The Arvind Ltd.,(Earlier known as The Arvind Mills Ltd.), Ahmedabad V. The Dy.CIT.,Circle-1, Ahmedabad

ITA 672/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80426 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 03-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Depreciation; Capital receipt; Unabsorbed depreciation
• Section: 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFO RE SHRI SHAILENDRA K UMAR YADAV, J.M. & SHRI ANIL CHATURVEDI , A.M.) I. T. A. NO. 672 / AHD/ 20 1 1 (A SSESSMENT YEAR: 2004 - 05) ARVIND MILLS. LTD. NARODA ROAD AHMEDABAD V/S DCIT CIRCLE - 1, AHMEDABAD (APPELLANT) (RESPONDENT) PAN : AABCA 2398 APPELLANT BY : SHRI S.N. SOPARKAR WITH SHRI PAR IN SHAH, A.R RESPONDENT BY : SHRI B.L. YADAV, SR. D.R. ( )/ ORDER DATE OF HEARING : 15 - 10 - 2014 DATE OF PRONOUNCEMENT : 17 - 10 - 2014 PER SHR I ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - VI, AHMEDABAD DATED 27.12.2010 FOR A.Y. 2004 - 05. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF TEXTILES, GARMENTS AND TELECOMMUNICATION. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 04 - 05 ON 30.10.2004 DECLARING TOTAL INCOME AT RS. NIL AFTER SETTING OFF OF ITA NO 672/AHD/2011 . A.Y. 2004 - 05 2 BROUGHT FORWARD LOSSES/UNABSORBED DEPRECIATION. THE CASE WAS SELECTED FOR SCRUTI NY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S. 143(3) VIDE ORDER DATED 29.12.2006 AND TOTAL INCOME BEFORE ADJUSTMENT OF BROUGHT FORWARD LOSSES WAS DETERMINED AT RS. 109,68,52,083/ - . AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO VIDE ORDER DATED 27.12.2010 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, WHILE COMPUTING DEDUCTION U/S. 80HHC OF THE ACT, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE ENTIRE VALUE OF DEPB AS WELL AS PROFIT ON TRANSFER / SELL OF DEPB CREDITED TO PROFIT AND LOSS ACCOUNT SHOULD BE REDUCED FROM PROFIT OF BUSINESS. 2. THE LD. CIT(A) HAS ERRED IN REJECTING THE ASSESSEE COMPANY'S CONTENTIONS THAT AS PER THE TAXATION LAWS (SECOND AMENDMENT) ACT ONLY PROFIT ARISING ON TRANSFER OF DEPB IS TO BE CONSIDERED AS EXPORT INCENTIVE UNDER SECTION 28(IIID) OF THE ACT AND NOT THE ENTIRE VALUE OF DEPB. 4. THOUGH THE ASSESSEE HAS RAISED TWO GROUNDS BUT THE ISSUE IS INTERCONNECTED AND THEREFORE CONSIDERED TOGETHER. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NOTICED THAT ASSESSEE HAS CLAIMED DEDUCTION U/S. 80HHC WHI LE COMPUTING THE TAXABLE INCOME . A.O ALSO NOTICED THAT ASSES SEE HAD CONSIDERED THE VALUE OF DEPB ALLOWABLE AS BUSINESS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER 80HHC PROFIT S A.O WAS OF THE VIEW THAT ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION ON DEPB AND HE ACCORDINGLY RE - WORKED THE DEDUCTION UNDER 80HHC. AGGR IEVED BY THE ORDER OF A.O, ASSESSEE CARR IED THE MATTER BEFORE CIT(A) WHO BY FOLLOWING THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF KALPATARU COLOURS AND CHEMICALS LTD. UPHELD THE ORDER OF A.O AND DECIDED THE ISSUE AGAINST THE ASSESSEE BY HOLDIN G AS UNDER: - 3. THE GROUND NO. 2 IS AGAINST DEDUCTION OF ENTIRE DEPB INCOME WHILE COMPUTING DEDUCTION U/S 80HHC OF THE ACT. ITA NO 672/AHD/2011 . A.Y. 2004 - 05 3 3.1 THE ASSESSING OFFICER HAS STATED IN THE ASSESSMENT ORDER DATED 29/12/2006 WHICH IS AS UNDER: 'THE CLAIM OF DEDUCTION UNDER SECTIO N 80HHC WAS EXAMINED IN THE CONTEXT OF AMENDMENTS MADE BY TAXATION LAWS SECOND AMENDMENT ACT, 2005 AND WITH RESPECT TO VARIOUS ARGUMENTS SIMILAR TO ARGUMENTS PUT FORWARD BY THE ASSESSEE COMPANY IN ASSESSMENT YEAR 2003 - 04. AS FAR AS THE ARGUMENT OF THE ASSE SSEE COMPANY CONCERNING THAT THE PROVISIONS ARE UNCONSTITUTIONAL AND ILLEGAL, NON APPLICATION OF AMENDMENT TO SECTION 80HHC IN VIEW OF FAILURE OF MACHINERY PROVISIONS TO THE FACT OF ASSESSEE'S CASE. DEPB CREDIT FALL UNDER CLAUSE 28(III)(A} AND RECEIPT ARE IN THE NATURE OF CAPITAL RECEIPT ARE NOT AT ALL ACCEPTABLE AND HENCE REJECTED. SIMILARLY, THE ARGUMENT OF THE ASSESSEE COMPANY THAT THE LEGISLATURE THROUGH ABOVE AMENDMENT WANT TO TAX THE PROFIT ON TRANSFER OF DEPB IS TO BE CONSIDERED AS BUSINESS PROFIT AL SO DO NOT FIND MERIT AND ACCORDINGLY REJECTED.' 3.2 APPELLANT HAS SUBMITTED IN ITS WRITTEN SUBMISSION, WHICH IS AS UNDER: ' THE SECOND ISSUE INVOLVED IS REGARDING CLAIM FOR DEDUCTION U/S 80HHC ON DEPB INCOME. THIS CLAIM IS SUPPORTED BY DECISION OF ITAT SPE CIAL BENCH MUMBAI IN CASE OF TOPMAN EXPORTS 33 SOT 337. THE BOMBAY HIGH COURT HAS NOW DECIDED THE ISSUE AGAINST THE ASSESSEE. HOWEVER, THE APPELLANT WOULD LIKE TO STATE THAT IN ORDER TO KEEP THE ISSUE ALIVE THIS GROUND IS BEING PRESSED. 3.3 I HAVE CONSID ERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND APPELLANT S SUBMISSION. THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF HONORABLE BOMBAY HIGH COURT IN THE CASE OF KALPATARU COLOURS AND CHEMICALS LTD WHICH HAS OVERRULED THE SPECIAL BENCH DECISIO N IN TOPMAN EXPORTS. THE RELEVANT EXTRACT OF THIS DECISION ITS QUOTED BELOW - 'THE ASSESSEE SUBMITTED THAT THE ENTIRE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB CREDIT IS BUSINESS PROFIT, BUT WHAT IS INCLUDED IN SECTION 28(IIID) IS THE AMOUNT RECEIVED ON T HE TRANSFER OF THE DEPB CREDIT IN EXCESS OF THE FACE VALUE OF THE DEPB AND THE AMOUNT RECEIVED TO THE EXTENT OF THE FACE VALUE OF THE DEPB WOULD BE COVERED UNDER SECTION 28(IIIB). THERE WAS NO MERIT IN THIS CONTENTION BECAUSE (A) THE DEPB CREDIT WAS NOT IN EXISTENCE WHEN SECTION 28(IIIB) WAS INSERTED BY THE FINANCE ACT, 1990. DEPB CREDIT WAS INTRODUCED WITH EFFECT FROM 1 - 4 - 1997 WHICH WAS AFTER THE INSERTION OF CLAUSE (IIIB) IN SECTION 28; (B) SECTION 28(IIIB) REFERS TO CASH ASSISTANCE (BY WHATEVER NAME CALL ED) RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT PURSUANT TO A SCHEME OF THE GOVERNMENT. 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 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 VALUE OF THE DEPB AND THE AMOUNT RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB. [PARA 33] FOR ALL THOSE REASONS, THE VIEW TAKEN BY THE TRIBUNAL WAS UNSUSTAINABLE. THE TRIBUNAL WAS NOT JUSTIFIED IN HOLDING THAT THE FACE VALUE OF THE DEPB REALIZED ON THE TRANSFER OF THE ENTITLEMENT WAS CHARGEABLE TO TAX UNDE R SECTION 28(IIIB). THE ENTIRETY OF THE SALE CONSIDERATION WOULD FALL WITHIN THE PURVIEW OF SECTION 28(IIID). [PARAS 34 AND 35]' IN VIEW OF THE ABOVE, I REJECT THIS GROUND AND CONFIRM ASSESSING OFFICERS S ORDER. ITA NO 672/AHD/2011 . A.Y. 2004 - 05 4 6. AGGRIEVED B Y THE ORDER OF CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 7. BEFORE US LD. A.R. AT THE OUTSET SUBMITTED THAT THE ISSUE IN THE PRESENT CASE ABOUT THE PROFIT FROM DEPB IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF TOPM A N EXPORTS 342 ITR 49 (SC ). HE THEREFORE SUBMITTED THAT THE MATTER MAY BE REMITTED TO THE FILE OF A.O TO WORK OUT THE DEDUCTION UNDER 80HHC IN THE LIGHT OF THE AFORESAID DECISION OF APEX COURT. LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF A.O AND CIT(A). 8. WE HAVE HEARD THE RI VAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE DISPUTE IN THE PRESENT CASE IS WITH RESPECT TO DENIAL OF DEDUCTION U/S 80HHC OF THE ACT ON THE DEPB CREDITS. WE FIND THAT W ITH RESPECT TO DEDUCTION U/S 80HHC, THE HON'BLE APEX COURT IN THE CASE OF T OPMAN EXPORTS (SUPRA) HAS HELD THAT PROFIT ON TRANSFER OF DEPB WOULD BE THE SALE VALUE OF DEPB LESS ITS FACE VALUE, WHICH REPRESENTS THE PROFIT OF DEPB. IT FURTHER HELD THAT THE ENTIRE SUM RECEIVED ON TRANSFER OF DEPB IS NOT CHARGEABLE AND DEPB IS CHARGEAB LE AS INCOME U/S 28(IIIB) OF THE ACT IN THE YEAR IN WHICH SUCH PERSON APPLIES FOR DEPB CREDIT AGAINST THE EXPORTS WHEREAS THE PROFIT ON TRANSFER IS CHARGEABLE AS INCOME U/S 28(IIID) IN THE HANDS OF THE ASSESSEE IN THE YEAR IN WHICH IT TRANSFERS. 9. IN THE P RESENT CASE, WE FIND THAT THE AO AND CIT(A) HAD NOT EXAMINED THE ISSUE OF DEDUCTION U/S 80HHC IN THE LIGHT OF THE AFORESAID DECISION OF APEX COURT. WE FURTHER FIND THAT CIT(A) HAS RELIED ON THE DECISION IN THE CASE OF KALPATARU COLOURS AND CHEMICALS LTD. WHICH HAS BEEN SET ASIDE BY HON BLE APEX COURT IN THE CASE OF TOPMAN EXPORTS (SUPRA). WE THEREFORE FEEL THAT THE MATTER NEEDS TO BE RE - EXAMINED IN THE LIGHT OF THE DECISION OF APEX COURT IN ITA NO 672/AHD/2011 . A.Y. 2004 - 05 5 THE CASE OF TOPMAN EXPORTS (SUPRA) AND WE THEREFORE RESTORE THE IS SUE TO THE FILE OF AO FOR HIM TO DECIDE THE ISSUE OF DEDUCTION U/S. 80HHC IN THE LIGHT OF THE AFORESAID DECISION OF APEX COURT. NEEDLESS TO STATE THAT AO SHALL GRANT ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. IN THE RESULT THE GROUNDS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 17 - 10 - 201 4 . SD/ - S D/ - (SHAILENDRA K UMAR YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD . TRUE C OPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD