The DCIT, Circle 1, JUNAGADH V. Shri Chunilal Meghjibhai Fofandi, Veraval

ITA 71/RJT/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62801 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 01-05-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 04-03-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: J C RANPURA
• Keywords: Business income
• Section: 28; 80HHC

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT. . .. . . .. . , , , , . .. . . .. . , , , , $ $ $ $ BEFORE SHRI T. K. SHARMA, JM AND SHRI D. K. SRIVAST AVA, AM ITA NOS. 71 & 74/RJT/2011. / ASSESSMENT YEAR 2004-05 & 2005-06 THE DY.. C.I.T., CIRCLE-1, JUNAGADH. ( */ APPELLANT) VS. SHRI CHUNILAL MEGHJIBHAI FOFANDI, PROP. OF VANITA COLD STORAGE, VERAVAL. PAN: AABPF8320K.. +,*/ RESPONDENT - / REVENUE BY SHRI. M. K. SINGH, D.R. /- / ASSESSEE BY SHRI J. C. RANPURA,, C.A. - / DATE OF HEARING 01-05-2012 - / DATE OF PRONOUNCEMENT 04 - 05-2012 / / / / ORDER . .. . . . . . , , , , / T. K. SHARMA, J. M. THESE TWO APPEALS BY THE REVENUE ARE AGAINST THE TWO SEPARATE ORDERS, BOTH D ATED 24-12-2010 OF CIT(A)- XXI, AHMEDABAD FOR THE ASSESSMENT YEAR 2004-05 AN D 2005-06. BOTH THESE APPEALS WERE HEARD ON THE SAME DATE, ARGUED BY THE COMMON REPRESENTATIVE, THEREFORE, THESE ARE DISPOSED OFF BY THE COMMON ORD ER FOR THE SAKE OF CONVENIENCE. 2. THE GROUNDS OF APPEAL RAISED IN THE ASSESSMENT Y EAR 2004-05 ARE AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.8,69,065/- MADE BY THE AO BY DISALLO WING THE ASSESSEES CLAIM U/S.80HHC OF THE ACT, WITHOUT CONS IDERING THE FACTS BROUGHT ON RECORD. ITA NO 71 & 74/RJT/2011 2 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 5,60,892/- MADE BY THE AO BY DISALL OWING THE ASSESSEES CLAIM FOR DEDUCTION U/S.80I. 3. THE ONLY GROUND RAISED BY THE REVENUE IN ITS APP EAL FOR THE ASSESSMENT YEAR 2005-06 IS AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION OF RS.6,05,511/- MADE BY THE AO VIDE DISAL LOWING THE ASSESSEES CLAIM U/S.80IA, WITHOUT CONSIDERING THE FACTS BROUGHT ON RECORD BY THE AO. 4. THE FACTS GIVING RISE TO CONTROVERSY INVOLVED IN GROUND NO.1 FOR ASSESSMENT YEAR 2004-05 IS THAT THE ASSESSEE CLAIME D DEDUCTION U/S.80HHC OF THE ACT OF RS.8,69,065/- FOR DEPB LICENSE SALES INC OME. IN THE ASSESSMENT ORDER, THE AO DISALLOWED THE SAME AND MADE THE ADDI TION OF RS.8,69,065/-. ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT(A) DIREC TED THE AO TO ALLOW THE DEDUCTION U/S.80HHC OF I.T. ACT ON DEPB LICENSE SA LES INCOME AFTER COMPUTING THE PROFIT AS PER DECISION OF TRIBUNAL IN ASSESSEE S OWN CASE FOR A.Y. 2003-04. THE RELEVANT PORTION OF CIT(A) ORDER READS AS UNDER :- 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SU BMISSIONS OF APPELLANT. THERE IS NO DISPUTE ON THE FACT THAT THE PROFIT ON SALE OF DEPB LICENSE IS TAXABLE UNDER SECTION 28 (IIID) AN D THE CORRESPONDING DEDUCTI9N IS NOT ALLOWABLE AS PER THIRD PROVISO TO SECTION 80HHC(3) BECAUSE THE EXPORT TURNOVER OF APPELLANT IS ABOVE R S.10 CRORE. THE CONTROVERSY IN RESPECT OF WHETHER THE PROFIT OF SA LE OF DEPB LICENSE SHOULD BE CONSIDERED THE FULL VALUE OF RS.67,55,965 OF SALE CONSIDERATION ON TRANSFER OF DEPB LICENSE OR ONLY THE DIFFERENCE OF RS.7,12,050/- BETWEEN THE SALE VALUE OF SUCH LICENSE AND ITS FACE VALUE, IS NOW SETTLED BY THE JUDGMENT OF JURISDICTIONAL HIGH COURT OF GUJ ARAT IN CASE OF CIT VS. RINKESH EXPORTS AND OTHERS IN TAX APPEAL NO.507 OF 2010. HONBLE HIGH COURT HELD THAT ON TRANSFER OF DEPB CREDIT BY AN ASSESSEE THE ENTIRE AMOUNT ON TRANSFER WOULD FORM PART OF PROFIT IN CLA USE (IIID) OF SECTION 28. I THEREFORE HOLD THAT ENTIRE VALUE OF SALE CONSIDERAT ION OF DEPB LICENSE OF RS.67,55,965/- WOULD BE CONSIDERED AS BUSINESS INCO ME UNDER SECTION ITA NO 71 & 74/RJT/2011 3 28(IIID) OF THE I.T. ACT. SECTION 28(IIID) IS A CHA RGING SECTION OF BUSINESS INCOME. THEREFORE, IT IS NOT POSSIBLE TO TAX SUCH I NCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. I FIND THAT ASSESSING OFFICER HAS EXCLUDED THE ENTIRE INCOME OF PROFIT ON SALE OF DEPB LICENS E OF RS.67,55,965/- FROM THE PROFIT OF BUSINESS FOR THE PURPOSE OF SE CTION 80HHC AS DEFINED IN EXPLANATION (BAA) TO SECTION 80HHC. AS PER THE E XPLANATION (BAA) TO EXPLANATION 80HHC, ONLY 90% OF THE PROFIT ON SALE O F DEPB LICENSE U/S.28(IIID) MAY BE REDUCED FROM THE PROFITS CALCUL ATED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS AND PROFESSION. I TH EREFORE FIND THAT ASSESSING OFFICER HAS CALCULATED THE PROFIT OF BUS INESS UNDER EXPLANATION (BAA) OF SECTION 80HHC BY AN AMOUNT LESSER BY 10% O F RS.67,55,965/- I.E., RS.6,75,596/- AS PER THE AMENDED PROVISIONS O F SECTION 80HHC AND 28 OF THE I.T. ACT. I THEREFORE DIRECT THE ASSESSIN G OFFICER TO RECALCULATE THE DEDUCTION U/S.80HHC AFTER CORRECTLY DETERMINING THE PROFITS OF BUSINESS FOR THE PURPOSE OF SECTION 80HHC AS DEFINED IN EXPL ANATION (BAA) TO SECTION 80HHC. AGGRIEVED WITH THE ORDER OF LD. CIT(A), THE REVENU E IS IN APPEAL BEFORE THE TRIBUNAL. 5 AT THE TIME OF HEARING BEFORE US, BOTH SIDES CON CEDED THAT NOW THE DEDUCTION U/S.80HHC IS COVERED IN JUDGMENT OF HON BLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS V. CIT REPORTED IN 342 ITR 4 9 (SC), THEREFORE, MATTER BE RESTORED TO THE FILE OF AO FOR RE-COMPUTING THE DED UCTION U/S.80HHC OF THE I.T. ACT. HAVING HEARD BOTH SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDER OF AUTHORITIES BELOW AS WELL AS THE DECISION OF HONBL E SUPREME COURT IN THE CASE OF TOPMAN EXPORTS (SUPRA) RELIED BY BOTH SIDES. THE HO NBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS HELD AS UNDER: (I) FACE VALUE OF DEPB TAXABLE UNDER SECTION 28(II IB) IN THE YEAR INWHICH ASSESSEE APPLIED FOR DEPB CREDIT AGAINST EXPORTS WH ILE THE EXCESS OF SALES PROCEEDS OF DEPB OVER ITS FACE VALUE IS TAXAB LE UNDER SECTION 28(IIID) IN THE YEAR OF TRANSFER. (II) DEPB IN CASH ASSISTANCE RECEIVABLE BY ANY PE RSON AGAINST EXPORTS UNDER THE SCHEME OF GOVERNMENT OF INDIA AND IS TAXA BLE UNDER CLAUSE (IIIB) OF SECTION 28 UNDER THE HEAD PROFITS AND GA INS OF BUSINESS OR PROFESSION EVEN BEFORE IT IS TRANSFERRED BY THE AS SESSEE; FACE VALUE OF ITA NO 71 & 74/RJT/2011 4 DEPB IS TAXABLE UNDER SECTION 28(IIIB) IN THE YEAR IN WHICH ASSESSEE APPLIED FOR DEPB CREDIT AGAINST EXPORTS. (III) PROFIT ON THE TRANSFER OF THE DUTY ENTITLEME NT PASS BOOK SCHEME IS THE EXCESS OF SALES PROCEEDS OF DEPB OVER ITS FACE VALUE AND IS TAXABLEUNDER SECTION 28(IIID) IN THE YEAR OF TRANSF ER. (IV) THE COST OF ACQUIRING DEPB IS NOT NIL AS THE PERSON ACQUIRES IT BY PAYING CUSTOMS DUTY ON THE IMPORT CONTENT OF THE EX PORT PRODUCT AND THE FACE VALUE OF DEPB REPRESENTS ITS COST. (V) FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SE CTION 80HHC,90% OF THE DEPB WHICH IS CASH ASSISTANCE AND COVERED BY SECTION 28(IIIB) SHALL BE EXCLUDED FROM PROFITS OF THE BUSINESS OF THE A SSESSEE IF THE DEPB HAS ACCRUED TO THE ASSESSEE DURING THE PREVIOUS YEAR, I F DURING THE SAME PREVIOUS YEAR, THE ASSESSEE TRANSFERS THE DEPB AND ITS SALES PROCEEDS EXCEEDS ITS FACE VALUE, 90% OF THE DIFFERENCE BETWE EN SALES PROCEEDS AND FACE VALUE WILL GET EXCLUDED FROM THE PROFITS OF TH E BUSINESS. (VI) IF DEPB ACCRUES TO ASSESSEE IN THE FIRST PREVI OUS YEAR AND IS TRANSFERRED IN THE SECOND YEAR AT A PRICE EXCEEDING ITS FACE VALUE, 90% OF THE DIFFERENCE BETWEEN SALES PROCEEDS AND FACE VALU E AND NOT 90 OF THE ENTIRE SALES PROCEEDS WILL GET EXCLUDED FROM PROFI TS OF THE BUSINESS IN THE SECOND PREVIOUS YEAR AND THE ASSESSEE GETS HIGHER D EDUCTION UNDER SECTION 80HHC AS BIGGER FIGURE OF PROFITS OF THE B USINESS BECOMES THE MULTIPLIER IN THE FORMULA UNDER SECTION 80HHC(3)(A) FOR ARRIVING AT THE FIGURE OF PROFIT DERIVED FROM EXPORTS. IN THIS VIEW OF THE MATTER, WE SET ASIDE THE ORDE R OF LD. CIT(A) ON THIS ISSUE AND RESTORE THIS ISSUE TO THE FILE OF AO WITH THE DIRECTION THAT HE WILL RECOMPUTED THE DEDUCTION U/S.80HHC AFRESH KEEPING I N VIEW THE RATIO OF DECISION OF HON;BLE SUPREME COURT IN THE CASE OF TOPMAN EXPO RTS (SUPRA). IN THE RESULT, FOR STATISTICAL PURPOSES, THE GROUND NO.1 OF REVENU E APPEAL FOR THE ASSESSMENT YEAR 2004-05 IS TREATED AS ALLOWED. 6. WITH REGARD TO GROUND NO.2 FOR ASSESSMENT YEAR 2 004-05 AND ONLY GROUND OF APPEAL FOR ASSESSMENT YEAR 2005-06, BOTH SIDES C ONCEDED THAT IN VIES OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LI BERTY INDIA LTD. VS. CIT 317 ITA NO 71 & 74/RJT/2011 5 ITR 218 (SC), THE ASSESSEE IS NOT ENTITLED FOR DEDU CTION U/S.80IA IN RESPECT OF DEPB LICENSE SALE INCOME WHEN THE LD. CIT(A) PASSE D THE IMPUGNED ORDER, THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LI BERTY INDIA LTD. (SUPRA) WAS NOT AVAILABLE. WE THEREFORE, REVERSED THE ORDER OF CIT(A) AND HELD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S.80IA OF T HE I.T. ACT, ON INCOME FROM SALE OF DEPB LICENSE AS HELD BY AO IN THE ASSESSMENT OR DER FOR BOTH THE ASSESSMENT YEARS. IN THE RESULT, THE GROUND NO.2 FOR THE ASSES SMENT YEAR 2004-05 AND APPEAL OF REVENUE FOR THE ASSESSMENT YEAR 2005-06 I S ALLOWED. 7. IN THE RESULT, FOR THE STATISTICAL PURPOSES, TH E APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2004-05 AND 2005-06 ARE TREATED AS ALLOWED. THIS ORDER IS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED HEREINABOVE. SD/- SD/- ( .. / D. K. SRIVASTAVA) ( .. / T. K. SHARMA) / ACCOUNTANT MEMBER /JUDICIAL MEMBER 3/ ORDER DATE 04-05-2012. /RAJKOT - -- - +4 +4 +4 [phone] / COPY OF ORDER FORWARDED TO:- 1. * / APPELLANT-. THE DY. CIT., CIRCLE-1, JUNAGADH.T. 2. +,* / RESPONDENT-SHRI CHUNILAL MEGHJBHAI FOFANDI, VERA VAL.. 3. : / CONCERNED CIT-III, RAJKOT.. 4. :- / CIT (A)-XXI, AHMEDABAD.. 5. 4 +, , / DR, ITAT, RAJKOT 6. / GUARD FILE. / BY ORDER , ASSTT. REGISTRAR , INCOME TAX APPELLATE TRIBUNAL, RAJKOT.