Sh. Rajneesh Kumar Jain, Ludhiana V. ACIT, Ludhiana

ITA 712/CHANDI/2006

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68449 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 03-10-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Section: 80HHC; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, A.M AND MS. SUSHMA CHOWLA, JM ITA NO. 712/CHD/2006 ASSESSMENT YEAR : 2003-04 RAJNEESH KUMAR JAIN VS. A.C.I.T. CIRCLE II PROP. M/S JAGRAON EXPORTS D-51, FOCAL POINT PHASE V. LUDHIANA (APPELLANT) (RESPONDENT) APPELLANT BY SHRI SUDHIR SEHGAL RESPONDENT BY: SHRI MANJIT SINGH DATE OF HEARING 22.8.2013 DATE OF PRONOUNCEMENT 02.09.2013 O R D E R PER T.R.SOOD, A.M THIS APPEAL IS FILED AGAINST THE ORDER DATED 18.9.2 006 OF THE LD. CIT(A)-I, LUDHIANA. 2 IN THIS APPEAL THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: 1 THAT THE LD. CIT(A)-I, LUDHIANA HAS ERRED IN UPH OLDING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING DEDUCTION CLAIMED U/S 80HHC ON THE AMOUNT OF EXPORT INCENTIVE AMOUNTING TO RS. 71,61,919/-. 2 THAT THE DISALLOWANCE OF DEDUCTION ON EXPORT INCE NTIVE FOR COMPUTATION U/S 80HHC IS AGAINST THE RULES AND FACTS AND CIRCUMSTANCES OF THE CASE. 3. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE AO DENIED DEDUCTION U/S 80HHC ON TH E PROFIT GENERATED ON SALE OF DEPB LICENSE ETC. 4 ON APPEAL THE A D WAS CONFIRMED BY THE LD. CIT(A) . 5 BOTH THE PARTIES WERE HEARD. 6 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF HON'BLE SUPREME COURT IN CASE OF TOPMAN EXPORTS VS. CIT, 342 ITR 49 (S.C) IN WHICH I T WAS HELD AS UNDER: 2 THE OBJECTIVE OF THE DUTY ENTITLEMENT PASSBOOK SCHE ME (DEPB) IS TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DU TY ON THE IMPORT CONTENT OF THE EXPORT PRODUCTS. HENCE, IT HA S DIRECT NEXUS WITH THE COST OF THE IMPORTS MADE BY AN EXPOR TER FOR MANUFACTURING THE EXPORT PRODUCTS. THE NEUTRALIZATI ON OF THE COST OF CUSTOMS DUTY UNDER THE DEPB CREDIT SCHEME, HOWEVER, IS BY GRANTING A DUTY CREDIT AGAINST THE EXPORT PRO DUCT AND THIS CREDIT CAN BE UTILIZED FOR PAYING CUSTOMS DUTY ON A NY ITEM WHICH IS FREELY IMPORTABLE. THE DEPB CREDIT IS ISSU ED AGAINST THE EXPORTS TO THE 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 CLAUSE (NIB) OF SECTION 28 OF THE I NCOME-TAX ACT, 1961, AND IS CHARGEABLE TO INCOME-TAX UNDER TH E HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' EVEN BEFORE IT IS TRANSFERRED BY THE ASSESSEE. UNDER CLAUSE (IIID) OF SECTION 28, ANY PROFIT ON TRANSFER OF THE DEPB CREDIT IS CHARGE ABLE TO INCOME-TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' AS AN ITEM SEPARATE FROM CASH ASSISTANC E UNDER CLAUSE (IIIB). THE WORD 'PROFIT' MEANS THE GROSS PROCEEDS OF A BUS INESS TRANSACTION LESS THE COSTS OF THE TRANSACTION. PROF ITS IMPLY A COMPARISON OF THE VALUE OF AN ASSET WHEN THE ASSET IS ACQUIRED WITH THE VALUE OF THE ASSET WHEN THE ASSET IS TRANS- FERRED 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. AS THE DEPB CREDIT HAS DIRECT NEXUS WITH THE COST O F IMPORTS FOR MANUFACTURING AN EXPORT PRODUCT, ANY AMOUNT REA LISED BY THE ASSESSEE OVER AND ABOVE THE DEPB CREDIT ON TRAN SFER OF THE DEPB CREDIT WOULD REPRESENT PROFIT ON THE TRANS FER 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 BETWEEN THE SALE VALUE AND THE FACE VALU E OF THE DEPB CREDIT WILL FALL UNDER CLAUSE (HID) OF SECTION 28 OF THE ACT. THE COST OF ACQUIRING THE DEPB CREDIT IS NOT N IL BECAUSE THE PERSON ACQUIRES IT BY PAYING CUSTOMS DUTY ON TH E IMPORT CONTENT OF THE EXPORT PRODUCT AND THE DEPB CREDIT W HICH ACCRUES TO A PERSON AGAINST EXPORTS HAS A COST ELEM ENT IN IT. THE DEPB CREDIT REPRESENTS PART OF THE COST INCURRE D BY A PERSON FOR MANUFACTURE OF THE EXPORT PRODUCT AND HE NCE EVEN WHERE THE DEPB CREDIT IS NOT UTILISED BY THE EXPORT ER BUT IS TRANSFERRED TO ANOTHER PERSON, THE CREDIT CONTINUES TO REMAIN AS A COST TO THE EXPORTER. WHEN, THEREFORE, THE DEP B CREDIT IS TRANSFERRED BY A PERSON, THE ENTIRE SUM RECEIVED BY HIM ON SUCH TRANSFER DOES NOT BECOME HIS PROFITS. IT IS ON LY THE AMOUNT THAT HE RECEIVES IN EXCESS OF THE DEPB CREDI T WHICH REPRESENTS HIS PROFITS ON TRANSFER OF THE DEPB CRED IT. UNDER SECTION 28 OF THE ACT 'CASH ASSISTANCE' RECEI VED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS SUCH AS TH E DEPB CREDIT AND 'PROFIT ON TRANSFER OF THE DEPB CREDIT' ARE TREATED 3 AS TWO SEPARATE ITEMS OF INCOME UNDER CLAUSES (IIIB ) AND (HID). AS A RESULT, THE DEPB CREDIT WILL BE CHARGEA BLE AS INCOME UNDER CLAUSE (IIIB) OF SECTION 28 IN THE YEA R IN WHICH THE PERSON APPLIES FOR THE DEPB CREDIT AGAINST THE EXPORTS AND THE PROFIT ON TRANSFER OF THE DEPB CREDIT BY THAT P ERSON WILL BE CHARGEABLE AS INCOME UNDER CLAUSE (HID) OF SECTION 28 IN HIS HANDS IN THE YEAR IN WHICH HE MAKES THE TRANSFER. T HERE IS NO DOUBLE TAXATION OF THE SAME INCOME. SUB-SECTION (3)(A) OF SECTION 80HHC PROVIDES THAT W HERE THE EXPORT OUT OF INDIA IS OF GOODS OR MERCHANDISE MANU FACTURED OR PROCESSED BY THE ASSESSEE, THE PROFITS DERIVED F ROM SUCH EXPORTS SHALL BE THE AMOUNT WHICH BEARS TO THE PROF ITS OF THE BUSINESS, THE SAME PROPORTION AS THE EXPORT TURNOVE R IN RESPECT OF SUCH GOODS BEARS TO THE TOTAL TURNOVER O F THE BUSINESS CARRIED ON BY THE ASSESSEE. EXPLANATION (B AA) UNDER SECTION 80HHC STATES THAT 'PROFITS OF THE BUSINESS' MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' AS REDUCED, IN TER ALIA, BY NINETY PER CENT, OF ANY SUM REFERRED TO IN CLAUSES (IIIA), (IIIB), (IIIC), (IIID) AND (IIIE) OF SECTION 28. THUS, NINE TY PER CENT, OF THE DEPB CREDIT WHICH IS 'CASH ASSISTANCE' AGAINST EXPORTS AND IS COVERED UNDER CLAUSE (IIIB) OF SECTION 28 WI LL GET EXCLUDED FROM THE 'PROFITS OF THE BUSINESS' OF THE ASSESSEE IF SUCH THE DEPB CREDIT HAS ACCRUED TO THE ASSESSEE DU RING THE PREVIOUS YEAR. SIMILARLY, IF DURING THE SAME PREVIO US YEAR, THE ASSESSEE HAS TRANSFERRED THE DEPB CREDIT AND THE SA LE 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 FACE VALUE OF THE DEPB CREDIT W ILL REPRESENT THE PROFIT ON TRANSFER OF THE DEPB CREDIT COVERED UNDER CLAUSE (HID) OF SECTION 28 AND NINETY PER CEN T, OF SUCH PROFIT ON TRANSFER OF THE DEPB CREDIT CERTIFICATE W ILL 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 UNDER CLAUSE (I IID) AND NOT NINETY PER CENT OF THE ENTIRE SALE VALUE INCLUDING THE FACE VALUE 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 NINE TY PER CENT, OF THE DIFFERENCE BETWEEN THE FACE VALUE OF T HE DEPB CREDIT AND THE SALE VALUE OF THE DEPB CREDIT GETS E XCLUDED FROM 'PROFITS OF THE BUSINESS', THE ASSESSEE GETS A BIGGER FIGURE OF 'PROFITS OF THE BUSINESS' AND THIS IS POS SIBLE WHEN THE DEPB CREDIT ACCRUES TO THE ASSESSEE IN ONE PREVIOUS YEAR AND TRANSFER OF THE DEPB CREDIT TAKES PLACE IN THE SUBS EQUENT PREVIOUS YEAR. THE RESULT IN SUCH CASE IS THAT A HI GHER FIGURE OF 'PROFITS OF THE BUSINESS'' BECOMES THE MULTIPLIER I N THE FORMULA UNDER SUB-SECTION (3)(A) OF SECTION 8OHHC FOR ARRIV ING AT THE FIGURE OF PROFITS DERIVED FROM EXPORTS. TO THE FIGURE OF PROFITS DERIVED FROM EXPORTS WORKE D OUT ACCORDING TO THE FORMULA UNDER SUB-SECTION (3)(A) O F SECTION 80HHC, THE ADDITIONS AS MENTIONED IN THE FIRST, SEC OND, THIRD AND FOURTH PROVISO UNDER SUB-SECTION (3) ARE MADE T O THE 4 PROFITS DERIVED FROM EXPORT. UNDER THE FIRST PROVIS O, NINETY PER CENT, OF THE SUM REFERRED TO IN CLAUSES (IIIA), (II IB) AND (IIIE) OF SECTION 28 ARE ADDED IN THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINES S CARRIED ON BY THE ASSESSEE. IN THIS FIRST PROVISO, THERE IS NO ADDITION OF ANY SUM REFERRED TO IN CLAUSE(IIIID) OR CLAUSE (III E). HENCE, PROFIT ON TRANSFER OF THE DEPB CREDIT OR DFRC ARE NOT TO B E ADDED UNDER THE FIRST PROVISO. WHERE THEREFORE IN T HE PREVIOUS YEAR NO DEPB CREDIT OR DFRC ACCRUES TO THE ASSESSEE , HE WOULD NOT BE ENTITLED TO THE BENEFIT OF THE FIRST P ROVISO TO SUB- SECTION (3) OF SECTION 80HHC BECAUSE HE WOULD NOT H AVE ANY SUM REFERRED TO IN CLAUSE (IIIB) OF SECTION 28 OF T HE ACT. THE SECOND PROVISO TO SUB-SECTION (3) OF SECTION 80 HHC STATES THAT IN THE CASE OF AN ASSESSEE HAVING EXPORT TURNO VER NOT EXCEEDING RS. 10 CRORES DURING THE PREVIOUS YEAR, A FTER GIVING EFFECT TO THE FIRST PROVISO, THE EXPORT PROFITS ARE TO BE INCREASED FURTHER BY THE AMOUNT WHICH BEARS TO NINE TY PER CENT, OF ANY SUM REFERRED TO IN CLAUSES (IIID) AND (IIIE) OF SECTION 28, THE SAME PROPORTION AS THE EXPORT TURNO VER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. THE THIRD PROVISO TO SUB-SECTION (3) STAT ES THAT IN THE CASE OF AN ASSESSEE HAVING EXPORT TURNOVER EXCE EDING RS. 10 CRORES, SIMILAR ADDITION OF NINETY PER CENT, OF THE SUMS REFERRED TO IN CLAUSE (HID) OF SECTION 28 CAN BE MA DE ONLY IF THE ASSESSEE HAS THE NECESSARY AND SUFFICIENT EVIDE NCE TO PROVE THAT (A) HE HAD AN OPTION TO CHOOSE EITHER TH E DUTY DRAWBACK OR THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME; AND (B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO THE CUSTOMS DUTY WAS HIGHER THAN TH E RATE OF CREDIT ALLOWABLE UNDER THE DUTY ENTITLEMENT PASS BO OK SCHEME, BEING THE DUTY REMISSION SCHEME. THEREFORE, IF THE ASSESSEE HAVING EXPORT TURNOVER OF MORE THAN RS. 10 CRORES D OES NOT SATISFY THESE TWO CONDITIONS, HE WILL NOT BE ENTITL ED TO THE ADDITION OF PROFIT ON TRANSFER OF THE DEPB CREDIT U NDER 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 TRA NSFER OF THE DEPB CREDIT UNDER CLAUSE (HID) OF SECTION 28, H E WOULD NOT GET THE BENEFIT OF ADDITION TO EXPORT PROFITS UNDER THE THIRD OR FOURTH PROVISO TO SUB-SECTION (3) OF SECTION 80HHC, BUT HE WOULD GET THE BENEFIT OF EXCLUSION, OF A SMALLER, F IGURE FROM 'PROFITS OF THE BUSINESS' UNDER EXPLANATION (BAA) T O SECTION 80HHC OF THE ACT. THERE IS NOTHING IN EXPLANATION ( BAA) TO SECTION 80HHC TO SHOW, THAT THIS BENEFIT OF EXCLUSI ON OF A SMALLER FIGURE FROM 'PROFITS, OF THE BUSINESS' WILL NOT BE AVAILABLE 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 ENTITLED TO EXEMPTION FROM TAX ACCORDING TO THE STR ICT LANGUAGE OF THE TAXING STATUTE AND IF AS PER THE WORDS USED IN EXPLANATION (BAA) TO SECTION 80HHC READ WITH THE WO RDS USED IN CLAUSES (IIID) AND (IIIE) OF SECTION 28 R THE ASSESSEE WAS ENTITLED TO A DEDUCTION UNDER SECTION 80HHC ON EXPO RT PROFITS, THE BENEFIT OF SUCH DEDUCTION CANNOT BE DENIED TO T HE ASSESSEE. 5 FOLLOWING THE ABOVE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFI CER WITH A DIRECTION TO DECIDE THE ISSUE IN THE LIGHT OF THE ABOVE DECIS ION OF HON'BLE SUPREME COURT. 7 IN ADDITION TO THIS THE ASSESSEE HAS ALSO FILED A N ADDITIONAL GROUND VIDE LETTER DATED AUGUST 30, 2009 WHICH IS A S UNDER: ` THAT THE ASSESSING OFFICER HAS ERRED IN NOT REDUCI NG 10% OF EXPORT INCENTIVES AND OTHER INCOME FROM THE INDIREC T COST FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC ON TRA DING GOODS EXPORTED BY THE ASSESSEE WHICH IS AGAINST THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S HER O EXPORTS AS REPORTED IN 295 ITR 454. 8 THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT TH IS BEING A LEGAL ISSUE, THEREFORE, THE GROUND SHOULD BE ALLOWE D. HE FURTHER SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF HON'BLE SUPREME COURT IN CASE OF HERO EXPORTS, 295 ITR 454 (S.C). 9 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE REL IED ON THE ORDER OF THE LD. CIT(A). 10 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ADMIT THIS ADDITIONAL GROUND ON MERITS. WE SET ASIDE THE ORDE R OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF ASS ESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE IN THE LIGHT OF THE DECISION IN CASE OF HERO EXPORTS (SUPRA). 11 IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 2.9.2013 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 2.9.2013 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR