ACIT, Ludhiana V. M/s Sovereign Exports, Ludhiana

ITA 507/CHANDI/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68397 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 29-12-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 03-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 80HHC; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.507 /CHD/2010 (ASSESSMENT YEAR : 2002-03) THE A.C.I.T., VS. M/S SOVEREIGN EXPORTS, CIRCLE-V, 168-B, INDUSTRIAL ESTATE, LUDHIANA. LUDHIANA. PAN: AAJFS6585P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AKHILESH GUPTA, DR RESPONDENT BY : SHRI SUDHIR SEHGAL DATE OF HEARING : 29.07.2013 DATE OF PRONOUNCEMENT : 02.08.2013 O R D E R PER SUSHMA CHOWLA, J.M. : THE PRESENT APPEAL IS SLATED FOR HEARING BEFORE THE TRIBUNAL IN VIEW OF THE ORDER OF THE HON'BLE HIGH COURT IN THE CASE OF THE ASSESSEE IN ITA NO.74 OF 2011 DATE OF DECISION 23.2.2011. THE ISSUE WAS SET ASIDE TO THE FILE OF THE TRIBUNAL IN VIEW OF THE RA TIO LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN CIT VS. KALAPATARU COL ORS & CHEMICALS (2010) 42 DTR 193 (BOM). 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE REA D AS UNDER: 1. THAT THE LD.CIT(A)-II, LUDHIANA HAS ERRED IN LAW AN D ON FACTS IN DIRECTING THE ASSESSING OFFICER TO RECOMPU TED THE DEDUCTION UNDER SECTION 80HHC OF THE INCOME-TAX ACT , 1961 IN VIEW OF THE RATIO OF THE JUDGMENT OF HON'BLE SPE CIAL BENCH OF ITAT, MUMBAI IN THE CASE OF TOPMAN EXPORTS IN IT A NO.5769/MUM/2006. 2. THAT THE LD.CIT(A)-II, LUDHIANA HAS ERRED IN LAW IN DIRECTING AS ABOVE AS THE DEPARTMENT HAS NOT ACCEPTED THE DEC ISION OF HON'BLE SPECIAL BENCH IN THE CASE OF TOPMAN EXPORTS IN ITA 2 NO.5769/MUM/2006. FURTHER, APPEALS UNDER SECTION 2 60A HAVE BEEN FILED ON A NUMBER OF CASES (THE CASES DEC IDED KEEPING IN VIEW OF DECISION OF HON'BLE SPECIAL BENC H MUMBAI IN THE CASE OF TOPMAN EXPORTS) BEFORE HON'BLE HIGH COURT OF PUNJAB & HARYANA. 3. THAT THE ORDER OF THE CIT(A)-II BE SET ASIDE AND TH AT OF THE A.O. BE RESTORED. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 3. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS A GAINST THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC OF THE ACT ON ACCOUNT OF DEPB. 4. BOTH THE LEARNED REPRESENTATIVES FAIRLY ADMITTED THAT THE ISSUE IN THE APPEAL IS SQUARELY COVERED BY THE RATIO LAID DO WN BY SUPREME COURT IN TOPMAM EXPORTS VS. CIT [342 ITR 49 (SC) 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC OF THE ACT IN RESPECT OF DEPB AT RS.17,75,028/- AND RS.9,06,915/-. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE RATIO LAID DOWN BY THE HON'BLE SUPRE ME COURT IN TOPMAN EXPORTS VS. CIT (SUPRA), UNDER WHICH THE EARLIER DE CISION OF THE HON'BLE BOMBAY HIGH COURT IN CIT VS. KALAPATARU COLORS & CH EMICALS (2010) 42 DTR 193 (BOM) WAS REVERSED BY THE HON'BLE SUPREME C OURT. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN ASSESSEES O WN CASE HAD SENT BACK THE ISSUE TO THE FILE OF THE TRIBUNAL FOR FRES H DECISION IN ACCORDANCE WITH LAW. THE LAW AS OF TODAY IS SETTLED BY THE HO N'BLE APEX COURT IN THE CASE OF TOPMAN EXPORTS VS. CIT (SUPRA), WHEREIN IT HAS BEEN HELD AS UNDER: 19. SUB-SECTION (1) OF SECTION 80HHC QUOTED ABOVE MAKE S IT CLEAR THAT AN ASSESSEE ENGAGED IN THE BUSINESS OF EXPORT OUT OF I NDIA OF ANY GOODS OR MERCHANDISE TO WHICH THIS SECTION APPLIES SHALL BE ALLOWED, IN COMPUTING HIS TOTAL INCOME, A DEDUCTION TO THE EXTENT OF PROFITS REFERRED TO IN SUB-SECTION (1B), 3 DERIVED BY HIM FROM THE EXPORT OF SUCH GOODS OR MER CHANDISE. SUB-SECTION (1B) OF SECTION 80HHC GIVES THE PERCENTAGES OF DEDUCTION OF THE PROFITS ALLOWABLE FOR THE DIFFERENT ASSESSMENT YEARS FROM THE ASSESSMENT YEARS 2001-2002 TO 2004- 2005. SUB-SECTION (3)(A) OF SECTION 80HHC PROVIDES THAT WHERE THE EXPORT OUT OF INDIA IS OF GOODS OR MERCHANDISE MANUFACTURED OR PR OCESSED BY THE ASSESSEE, THE PROFITS DERIVED FROM SUCH EXPORTS SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH GOODS BEARS TO THE TOTAL TURNOVER OF THE BUSIN ESS CARRIED ON BY THE ASSESSEE. IN COMMISSIONER OF INCOME-TAX V. K. RAVINDRANATHAN NAIR [2007] 295 ITR 228 (SC), THE FORMULA IN SUB-SECTION (3)(A) OF SECTION 80HHC WAS STATED BY THIS COURT TO BE AS FOLLOWS: PROFITS OF THE BUSINESS EXPORT TURNOVER PROFITS DERIVED FROM EXPORTS = TOTAL TURNOVER 20. EXPLANATION (BAA) UNDER SECTION 80HHC STATES THAT 'PROFITS OF THE BUSINESS' IN THE AFORESAID FORMULA MEANS THE PROFIT S OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION' AS REDUCED BY (1) NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSES ( IIIA), (IIIB), (IIIC), (IIID) AND (IIIE) OF SECTION 28 OR OF ANY RECEIPTS BY WAY OF B ROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF SIMILAR NATUR E INCLUDING ANY SUCH RECEIPTS AND (2) THE PROFITS OF ANY BRANCH, OFFICE, WAREHOUS E OR ANY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATED OUTSIDE INDIA. THUS, NINET Y PER CENT OF THE DEPB WHICH IS 'CASH ASSISTANCE' AGAINST EXPORTS AND IS COVERED UNDER CLAUSE (IIIB) OF SECTION 28 WILL GET EXCLUDED FROM THE 'PROFITS OF THE BUSIN ESS' OF THE ASSESSEE IF SUCH DEPB HAS ACCRUED TO THE ASSESSEE DURING THE PREVIOU S YEAR. SIMILARLY, IF DURING THE SAME PREVIOUS YEAR, THE ASSESSEE HAS TRANSFERRE D THE DEPB AND THE SALE VALUE OF SUCH DEPB IS MORE THAN THE FACE VALUE OF T HE DEPB, THE DIFFERENCE BETWEEN THE SALE VALUE OF THE DEPB AND THE FACE VAL UE OF THE DEPB WILL REPRESENT THE PROFIT ON TRANSFER OF DEPB COVERED UN DER CLAUSE (IIID) OF SECTION 28 AND NINETY PER CENT OF SUCH PROFIT ON TRANSFER O F DEPB CERTIFICATE WILL GET EXCLUDED FROM 'PROFITS OF THE BUSINESS'. BUT, WHERE THE DEPB ACCRUES TO THE ASSESSEE IN THE FIRST PREVIOUS YEAR AND THE ASSESSE E TRANSFERS THE DEPB CERTIFICATE IN THE SECOND PREVIOUS YEAR, AS APPEARS TO HAVE HAPPENED IN THE PRESENT BATCH OF CASES, ONLY NINETY PER CENT OF THE PROFITS ON TRANSFER OF DEPB COVERED UNDER CLAUSE (IIID) AND NOT NINETY PER CENT OF THE ENTIRE SALE VALUE INCLUDING THE FACE VALUE OF THE DEPB WILL GET EXCLU DED FROM THE 'PROFITS OF THE BUSINESS'. THUS, WHERE THE NINETY PER CENT OF THE F ACE VALUE OF THE DEPB DOES NOT GET EXCLUDED FROM 'PROFITS OF THE BUSINESS' UND ER EXPLANATION (BAA) AND ONLY NINETY PER CENT OF THE DIFFERENCE BETWEEN THE FACE VALUE OF THE DEPB AND THE SALE VALUE OF THE DEPB GETS EXCLUDED FROM 'PROFITS OF THE BUSINESS', THE ASSESSEE GETS A BIGGER FIGURE OF 'PROFITS OF THE BUSINESS' A ND THIS IS POSSIBLE WHEN THE DEPB ACCRUES TO THE ASSESSEE IN ONE PREVIOUS YEAR A ND TRANSFER OF THE DEPB TAKES PLACE IN THE SUBSEQUENT PREVIOUS YEAR. THE RE SULT IN SUCH CASE IS THAT A HIGHER FIGURE OF 'PROFITS OF THE BUSINESS' BECOMES THE MULTIPLIER IN THE AFORESAID FORMULA UNDER SUBSECTION (3)(A) OF SECTION 80HHC FO R ARRIVING AT THE FIGURE OF PROFITS DERIVED FROM EXPORTS. 21. TO THE FIGURE OF PROFITS DERIVED FROM EXPORTS WORK ED OUT AS PER THE AFORESAID FORMULA UNDER SUB-SECTION (3)(A) OF SECTI ON 80HHC, THE ADDITIONS AS MENTIONED IN FIRST, SECOND, THIRD AND FOURTH PROVIS O UNDER SUB-SECTION (3) ARE MADE TO PROFITS DERIVED FROM EXPORTS. UNDER THE FIR ST PROVISO, NINETY PER CENT OF THE SUM REFERRED TO IN CLAUSES (IIIA), (IIIB) AND ( IIIC) OF SECTION 28 ARE ADDED IN THE SAME PROPORTION AS EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE 4 BUSINESS CARRIED ON BY THE ASSESSEE. IN THIS FIRST PROVISO, THERE IS NO ADDITION OF ANY SUM REFERRED TO IN CLAUSE (IIID) OR CLAUSE (III E). HENCE, PROFIT ON TRANSFER OF DEPB OR DFRC ARE NOT TO BE ADDED UNDER THE FIRST PR OVISO. WHERE THEREFORE IN THE PREVIOUS YEAR NO DEPB OR DFRC ACCRUES TO THE AS SESSEE, HE WOULD NOT BE ENTITLED TO THE BENEFIT OF THE FIRST PROVISO TO SUB -SECTION (3) OF SECTION 80HHC BECAUSE HE WOULD NOT HAVE ANY SUM REFERRED TO IN CL AUSE (IIIB) OF SECTION 28 OF THE ACT. THE SECOND PROVISO TO SUB-SECTION (3) OF S ECTION 80HHC STATES THAT IN CASE OF AN ASSESSEE HAVING EXPORT TURNOVER NOT EXCE EDING RS. 10 CRORES DURING THE PREVIOUS YEAR, AFTER GIVING EFFECT TO THE FIRST PROVISO, THE EXPORT PROFITS ARE TO BE INCREASED FURTHER BY THE AMOUNT WHICH BEARS TO N INETY PER CENT OF ANY SUM REFERRED TO IN CLAUSES (IIID) AND (IIIE) OF SECTION 28, THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. THE THIRD PROVISO TO SUB-SECTION (3) STAT ES THAT IN CASE OF AN ASSESSEE HAVING EXPORT TURNOVER EXCEEDING RS. 10 CRORES, SIM ILAR ADDITION OF NINETY PER CENT OF THE SUMS REFERRED TO IN CLAUSE (IIID) OF SE CTION 28 ONLY IF THE ASSESSEE HAS THE NECESSARY AND SUFFICIENT EVIDENCE TO PROVE THAT (A) HE HAD AN OPTION TO CHOOSE EITHER THE DUTY DRAWBACK OR THE DUTY ENTITLE MENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME; AND (B) THE RATE O F DRAWBACK CREDIT ATTRIBUTABLE TO THE CUSTOMS DUTY WAS HIGHER THAN TH E RATE OF CREDIT ALLOWABLE UNDER THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME. THEREFORE, IF THE ASSESSEE HAVING EXPORT TU RNOVER OF MORE THAN RS. 10 CRORES DOES NOT SATISFY THESE TWO CONDITIONS, HE WI LL NOT BE ENTITLED TO THE ADDITION OF PROFIT ON TRANSFER OF DEPB UNDER THE TH IRD PROVISO TO SUB-SECTION (3) OF SECTION 80HHC. 22. THE AFORESAID DISCUSSION WOULD SHOW THAT WHERE AN ASSESSEE HAS AN EXPORT TURNOVER EXCEEDING RS. 10 CRORES AND HAS MAD E PROFITS ON TRANSFER OF DEPB UNDER CLAUSE (D) OF SECTION 28, HE WOULD NOT G ET THE BENEFIT OF ADDITION TO EXPORT PROFITS UNDER THIRD OR FOURTH PROVISO TO SUB -SECTION (3) OF SECTION 80HHC, BUT HE WOULD GET THE BENEFIT OF EXCLUSION OF A SMAL LER FIGURE FROM 'PROFITS OF THE BUSINESS' UNDER EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT AND THERE IS NOTHING IN EXPLANATION (BAA) TO SECTION 80HHC TO SH OW THAT THIS BENEFIT OF EXCLUSION OF A SMALLER FIGURE FROM 'PROFITS OF THE BUSINESS' WILL NOT BE AVAILABLE TO AN ASSESSEE HAVING AN EXPORT TURNOVER EXCEEDING RS.10 CRORES. IN OTHER WORDS, WHERE THE EXPORT TURNOVER OF AN ASSESSEE EXC EEDS RS. 10 CRORES, HE DOES NOT GET THE BENEFIT OF ADDITION OF NINETY PER CENT OF EXPORT INCENTIVE UNDER CLAUSE (IIID) OF SECTION 28 TO HIS EXPORT PROFITS, BUT HE GETS A HIGHER FIGURE OF PROFITS OF THE BUSINESS, WHICH ULTIMATELY RESULTS IN COMPUTATI ON OF A BIGGER EXPORT PROFIT. THE HIGH COURT, THEREFORE, WAS NOT RIGHT IN COMING TO THE CONCLUSION THAT AS THE ASSESSEE DID NOT HAVE THE EXPORT TURNOVER EXCEEDING RS. 10 CRORES AND AS THE ASSESSEE DID NOT FULFILL THE CONDITIONS SET OUT IN THE THIRD PROVISO TO SECTION 80HHC (III), THE ASSESSEE WAS NOT ENTITLED TO A DED UCTION UNDER SECTION 80HHC ON THE AMOUNT RECEIVED ON TRANSFER OF DEPB AND WITH A VIEW TO GET OVER THIS DIFFICULTY THE ASSESSEE WAS CONTENDING THAT THE PRO FITS ON TRANSFER OF DEPB UNDER SECTION 28 (IIID) WOULD NOT INCLUDE THE FACE VALUE OF THE DEPB. IT IS A WELL- SETTLED PRINCIPLE OF STATUTORY INTERPRETATION OF A TAXING STATUTE THAT A SUBJECT WILL BE LIABLE TO TAX AND WILL BE ENTITLED TO EXEMPTION FROM TAX ACCORDING TO THE STRICT LANGUAGE OF THE TAXING STATUTE AND IF AS PER THE WO RDS USED IN EXPLANATION (BAA) TO SECTION 80HHC READ WITH THE WORDS USED IN CLAUSE S (IIID) AND (IIIE) OF SECTION 28, THE ASSESSEE WAS ENTITLED TO A DEDUCTION UNDER SECTION 80HHC ON EXPORT PROFITS, THE BENEFIT OF SUCH DEDUCTION CANNOT BE DE NIED TO THE ASSESSEE. 6. THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO T HE FACTS BEFORE THE HON'BLE SUPREME COURT IN TOPMAN EXPORTS VS. CIT (SU PRA) AND FOLLOWING THE SAME WE DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE 5 DEDUCTION UNDER SECTION 80HHC OF THE ACT IN LINE WI TH THE OBSERVATIONS OF THE HON'BLE SUPREME COURT IN TOPMAN EXPORTS VS. CIT (SUPRA). THUS GROUNDS OF APPEAL RAISED BY THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL FILED BY REVENUE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 ND DAY OF AUGUST, 2013. SD/- SD/- (T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :_2 ND AUGUST, 2013 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH