Pratibha Syntex Ltd., Surat V. The ACIT.,Cent.Circle-2, Surat

ITA 604/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6290 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 27-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 24-02-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Section: 80HHC; 28

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M PRATIBHA SYNTEX LIMITED, C/O 398, GIDC, PANDESARA, SURAT. VS. ASSTT. CIT, CEN.CIR.2, SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- NONE RESPONDENT BY:- SHRI H. K. LAL, DR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUND :- (1) THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE DISALLOWANCE OF THE ENTIRE DEDUCTION U/S 80HHC OF THE ACT AS MADE BY THE AO WI THOUT APPRECIATING THAT THE PROVISIONS OF THE TAXATION LA WS (AMENDMENT) ACT 2005 ARE DISCRIMINATING, UNCONSTITU TIONAL AND HAVE BEEN CHALLENGED IN THE HON. HIGH COURT OF GUJA RAT AS ALSO THE SUPREME COURT AND THE DECISION THEREOF IS PENDI NG AS ON DATE. 2. THE ISSUE INVOLVED IN THIS APPEAL IS ABOUT DEDUC TION U/S 80HHC IN RESPECT OF AMOUNT OF DEPB. THE ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE MANUFACTURING OF COTTON YARN AS ALSO MANUFACTURING OF KNITTED COTTON FABRICS AND COTTON GARMENTS AT INDOR E (M.P.). THE ISSUE ITA NO.604/AHD/2009 ASST. YEAR 2004-05 ITA NO.604/AHD/2009 ASST. YEAR 2004-05 2 REGARDING ALLOWABILITY OF DEDUCTION U/S 80HHC ON TH E AMOUNT REPRESENTED BY DEPB IS DECIDED AGAINST THE ASSESSEE BY THE DECISION OF HON. BOMBAY HIGH COURT IN THE CASE OF CIT VS. KALPA TARU COLOURS AND CHEMICALS (2010) 328 ITR 451 WHEREIN HON. BOMBAY HI GH COURT HELD AS UNDER :- UNDER SUB-SECTION (1) OF SECTION 80HHC OF THE INCO ME-TAX ACT, 1961, A DEDUCTION IS ALLOWED TO THE EXTENT OF PROFITS 'DERIVED BY THE AS SESSEE' FROM THE EXPORT OF GOODS. SINCE THE DEDUCTION IS IN RESPECT OF PROFITS DERIVE D 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 DERIVED FROM' IS DEFINED TO BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH IS BEARS TO THE TOTAL T URNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. HOWEVER, WHERE AN ASSESSEE CARRIES O N THE BUSINESS OF EXPORT OF TRADING GOODS, CLAUSE (B) DEFINES 'EXPORT PROFITS' TO BE TH E EXPORT TURNOVER IN RESPECT OF SUCH TRADING GOODS WHICH IS TO BE REDUCED BY THE DIRECT AND INDIRECT COSTS ATTRIBUTABLE TO THE EXPORT. IN THE APPLICATION OF THE FORMULA TO A MANUFACTURER EXPORTER, CLAUSE (A) REFERS TO THE PROFITS OF THE BUSINESS. THE EXPRESSION 'PROFITS OF THE BUSINESS' IN EXPLANA TION (BAA) TO SECTION 8QHHC MEANS PROFITS AS COMPUTED UNDER THE HEAD OF 'PROFIT S AND GAINS OF BUSINESS OR PROFESSION' UNDER SECTIONS 28 TO 44D AND THEY ARE T HEREUPON TO BE REDUCED TO THE EXTENT PROVIDED BY CLAUSES (1) AND (2). SECTION 28 ELUCIDATES INCOMES WHICH SHALL 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 FINANCE ACT OF 1990. BY THE FINANCE ACT OF 2005, PA RLIAMENT INSERTED A SPECIFIC CLAUSE, NAMELY, CLAUSE (HID) IN SECTION 28 TO THE E JECT THAT PROFITS ON TRANSFER OF DEPB, I.E., THE AMOUNT RECEIVED ON TRANSFER OF DEPB IS INCOME CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION. AS REGARDS THE DEDUCTION UNDER SECTION 80HHC, THE L EGISLATURE SUBSTITUTED EXPLANATION (BAA) IN SECTION 80HHC SO AS TO EXCLUDE 90 PER CENT, OF THE PROFITS RECEIVED ON TRANSFER OF DEPB FROM THE PROFITS OF BU SINESS FOR THE PURPOSES OF SECTION 80HHC AND INSERTED THE SECOND AND THIRD PROVISOS TO SECTION 80HHC(3). THE SECOND PROVISO PROVIDED THAT IN THE CASE OF AN ASSESSEE HA M AN EXPORT TURNOVER NOT EXCEEDING RS.10 CRORES, THE PROFITS COMPUTED UNDER SECTION 80 HHC(3) SHALL BE INCREASED BY 90 PER CENT, OF THE SUM REFERRED TO IN SECTION 28(IIID). THE THIRD PROVISO PROVIDED THAT I N THE CASE OF AN ASSESSEE HAVING AN EXPORT TURNOVER EXCEEDING RS.10 CRORES, THE PROFITS COMPUTE UNDER SECTION 80HHC(3) SHALL BE INCREASED B Y 90 PER CENT, OF THE SUM REFERRED TO IN SECTION 28(IIID) SUBJECT TO THE TWO CONDITIONS SET OUT THEREIN. WHAT CONSTITUTES PROFITS UNDER SECTION 28(IIID) IS THE A MOUNT RECEIVED ON TRANSFER OF SIX DEPB CREDIT AND NOT THE AMOUNT OF CREDIT WHICH THE ASSESSEE WAS ENTITLED TO UNDER THE DEPB SCHEME. IN OTHER WORDS, THE AMOUNT EQUIVAL ENT TO THE FACT VALUE OF DEPB AS WELL AS THE AMOUNT RECEIVED IN EXCESS OF THE DEP B WOULD CONSTITUTE PROFITS OF ITA NO.604/AHD/2009 ASST. YEAR 2004-05 3 BUSINESS UNDER SECTION 28(IIID) AND MERELY BECAUSE A /W: OF SUCH PROFITS OF BUSINESS (FACE VALUE) WAS OFFERED TO TAX IN THE YEAR IN WHIC H THE CREDIT ACCRUED TO THE ASSESSEE WOULD NOT BE A GROUND TO HOLD 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 YEW IN WHICH THE CREDIT ACC RUED TO THE ASSESSEE, THEN ANY FURTHER PROFIT ARISING ON TRANSFER OF THE DEPB CRED IT WOULD BE TAXED AS PROFITS OF BUSINESS UNDER SECTION 28(IIID) IN THE YEAR IN WHIC H THE TRANSFER OF THE DEPB CREDIT TOOK PIN, THERE IS ANOTHER PERSPECTIVE FROM WHICH THE ISSUE C AN BE LOOKED AT. THE. DEPB CREDIT TO WHICH AN EXPORTER IS ENTITLED IS A FORM OF AN EX PORT INCENTIVE. NO PART OF THE CREDIT THAT IS AVAILABLE UNDER THE DEPB SCHEME CAN FALL FA R CLASSIFICATION UNDER CLAUSE (IIIB) OF SECTION 28 WHICH DEALS WITH CASH ASSISTANCE, REC EIVED OR RECEIVABLE AGAINST ANY SCHEME OF THE GOVERNMENT OF INDIA. CLAUSE (IIIB) WA S ENACTED AT A TIME WHEN THE EXPORT INCENTIVES THAT WERE AVAILABLE WERE (I) IMPO RT ENTITLEMENT LICENCES; (II) CASH COMPENSATORY SUPPORT AND (IN) DUTY DRAWBACK. THE DE PB SCHEME WAS NOT IN EXISTENCE WHEN CLAUSE (IIIB) CAME TO BE ENACTED INT O SECTION 28 BY THE FINANCE ACT OF 1990. THE DEPB SCHEME WAS BROUGHT INTO EXISTENCE WI TH EFFECT FROM APRIL 1, 1997. CLAUSE (IIID) OF SECTION 28 WAS INSERTED BY THE AME NDING 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 PERSON AGAINST EXPORT UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA. IT CANNOT BE INFERRED FROM THE SPEECH OF THE FINANC E MINISTER THAT THE INSERTION OF CLAUSE (IIID) IN SECTION 28 WAS MADE WITH A VIEW TO TAX ONLY THE AMOUNT WHICH HAS BEEN RECEIVED IN EXCESS OF THE FACE VALUE OF THE DE PB CREDIT. DEPB CREDIT WAS INTRODUCED WITH EFFECT FROM APRIL 1, 1997, WHICH WA S AFTER THE INSERTION OF CLAUSE (IIIB) IN SECTION 28; SECTION 28(IIID) REFERS TO CASH ASSI STANCE RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT PURSUANT TO A SCHEME OF THE GOVERNME NT. 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 M EANING OF CLAUSE (IIIC), AND WHEN SECTION 28(IIID) SPECIFICALLY DEALS WITH PROFITS RE ALIZED ON THE TRANSFER OF THE DEPB CREDIT, IT WOULD BE IMPERMISSIBLE AS A MATTER OF FI RST PRINCIPLE TO BIFURCATE THE FACE VALUE OF THE DEPB AND THE AMOUNT RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB. THE ENTIRETY OF THE SALE CONSIDERATION WOULD FALL W ITHIN THE PURVIEW OF SECTION 28(IIID). 3. NONE APPEARED ON BEHALF OF THE ASSESSEE. WRITTEN CONTENTIONS WERE FILED ALONG WITH STATEMENT OF FACTS. HOWEVER, THESE CONTENTIONS WHEREBY ASSESSEE HAS SOUGHT TO TREAT THE DEPB LICENCE AS RE IMBURSEMENT OF DUTY SUFFERED BY INPUTS AND THEREFORE, IT SHOULD BE REDU CED FROM COST OF PRODUCTION AND TREATED AS PROFIT OF THE BUSINESS IS NO LONGER ACCEPTABLE IN ITA NO.604/AHD/2009 ASST. YEAR 2004-05 4 VIEW OF THE DECISION OF HON. BOMBAY HIGH COURT AS A BOVE. AS A RESULT, THE APPEAL IS DISMISSED. 4. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 30/6/11. SD/- SD/- (BHAVNESH SAINI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED :30/6/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 27/6/11. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 28/6/11. /OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..