLED THE CONDITIONS STIPULATED IN T HE SAID THIRD PROVISO TO SEC. 80HHC(3) OF THE ACT. ON FURTHER APPEAL, THE ITAT IN THEIR COMMON ORDER DATED 6.11.2009 WHILE FOLLOWING THE DECISION DATED 11 TH AUGUST, 2009 OF THE SPECIAL BENCH OF THE ITAT IN TOPMAN EXPORTS VS. INCOME TA X OFFICER IN I.T.A. NO.5769/MUM./2006(REPORTED IN 125 TTJ 289) DIRECT ED TO ALLOW THE DEDUCTION U/S 80HHC OF THE ACT IN RESPECT OF THE PROFIT ON SA LE OF DEPB IN ACCORDANCE WITH THE SAID DECISION. ON FURTHER APPEAL BY THE REVENU E, THE HONBLE HIGH COURT VIDE THEIR ORDER DATED 18.2.2011 IN ITA NOS. 793 & 927/2010 RESTORED THE MATTER TO THE FILE OF THE ITAT WITH THE FOLLOWING DIRECTIO NS:- 3. THE REVENUE HAD FILED THE APPEAL IN THE HIGH CO URT ADJUDICATE AT BOMBAY AGAINST THE AFORESAID DECISION OF THE SPECIAL BENCH OF THE ITAT. THE BOMBAY HIGH COURT HAS REVER SED THE DECISION OF THE TRIBUNAL AND THE JUDGMENT OF THE BO MBAY 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 B ENCH DECISION IN TOPMAN EXPORTS (SUPRA) WHICH STANDS OVE R RULED, WE SET ASIDE THE ORDER PASSED BY THE TRIBUNAL IN ALL T HESE 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. 3. IN PURSUANCE TO THE AFORESAID DIRECTIONS OF THE HONBLE HIGH COURT, THESE APPEALS WERE FIXED FOR HEARING BEFORE US. AT THE OU TSET, BOTH THE PARTIES REQUESTED THAT THE MATTER MAY BE SET ASIDE TO THE F ILE OF THE AO WITH THE DIRECTIONS TO READJUDICATE THE CLAIM FOR DEDUCTION U/S 80HHC OF THE ACT IN RELATION TO THE AMOUNT OF DEPB THE LIGHT OF AFORES AID DECISION OF HONBLE BOMBAY HIGH COURT IN KALPATARU COLOURS & CHEMICALS (SUPRA). 4. WE HAVE HEARD BOTH THE PARTIES AND GONE THR OUGH THE AFORESAID DECISION IN THE CASE OF KALPATARU COLOURS & CHEMICALS (SUPRA ), HOLDING THAT ITA NOS.3832/DEL./2007 & 20/ DEL/2008 3 THE ARGUMENT THAT S. 28(IIID) COVERED ONLY THE PRO FIT (DIFFERENCE BETWEEN SALE CONSIDERATION AND FACE VALUE OF THE DEPB CREDIT) AN D THAT THE FACE VALUE IS ASSESSABLE U/S 28(IIIB), IS NOT CORRECT. THE ENTIRE AMOUNT RECEIVED ON TRANSFER OF THE DEPB CREDIT IS PROFITS AND FALLS UNDER S. 28( IIID). THERE WAS NO BASIS OR JUSTIFICATION FOR THE TRIBUNAL TO HOLD THAT THE FAC E VALUE OF THE DEPB CREDIT CAN BE REDUCED FROM THE SALE CONSIDERATION. IT WAS NOT PER MISSIBLE TO BIFURCATE THE PROCEEDS OF THE DEPB INTO FACE VALUE AND EXCESS OF FACE VALUE. THE APPROACH OF THE TRIBUNAL IS MISCONCEIVED AND UNSUSTAINABLE, THE HONBLE HIGH COURT CONCLUDED. THE RELEVANT FINDINGS OF THE HONBLE H IGH COURT ARE IN THE FOLLOWING TERMS: 31. 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 EXPORTE R ON THE TRANSFER OF THE DEPB CREDIT SINCE THAT REPRESENTS THE PROFIT WHICH THE E XPORTER 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 2 8 WHICH DEALS WITH CASH ASSISTANCE, RECEIVED OR RECEIVABLE AGAINST ANY SCHE ME OF THE GOVERNMENT OF INDIA. AS THE LEGISLATIVE HISTORY OF THE PROVISION WOULD SHOW CLAUSE (IIIB) WAS ENACTED BY PARLIAMENT AT A TIME WHEN THE EXPORT INC ENTIVES THAT WERE AVAILABLE WERE (I) IMPORT ENTITLEMENT LICENCES; (II) CASH COM PENSATORY SUPPORT; AND (III) DUTY DRAWBACK. THE DEPB SCHEME WAS NOT EVEN IN EXIS TENCE WHEN CLAUSE (IIIB) CAME TO BE ENACTED INTO SECTION 28 BY THE FINANCE A CT OF 1990. THE DEPB SCHEME WAS BROUGHT INTO EXISTENCE WITH EFFECT FROM 1 APRIL 1997. CLAUSE (IIID) OF SECTION 28 WAS INSERTED BY THE AMENDING ACT OF 2005 WITH EFFECT FROM 1 APRIL 1998. THE VALUE OF THE DEPB CREDIT CAN BY NO MEANS 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. 32. THE TRIBUNAL HAS RELIED TO A CONSIDERABLE EXTEN T ON A SPEECH MADE BY THE THEN FINANCE MINISTER ON THE FLOOR OF PARLIAMENT IN SUPPORT OF ITS CONCLUSION THAT ONLY THE PREMIUM REALIZED BY AN EXPORTER ON THE SAL E OF THE DEPB CREDIT WOULD FALL WITHIN THE PURVIEW OF CLAUSE (IIID) OF SECTIO N 28 AND NOT THE FACE VALUE OF THE DEPB. THE ENTIRE APPROACH OF THE TRIBUNAL IS WITH R ESPECT MISCONCEIVED AND UNSUSTAINABLE. THE FINANCE MINISTER SOUGHT TO INTRO DUCE CLAUSE (IIID) IN SECTION 28 IN VIEW OF THE DECISION OF THE DELHI BENCH OF TH E TRIBUNAL IN THE CASE OF P & G ENTERPRISES ( SUPRA). THE DISPUTE IN THAT CASE RELATED TO TAXIN G 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 CR EDIT. AS A MATTER OF FACT IN THAT CASE THE ASSESSEE HAD CLAIMED THAT THE ENTIRE RECEIPT ON THE TRANSFER OF THE DEPB CREDIT INCLUDING THE FACE VALUE OF THE CREDIT AS PROFITS UNDER SECTION ITA NOS.3832/DEL./2007 & 20/ DEL/2008 4 28(IIIA). THE TRIBUNAL IN THAT CASE HELD THAT THE E NTIRETY OF THE AMOUNT WOULD BE COVERED BY SECTION 28(IV). HOWEVER, THE VIEW OF THE TRIBUNAL WAS THAT SINCE EXPLANATION (BAA) IN SECTION 80HHC DID NOT ENVISAGE THE EXCLUSION OF PROFITS COVERED BY SECTION 28(IV), SUCH PROFITS COULD NOT B E EXCLUDED WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC. HENCE, THERE WAS NO DISPUTE IN CONSIDERING THE ENTIRETY OF THE RECEIPTS ON THE TRANSFER OF THE DEPB CREDIT AS PROFITS OF BUSINESS. THE DISPUTE WAS ONLY IN NOT TREATING THE RECEIPTS BY WAY OF TRANSFER OF THE DEPB CREDIT AS EXPORT RECEIPTS WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC. CONSEQUENTLY, THE ENTIRETY OF THE RECEIPTS O N THE TRANSFER OF THE DEPB CREDIT WHICH WAS SOUGHT TO BE INCLUDED IN SECTION 2 8(IV) WAS BROUGHT IN BY THE PARLIAMENTARY AMENDMENT IN THE FORM OF AN INSERTION OF CLAUSE (IIID) IN SECTION 28 WITH RETROSPECTIVE EFFECT. THERE WAS NO CONTROVERSY REGARDING THE TAXABILITY OF THE QUANTUM OF RECEIPTS ON THE TRANSFER OF THE DEPB CRE DIT. HENCE, FOR THESE REASONS WE ARE OF THE VIEW THAT IT CANNOT BE INFERRED FROM THE SPEECH OF THE FINANCE MINISTER THAT THE INSERTION OF CLAUSE (IIID) IN SEC TION 28 WAS MADE WITH A VIEW TO TAX ONLY THE AMOUNT WHICH HAS BEEN RECEIVED IN EXCE SS OF THE FACE VALUE OF THE DEPB CREDIT. 33. THE SUBMISSION THAT PRIOR TO THE INSERTION OF C LAUSE (IIID) IN SECTION 28, THE FACE VALUE OF THE DEPB CREDIT REALIZED ON THE TRANS FER OF SUCH CREDIT CONSTITUTED EXPORT PROFITS, BUT NOT THE AMOUNT REALIZED IN EXCE SS OF THE FACE VALUE OF THE DEPB IS SIMILARLY WITHOUT ANY BASIS. THIS IS BECAUS E (I) THE OBJECT OF DEPB WAS TO FURNISH AN INCENTIVE TO EXPORTERS SO AS TO ADJUS T THE CREDIT AGAINST THE CUSTOMS DUTY PAYABLE ON ANY GOODS IMPORTED INTO INDIA. HOWE VER, WHERE AN EXPORTER INSTEAD OF UTILIZING THE CREDIT TRANSFERS THE CREDI T AT A PREMIUM, IT CANNOT BE SAID THAT THE EXPORTER HAS UTILIZED THE CREDIT; (II) THE LEGISLATURE CONSIDERS THAT THE CUSTOMS DUTY AND EXCISE DUTY PAID ON RAW MATERIALS USED IN THE EXPORT PRODUCT, WHEN REPAID OR REPAYABLE AS DUTY DRAWBACK, WOULD NO T CONSTITUTE EXPORT PROFIT. SIMILARLY, WHEN THE DEPB CREDIT IS NOT UTILIZED IN THE BUSINESS BUT IS TRANSFERRED FOR VALUE, THE AMOUNT RECEIVED ON THE TRANSFER WOUL D BE BUSINESS PROFITS AND NOT EXPORT PROFITS IRRESPECTIVE OF WHETHER THE AMOUNT W HICH 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 UNDER SECTION 28(IIID). SINCE SUCH PROFITS ARE NOT EXPORT PROFITS PARLIAMENT DIRECTED THAT NINETY PERCENT OF THOSE PROFITS WOULD BE EXCLUDED WHILE COMPUTING THE DEDUCTION UNDER SECTIO N 80HHC;(III) PARLIAMENT CONSIDERED THAT AN EXPORTER WHO INSTEAD OF UTILIZIN G THE DEPB CREDIT FOR PAYING CUSTOMS DUTY ON IMPORTED GOODS, MAKES A PROFIT BY T RANSFERRING 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 WI TH THOSE EXPORTERS WHO UTILIZE THE CREDIT FOR PAYING THE CUSTOMS DUTY ON THE IMPOR TED GOODS; (IV) THE FACT THAT PARLIAMENT DID NOT CONSIDER THE AMOUNT RECEIVED ONT HE TRANSFER OF THE DEPB TO BE EXPORT PROFIT CANNOT BE A GROUND TO HOLD THAT TH E RECEIPTS ON THE TRANSFER OF DEPB CREDIT ARE NOT BUSINESS PROFITS. COUNSEL APPEA RING ON BEHALF OF THE ASSESSEE SUBMITS THAT THE ENTIRE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB ITA NOS.3832/DEL./2007 & 20/ DEL/2008 5 CREDIT IS BUSINESS PROFIT, BUT IT WAS CONTENDED THA T 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 T HE EXTENT OF THE FACE VALUE OF THE DEPB WOULD BE COVERED UNDER SECTION 28(IIIB) . THERE IS NO MERIT IN THIS CONTENTION BECAUSE (A) THE DEPB CREDIT WAS NOT IN EXISTENCE WHEN SECTI ON 28(IIIB) WAS INSERTED BY THE FINANCE ACT OF 1990. DEPB CREDIT WAS INTRODUCED WITH EFFECT FROM 1 APRIL 1997 WHICH WAS AFTER THE INSERTION OF CLAUSE (IIIB) IN SECTION 28; (B) SECTION 28(IIIB) REFERS TO CASH ASSISTANCE (BY WHATEVER NAME CALLED) RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT PURSUANT TO A S CHEME OF THE GOVERNMENT. THE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB CRE DIT IS NOT RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT PURSUANT TO A SCHEME O F THE GOVERNMENT WITHIN 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 IMPERMISSIBLE AS A MATTER OF FIRST PRINCIPLE TO BIFURCATE THE FACE VAL UE OF THE DEPB AND THE AMOUNT RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB. 34. 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 ANSWER ING THE FIRST QUESTION OF LAW AS FORMULATED IN THE NEGATIVE. 33.(IT SHOULD BE ACTUALLY NUMBERED 35) INSOFAR AS THE SECOND QUESTION IS CONCERNED, WE ARE NOT IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL THAT THE FACE VALUE OF THE DUTY ENTITLEMENT PASSBOOK REALIZED ON THE TRANSFER OF THE ENTITLEMENT IS CHARGEABLE TO TAX UNDER SECTION 28(IIIB). WE HAV E ALREADY CLARIFIED THAT THE ENTIRETY OF THE SALE CONSIDERATION WOULD FALL WITHI N THE PURVIEW OF SECTION 28(IIID). WE ANSWER THE SECOND QUESTION OF LAW ACCORDINGLY IN THE AFORESAID TERMS. 4.1. IN VIEW OF THE FOREGOING, ESPECIALLY WH EN THE LOWER AUTHORITIES DID NOT HAVE ANY OCCASION TO EXAMINE TH E FACTS OF THE INSTANT CASE IN THE LIGHT OF AFORESAID DECISION OF THE HONBLE BOMBAY HIGH COURT IN KALPATARU COLOURS & CHEMICALS (SUPRA) , WE CONSIDER IT FAIR AND APPROPRIATE TO VACATE THE FINDINGS OF T HE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF AO WITH THE DIRECTIONS TO RE ADJUDICATE THE ISSUE IN THE LIGHT OF AFORECITED POSITION IN LAW, ENUNCIATED BY HONBLE BOMBAY HIGH COURT IN KALPATARU COLOURS & CHEMICALS (SUPRA) AND OF COURS E AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE,BRINGING OUT CLEARLY AS TO WHETHER OR NOT THE ASSESSEE FULFILLS CONDITIONS STIPULATED IN THE AFOR ESAID THIRD PROVISO TO SEC. ITA NOS.3832/DEL./2007 & 20/ DEL/2008 6 80HHC(3) OF THE ACT. WITH THESE DIRECTIONS, THESE A PPEALS ARE DISPOSED OF AS INDICATED HEREINBEFORE. 5. IN THE RESULT, BOTH THESE APPEALS ARE PARTLY ALLOW ED BUT FOR STATISTICAL PURPOSES. SD/- SD/- (RAJPAL YADAV) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) COPY OF THE ORDER FORWARDED TO :- 1. DEPUTY C.I.T., CIRCLE 19(1), NEW DELHI. 2. M/S PHILCO EXPORTS,11,SSI ESTATE,GT KARNAL RAOD,DELHI 3. CIT(A)-XXVII, NEW DELHI. 4. CIT CONCERNED. 5. DR, ITAT,I BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT