DCIT, Ludhiana V. M/s Jindal Fine Industries, Ludhiana

ITA 669/CHANDI/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63954 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-09-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 13-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH SEHGAL
• Assessee Lawyers: MANJIT SINGH
• Section: 80HHC; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, A.M AND MS. SUSHMA CHOWLA, J M ITA NO. 669/CHD/2012 ASSESSMENT YEAR : 2003-04 D.C.I.T. CC.-I, LUDHIANA V M/S JINDAL FINE INDUST RIES G.T. ROAD, LUDHIANA AAAFJ 8879 N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SAURABH SEHGAL RESPONDENT BY : SHRI MANJIT SINGH DATE OF HEARING : 24.09.2012 DATE OF PRONOUNCEMENT : 27.09.2012 O R D E R PER T.R.SOOD, A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER OF LD. CI T(A)_I LUDHIANA DATED 14.3.2012. 2 IN THIS APPEAL THE REVENUE HAS RAISED FOLLOWING E FFECTIVE GROUNDS: 1 THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACT S IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF DEDUCTION U/S 80HHC. 2 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY DIRECTING THE AO TO COMPUTE THE INDIRECT COST OF TR ADING GOODS AFTER REDUCING 10% OF THE EXPORT INCENTIVES F OR THE PURPOSE OF SECTION 80HHC. 3. AFTER HEARING BOTH THE PARTIES WE FIND THAT ORIG INALLY THE ISSUE REGARDING DEDUCTION U/S 80HHC TRAVELED TO THE TRIBUNAL AND THE ORDER OF THE LD. CIT(A) WAS SET ASIDE IN IT A NO. 10/CHD/2007 AND THE MATTER WAS RESTORED TO THE FILE OF AO WITH A DIRECTION TO CALL UP THE DECISION OF SPECIAL BENC H IN CASE OF M/S TOPMAN EXPORTS IN ITA NO. 5769/M/2006. HOWEVER , DURING SUCH SET ASIDE ASSESSMENT PROCEEDINGS THE AO NOTICE D THAT THE 2 DECISION OF SPECIAL BENCH HAS ALREADY BEEN REVERSED BY HON'BLE BOMBAY HIGH COURT IN CASE OF CIT V. KALAPTA RU COLOURS AND CHEMICALS, 42 DTR 193, AND THEREFORE, THIS ISS UE WAS DECIDED AGAINST THE ASSESSEE. ON APPEAL THE LD. CI T(A) NOTED THAT THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY HON'BLE SUPREME COURT IN CASE OF M/S TO PMAN EXPORTS V CIT, 342 ITR 49, THEREFORE, THE ISSUE WA S DECIDED IN FAVOUR OF THE ASSESSEE. 4. SECOND ISSUE REGARDING DISALLOWANCE OF 10% EXPEN DITURE ON ACCOUNT OF EXPORT INCENTIVE FROM INDIRECT COST BY THE AO HAS ALSO BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY LD. CIT(A) BY FOLLOWING THE DECISION OF THE HON'BLE SUPREME CO URT IN CASE OF HERO EXPORTS V. CIT, 295 ITR 454. 5. AFTER HEARING BOTH THE PARTIES WE FIND THAT FIRS T ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE SUPREME COURT IN CASE OF M/S TOPMAN EXPORTS V CIT, 342 ITR 49. IN THIS CASE IT WAS OBSERVED AND HELD AS UNDER:- THE OBJECTIVE OF THE DUTY ENTITLEMENT PASSBOOK SCHE ME (DEPB) IS TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY ON THE IMPORT CONTENT OF THE EXPORT PRODUCTS. HENCE, IT HAS DIRECT NEXUS WITH THE COST OF THE IMPORTS MADE BY AN EXPOR TER FOR MANUFACTURING THE EXPORT PRODUCTS. THE NEUTRALIZATION OF THE COST OF CUSTOMS DUTY UNDE R THE DEPB CREDIT SCHEME, HOWEVER, IS BY GRANTING A DUTY CREDIT AGAINST THE E XPORT PRODUCT AND THIS CREDIT CAN BE UTILIZED FOR PAYING CUSTOMS DUTY ON A NY ITEM WHICH IS FREELY IMPORTABLE. THE DEPB CREDIT IS ISSUED AGAINST THE EXPORTS TO TH E EXPORTER AND IS TRANSFERABLE BY THE EXPORTER. THE DEPB CREDIT IS 'CASH ASSISTANCE' RECEIVABLE BY A PERSON AGAINST EXPORTS UNDER THE SCHEME OF THE GOVERNMENT OF INDIA AND FALLS UNDER C LAUSE (NIB) OF SECTION 28 OF THE INCOME-TAX ACT, 1961, AND IS CHARGEABLE TO INCOME-TAX UNDER TH E HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' EVEN BEFORE IT IS TRANSFERR ED BY THE ASSESSEE. UNDER CLAUSE (IIID) OF SECTION 28, ANY PROFIT ON TRANSFER OF THE DEPB CREDIT IS CHARGEABLE TO INCOME-TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' AS A N ITEM SEPARATE FROM CASH ASSISTANCE UNDER CLAUSE (IIIB). THE WORD 'PROFIT' MEANS THE GROSS PROCEEDS OF A BUS INESS TRANSACTION LESS THE COSTS OF THE TRANSACTION. PROFITS IMPLY A COMPARISO N OF THE VALUE OF AN ASSET WHEN THE ASSET IS ACQUIRED WITH THE VALUE OF THE ASSET WHEN THE ASSET IS TRANSFERRED AND THE DIFFERENCE BETWEEN THE TWO VALUES IS THE AMOUNT OF PROFIT OR GAIN MADE BY A PERSON. E. D. SASSOON AND COMPANY LTD . V. CIT [1954] 26 ITR 27 (SC) RELIED ON. 3 AS THE DEPB CREDIT HAS DIRECT NEXUS WITH THE COST O F IMPORTS FOR MANUFACTURING AN EXPORT PRODUCT, ANY AMOUNT REALISED BY THE ASSESSEE OVER AND ABOVE THE DEPB CREDIT ON TRANSFER OF THE DEPB CREDIT WOULD REPRESE NT PROFIT ON THE TRANSFER OF THE DEPB CREDIT. THUS, WHILE THE FACE VALUE OF THE DEPB CREDIT WILL FALL UNDER CLAUSE (IIIB) OF SECTION 28 OF THE ACT, THE DIFFERENCE BET WEEN THE SALE VALUE AND THE FACE VALUE OF THE DEPB CREDIT WILL FALL UNDER CLAUSE (HI D) OF SECTION 28 OF THE ACT. THE COST OF ACQUIRING THE DEPB CREDIT IS NOT NIL BE CAUSE THE PERSON ACQUIRES IT BY PAYING CUSTOMS DUTY ON THE IMPORT CO NTENT OF THE EXPORT PRODUCT AND THE DEPB CREDIT WHICH ACCRUES TO A PERSON AGAINST E XPORTS HAS A COST ELEMENT IN IT. THE DEPB CREDIT REPRESENTS PART OF THE COST INCURRE D BY A PERSON FOR MANUFACTURE OF THE EXPORT PRODUCT AND HENCE EVEN WHERE THE DEPB CREDIT IS NOT UTILISED BY THE EXPORTER BUT IS TRANSFERRED TO ANOTHER PERSON, THE CREDIT CONTINUES TO REMAIN AS A COST TO THE EXPORTER. WHEN, THEREFORE, THE DEPB CRE DIT IS TRANSFERRED BY A PERSON, THE ENTIRE SUM RECEIVED BY HIM ON SUCH TRANSFER DOE S NOT BECOME HIS PROFITS. IT IS ONLY THE AMOUNT THAT HE RECEIVES IN EXCESS OF THE D EPB CREDIT WHICH REPRESENTS HIS PROFITS ON TRANSFER OF THE DEPB CREDIT. UNDER SECTION 28 OF THE ACT 'CASH ASSISTANCE' RECEI VED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS SUCH AS THE DEPB CREDIT AND 'PROFIT ON TRANSFER OF THE DEPB CREDIT' ARE TREATED AS TWO SEPARATE ITEMS OF INCOME UNDER C LAUSES (IIIB) AND (HID). AS A RESULT, THE DEPB CREDIT WILL BE CHARGEABLE AS INCOM E UNDER CLAUSE (IIIB) OF SECTION 28 IN THE YEAR IN WHICH THE PERSON APPLIES FOR THE DEPB CREDIT AGAINST THE EXPORTS AND THE PROFIT ON TRANSFER OF THE DEPB CREDIT BY TH AT PERSON WILL BE CHARGEABLE AS INCOME UNDER CLAUSE (HID) OF SECTION 28 IN HIS HAND S IN THE YEAR IN WHICH HE MAKES THE TRANSFER. THERE IS NO DOUBLE TAXATION OF THE SA ME INCOME. SUB-SECTION (3)(A) OF SECTION 80HHC PROVIDES THAT WHERE THE EXPORT OUT OF INDIA IS OF GOODS OR MERCHANDISE MANUFACTURED OR PROCESSED BY T HE 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 TURNOVE R IN RESPECT OF SUCH GOODS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. EXPLANATION (BAA) UNDER SECTION 80HHC STATES THAT 'PROFITS OF THE BUSINESS' MEANS THE PROFITS OF THE BUSINESS AS COMP UTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' AS REDUCED, INTER ALIA, BY NINETY PER CENT, OF ANY SUM REFERRED TO IN CLAUSES (IIIA), (IIIB), (IIIC), (IIID) AND (IIIE) OF SECTION 28. THUS, NINETY PER CENT, OF THE DEPB CREDIT WHICH IS 'CASH ASSISTANCE' AGAINST EXPORTS AND IS COVERED UNDER CLAUSE (IIIB) OF SECTI ON 28 WILL GET EXCLUDED FROM THE 'PROFITS OF THE BUSINESS' OF THE ASSESSEE IF SUCH T HE DEPB CREDIT HAS ACCRUED TO THE ASSESSEE DURING THE PREVIOUS YEAR. SIMILARLY , IF DURING THE SAME PREVIOUS YEAR, THE ASSESSEE HAS TRANSFERRED THE DEP B CREDIT AND THE SALE VALUE OF SUCH THE DEPB CREDIT IS MORE THAN THE FACE VALUE OF THE DEPB CREDIT, THE DIFFERENCE BETWEEN THE SALE VALUE OF THE DEPB CREDIT AND THE F ACE VALUE OF THE DEPB CREDIT WILL REPRESENT THE PROFIT ON TRANSFER OF THE DEPB C REDIT COVERED UNDER CLAUSE (HID) OF SECTION 28 AND NINETY PER CENT, OF SUCH PROFIT O N TRANSFER OF THE DEPB CREDIT CERTIFICATE WILL GET EXCLUDED FROM 'PROFITS OF THE BUSINESS'. BUT, WHERE THE DEPB CREDIT ACCRUES TO THE ASSESSEE IN THE FIRST PREVIOU S YEAR AND THE ASSESSEE TRANSFERS THE DEPB CREDIT CERTIFICATE IN THE SECOND PREVIOUS YEAR, ONLY NINETY PER CENT, OF THE PROFITS ON TRANSFER OF THE DEPB CREDIT COVERED UNDE R CLAUSE (IIID) AND NOT NINETY PER CENT OF THE ENTIRE SALE VALUE INCLUDING THE FACE VA LUE OF THE DEPB CREDIT WILL GET EXCLUDED FROM THE 'PROFITS OF THE BUSINESS'. THUS, WHERE THE NINETY PER CENT, OF THE FACE VALUE OF THE DEPB CREDIT DOES NOT GET EXCLUDED FROM 'PROFITS OF THE BUSINESS' UNDER EXPLANATION (BAA) AND ONLY NINETY PER CENT, OF THE DIFFERENCE BETWEEN THE FACE VALUE OF THE DEPB CREDIT AND THE SALE VALUE OF THE DEPB CREDIT GETS EXCLUDED FROM 'PROFITS OF THE BUSINESS', THE ASSESSEE GETS A BIGGER FIGURE OF 'PROFITS OF THE BUSINESS' AND THIS IS POSSIBLE WHEN THE DEPB CREDIT ACCRUES TO THE ASSESSEE IN ONE PREVIOUS YEAR AND TRANSFER OF THE DEPB CREDIT T AKES PLACE IN THE SUBSEQUENT PREVIOUS YEAR. THE RESULT IN SUCH CASE IS THAT A HI GHER FIGURE OF 'PROFITS OF THE BUSINESS'' BECOMES THE MULTIPLIER IN THE FORMULA UN DER SUB-SECTION (3)(A) OF SECTION SOHHCFOR ARRIVING AT THE FIGURE OF PROFITS DERIVED FROM EXPORTS. 4 TO THE FIGURE OF PROFITS DERIVED FROM EXPORTS WORKE D OUT ACCORDING TO THE FORMULA UNDER SUB-SECTION (3)(A) OF SECTION 80HHC, THE ADDI TIONS AS MENTIONED IN THE FIRST, SECOND, THIRD AND FOURTH PROVISO UNDER SUB-SECTION (3) ARE MADE TO THE PROFITS DERIVED FROM EXPORT. UNDER THE FIRST PROVISO, NINET Y PER CENT, OF THE SUM REFERRED TO IN CLAUSES (IIIA), (IIIB) AND (IIIE) OF SECTION 28 ARE ADDED IN THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. IN THIS FIRST PROVISO, THERE IS NO ADDITI ON OF ANY SUM REFERRED TO IN CLAUSE(IIIID) OR CLAUSE (IIIE). HENCE, PROFIT ON TRANSFER OF THE DEPB CREDIT OR DFRC ARE NOT TO BE ADDED UNDER THE FIRST PROVISO. WHERE THEREFOR E IN THE PREVIOUS YEAR NO DEPB CREDIT OR DFRC ACCRUES TO THE ASSESSEE, HE WOULD NOT BE ENTIT LED TO THE BENEFIT OF THE FIRST PROVISO TO SUB- SECTION (3) OF SECTION 80HHC BECAUSE HE WOULD NOT H AVE ANY SUM REFERRED TO IN CLAUSE (IIIB) OF SECTION 28 OF THE ACT. THE SECOND PROVISO TO SUB-SECTION (3) OF SECTION 80 HHC STATES THAT IN THE 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 NINETY PER CENT, OF ANY S UM REFERRED TO IN CLAUSES (HID) AND (HIE) 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) STATES THAT IN THE CASE OF AN ASSES SEE HAVING EXPORT TURNOVER EXCEEDING RS. 10 CRORES, SIMILAR ADDITION OF NINETY PER CENT, OF THE SUMS REFERRED TO IN CLAUSE (HID) OF SECTION 28 CAN BE MADE ONLY IF THE ASSESSE E HAS THE NECESSARY AND SUFFICIENT EVIDENCE TO PROVE THAT (A) HE HAD AN OPTION TO CHOOSE EITHER THE DUTY DRAWBACK OR THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISS ION SCHEME ; AND (B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO THE CUS TOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY ENTITLE MENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME. THEREFORE, IF THE ASSESSEE HAVING EXPORT TURNOVER OF MORE THAN RS. 10 CRORES DOES NOT SATISFY THESE TWO CONDI TIONS, HE WILL NOT BE ENTITLED TO THE ADDITION OF PROFIT ON TRANSFER OF T HE DEPB CREDIT UNDER THE THIRD PROVISO TO SUB-SECTION (3) OF SECTION 80HHC. THEREFORE, WHERE AN ASSESSEE HAS AN EXPORT TURNOVER EXCEEDING RS. 10 CRORES AND HAS MADE PROFITS ON TRANSFER OF THE DEPB CREDIT UNDER CLAUSE (HID) OF SECTION 28, HE WOULD NOT GET THE BENEFIT OF ADDITION TO EXPORT PROFITS UNDER THE THI RD OR FOURTH PROVISO TO SUB-SECTION (3) OF SECTION 80HHC, BUT HE WOULD GET THE BENEFIT OF EXCLUSION, O F A SMALLER, FIGURE FROM 'PROFITS OF THE BUSINESS' UNDER EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT. THERE IS NOTHING IN EXPLANATION (BAA) TO SECTION 80HHC TO SHOW, THAT THIS BENEFIT OF EXCL USION OF A SMALLER FIGURE FROM 'PROFITS, OF THE BUSINESS' WILL NOT BE AVAILAB LE TO AN ASSESSEE HAVING AN EXPORT TURNOVER, EXCEEDING RS. 10 CRORES. IT IS A WELL-SETTLED PRINCIPLE OF STATUTORY'INTERPR ETATION OF A TAXING STATUTE THAT A SUBJECT WILL BE LIABLE TO TAX AND WILL BE ENTITLE D TO EXEMPTION FROM TAX ACCORDING TO THE STRICT LANGUAGE OF THE TAXING STAT UTE AND IF AS PER THE WORDS USED IN EXPLANATION (BAA) TO SECTION 80HHC REDD WITH THE WORDS USED IN CLAUSE S (HID) AND (HIE) OF SECTION 28 R THE ASSESSEE WAS ENTITLED TO A DEDUCTION UNDER SEC TION 80HHC ON EXPORT PROFITS, THE BENEFIT OF SUCH DEDUCTION CANNO T BE DENIED TO THE ASSESSEE. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE DECID E THIS ISSUE AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 6. SIMILARLY SECOND ISSUE JS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE SUPREME COU RT CASE OF HERO EXPORTS V CIT, 295 ITR 454 WHEREIN IT WAS HELD AS UNDER:- HELD REVERSING THE DECISION OF THE HON'BLE HIGH CO URT THAT HE ASSESSEE WAS ENTITLED TO EXCLUDE THE COSTS ATTRIBUT ABLE TO 5 EXPORT INCENTIVES, COMMISSION, INTEREST, ETC. IN AR RIVING AT THE EXPENSES ATTRIBUTABLE TO THE EXPORT TRADE. IN CASES FALLING U/S 80HHC(3)()B) OF THE ACT DIRECT AND INDIRECT COSTS ATTRIBUTABLE TO SUCH EXPORTS HAVE TO BE DEDUC TED FROM THE EXPORT TURNOVER TO ARRIVE AT THE EXPORT PROFITS . A SIMILAR PROVISION IS MADE ALSO IN CLAUSE (D) WHICH DEFINES THE WORDS DIRECT COSTS TO MEAN COSTS ATTRIBUTABLE TO EXPORT S OF TRADING GOODS. MOREOVER, CLAUSE (E) OF THE EXPLANATION DEF INES INDIRECT COSTS TO MEAN COSTS WHICH ARE NOT DIRECT COSTS AS DEFINED IN CLAUSE (D). THE WORD ATTRIBUTABLE IS WIDER THAN THE WORD DERIVED. THE WORD ATTRIBUTABLE IN SEC TION 80HHC(3)(B) IN THE MAIN SECTION ITSELF INDICATES TH AT APPORTIONMENT (PRINCIPLE OF ATTRIBUTION) IS NOT OMI TTED FROM THAT PROVISION. THE QUESTION OF ALLOCATION OF COSTS ALSO ARISES IN CASES FALLING U/S 80HHC(3)(B). FIRSTLY CLAUSE (E) OF THE EXPLANA TION WHICH REFERS TO ALLOCATION OF COSTS APPLIES TO SECTION 80 HHC(3)(A), SECTION 80HHC(3)(B) AND SECTION 80HHC(3)(C). SECON DLY SECTION 80HHC(3)(B) EQUATES EXPORT PROFITS TO EXPOR T TURNOVER LESS DIRECT AND INDIRECT COSTS ATTRIBUTABLE TO THE EXPORTS OF TRADING GOODS. THEREFORE, THE PRINCIPLE OF ATTRIBU TION IS RETAINED. THIRDLY, KEEPING IN MIND THE PROVISIONS OF SECTION 80HHC(3)(B) R.W. CLAUSE (D) AND (E) OF THE EXPLANAT ION, IT IS CLEAR THAT THE LEGISLATURE INTENDED ALLOCATION OF C OSTS BETWEEN EXPORT TURNOVER AND TOTAL TURNOVER. IT MAY THAT IN MOST CASES APPORTIONMENT MAY NOT APPLY; BUT IN CERTAIN CASES F ALLING U/S 80HHC(3)(B) THE RATIO STILL APPLIES. FOR EXAMPLE, WHERE THE ASSESSEE EXPORTS ALL BOUGHT OUT ITEMS BUT BRINGS BA CK ONLY A PART OF THE EXPORT PROCEEDS INTO INDIA, THE RATIO W ILL APPLY AND THEREFORE, IF ONE IS TO READ CLAUSE (E), IT RETAINS THE WORDS INDIRECT COSTS TO BE ALLOCATED IN THE RATIO OF EXPO RT TURNOVER TO TOTAL TURNOVER. RESPECTFULLY FOLLOWING THE ABOVE DECISION WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED ON 27.09.2012 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 27 .09. 2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 6