SANJAY SALES CORPORATION , MUMBAI V. ACIT CIRCLE- 21 (3), MUMBAI

ITA 7812/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4272 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2003-2004
• Appeal Filed On: 18-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR MENON
• Assessee Lawyers: H P MAHAJANI
• Keywords: Set aside
• Section: 80HHC; 80HH; 192; 28

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI SHRI SHAMIM YAHYA (AM) & SHRI PAVANKUMAR GADALE ( JM) I.T.A. NO. 7812/MUM/2019 (ASSESSMENT YEAR 2003-04) SANJAY SALES CORPORATION ALTA BHAVAN 532, SENAPATI BAPAT MARG DADAR, MUMBAI-400 028. PAN : AAMFS3154P VS. ACIT, CIRCLE-21(3) ROOM NO. 209 PIRAMAL CHAMBERS LALBAUG MUMBAI-400 012. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI H.P. MAHAJANI DEPARTMENT BY SHRI VIJAY KUMAR MENON DATE OF HEARING 15.07.2021 DATE OF PRONOUNCEMENT 29.09.2021 O R D E R PER SHAMIM YAHYA (AM) :- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LEARNED CIT(A) DATED 1.10.2019 PERTAINING TO ASSESSMENT YEA R (A.Y.) 2003-04. 2. THE GROUND OF APPEAL READS AS UNDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE STAND OF THE ASSESSING OFFICER BY CONSIDERING THE INCOME FROM SALE OF DEPB AT RS. 1,19,67,203/- INS TEAD OF RS. 91,43,752/-. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN EXPORTER OF BULK DRUGS, DYES AND PIGMENTS. RETURN OF INCOME WAS FILED BY TH E ASSESSEE ON 28.11.2003 DECLARING TOTAL INCOME AT RS. 1,30,17,018/-. ASSESS MENT WAS COMPLETED U/S.143(3) ON 27.03.2006 DETERMINING THE TOTAL INCO ME AT RS.2,04,33,742/-. IN THE ASSESSMENT ORDER, PROFIT OF RS. 1,19,67,955/- O N TRANSFER OF DEPB U/S 28(IIID) WAS TAXED INSTEAD OF DEPB CREDIT OF RS. 91 .43J52/- CREDITED BY THE ASSESSEE IN HIS P& L ACCOUNT. THE ISSUE WAS DISCUSS ED ELABORATELY IN THE ASSESSMENT ORDER ALONG WITH VARIOUS CASE LAWS. THE AO WAS OF THE VIEW THAT THE PROFITS WERE ARISING ONLY ON SALE OF LICENSES A ND THE ENTIRE SALES PROCEEDS SHOULD BE TREATED AS PROFITS. AS PER AO, IT IS CLEA R THAT THE SALES PROCEEDS SANJAY SALES CORPORATION 2 RECEIVED ON TRANSFER OF DEPB LICENSES WERE TO BE TA XED U/S.28(IIID). HENCE, THE INCOME U/S 28(IIID) WAS WORKED OUT BY THE AO AT RS. 1,19,67,955/- AND IT WAS ALSO HELD THAT 90% OF THE SAME WILL NOT BE ELIGIBLE FOR DEDUCTION U/S.80HHC. THE ASSESSEE FILED APPEAL AGAINST THE SAID ORDER OF THE AO. HOWEVER, THE CIT(A) CONFIRMED THE ACTION OF THE AO IN BRINGING TO TAX T HE DEPB INCOME OF RS.1,19,67,955/- AS AGAINST RS.91,43.7527- CREDITED BY THE APPELLANT IN ITS ACCOUNTS. THE ASSESSEE FILED FURTHER APPEAL BEFORE THE STAT AGAINST THE ORDER OF CIT(A). THE HON'BLE ITAT 'K' BENCH, MUMBAI, VIDE ORDER IN ITA.NO.750/MUM/ 2007 DATED 23.09,2009, RELIED ON TH E DECISION OF SPECIAL BENCH (MUMBAI) IN THE CASE OF M/S. TOPMAN EXPORTS ( ITA NO.5769!MUM/20Q6) AND M/S. KALPATARU COLOURS & CHEM ICALS (ITA NO.5651 /MUM/2006) [20Q9-TIOL-531-LTAT-MUM-SB] AND OBSERVED THAT THE SPECIAL BENCH, VIDE ITS ORDER DATED 11.08.2009 RESTORED THE MATTER TO THE FILE OF THE AO FOR CONSIDERING THE FACE VALUE OF DEPB AS COVERED U /S.28(IIIB) AND PROFIT ON TRANSFER OF DEPB I.E., EXCESS OF SALE PRICE OVER TH E FACE VALUE OF DEPB AS FALLING U/S.28(IIID). ACCORDINGLY IN THE PRESENT CASE, THE TRIBUNAL DIRECTED THE AO TO RECOMPUTE DEDUCTION U/S 80HHC. 4. ON FURTHER APPEAL, THE HON'BLE BOMBAY COURT VIDE ORDER DATED 29.06.2010 HAS DECIDED THE MATTER AS UNDER: 'BY ITS IMPUGNED ORDER THE TRIBUNAL HAS RESTORED THE MA TTER TO THE AO FOR FRESH DECISION IN THE LIGHT OF THE JUDGEMENT IN THE CASE OF TOPMAN EXPORTS VS. ITO (ITA 5769/MUM/2006 DATED 11 AUGUST, 2009). BY TH E JUDGEMENT DELIVERED TODAY IN THE CIT VS. KALPATARU COLOURS AND CHEMICALS (ITA(L) 2887 OF 2009), THE VIEW OF THE TRIBUNAL IN THE CASE OF TO PMAN HAS BEEN DISAPPROVED. IN THE CIRCUMSTANCES, THIS APPEAL IS DIS POSED OF, ON THE REQUEST OF LEARNED COUNSEL FOR THE REVENUE AND THE ASSESSEE, BY DIRECTING THE AO TO DISPOSE OF THE PROCEEDINGS IN ACCORDANCE WITH LAW A ND, WHILE PASSING FRESH ORDERS TO HAVE DUE REGARD TO THE JUDGEMENT OF THIS COUR T IN THE CASE OF KALPATARU COLOURS AND CHEMICALS (SUPRA). THE APPEAL IS ACCORDINGLY DISPOSED OF. THERE SHALL BE NO ORDER AS TO COSTS.' 5. IN VIEW OF THE ABOVE, THE AO WHILE GIVING EFFECT TO THE ORDER OF HON. BOMBAY HIGH COURT VIDE HIS ORDER DATED 25.04.2011 D ETERMINED TOTAL INCOME AT RS. 2,04,33,740/- AND TREATED THE INCOME FROM SA LE OF DEPB AT RS. SANJAY SALES CORPORATION 3 1,19,67,955/- REJECTING THE CLAIM OF THE APPELLANT FOR TAKING IT AT RS. 91,43,752/- 6. UPON ASSESSEES APPEAL LEARNED CIT(A) CONFIRMED THE ASSESSING OFFICERS ORDER BY OBSERVING AS UNDER :- 17.5 THE BOMBAY HIGH COURT IN CASE OF KALPATARU COL OURS AND CHEMICALS [2010] 192 TAXMAN 435 (BOMBAY) HELD THAT ENTIRETY OF SALE CONSIDERATION OF DEPB WOULD FALL WITHIN THE PURVIEW OF SECTION 28(III D). 17.6 THE AO IN HIS ORDER DATED 25.11.2011 [ORDER GI VING EFFECT TO THE ORDER OF HON'BLE HIGH COURT] HAS MENTIONED CLEARLY THAT THE AO 'S ACTION OF TAXING THE ENTIRE SALES PROCEEDS OF RS. 1,19,67,955/- U/S 28 (IIID) HAS BEEN CONFIRMED BY THE CIT(A) VIDE HIS ORDER DATED 17.11. 2006 AND HENCE NO INTERFERENCE CAN BE MADE. 17.7 ON PERUSAL OF ORDER OF THE HON'BLE BOMBAY HIGH COURT AND ITAT, MUMBAI; IT IS FOUND THAT THE ISSUE OF QUANTIFICATION OF DEPB INCOME U/S 28 (IIID) WAS NOT ADJUDICATED IN ANY OF THE AFORESAID T WO ORDERS AND HENCE THE SAME WAS NOT RESTORED TO ME FILE OF THE AO. 17.8 THE AFORESAID VIEW IS PROVED BEYOND DOUBT BY TH E FACT THAT THE APPELLANT HAD FILED APPLICATION NO. 352/M/2013 ON 24. 09,2013 BEFORE THE ITAT REQUESTING THE ITAT TO ADJUDICATED FOLLOWING GROUN D STATING THAT THE SAME WAS INADVERTENTLY NOT ADJUDICATED BY THE ITAT 2. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND CI RCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER IN BRINGING TO TAX AS DEPB INCOME AN AMOUNT OF RS. 1,19,67,955 AS AGAINST THAT OF RS. 91 , 43,752/- CREDITED BY THE APPELLANT IN ITS ACCOUNTS.' 17.9 THE APPELLANT IN ITS LATEST SUBMISSION DATED 20.09 .2019 DID NOT COMMUNICATE THE OUTCOME OF THE SAID MISCELLANEOUS A PPLICATION AND EVEN DID NOT MENTION THAT THE MISCELLANEOUS APPLICATION WAS F ILED BEFORE THE ITAT. IN VIEW OF ABOVE, IT SEEMS THAT THE APPELLANT DI D NOT SUCCEED BEFORE ITAT IN GETTING ANY ORDER IN FAVOUR OF THE APPELLANT ON MISCELLANEOUS APPLICATION. 17.10 FURTHER, THE APPELLANT HAS NOT BEEN ABLE TO POINT OUT ANY DISCREPANCY IN THE ORDER OF THE AO GIVING EFFECT TO THE ORDER OF TH E HIGH COURT BY SPECIFYING WHICH FINDINGS OR DIRECTIONS OF THE HIGH COURT WAS NOT FOLLOWED BY THE AO. 17.11 THE AO IS CORRECT IN HOLDING THAT THE QUANTUM O F DEPB PROFITS TAXED U/S 28(IIID) WAS CONFIRMED BY CIT(A) AND HENCE THE S AME CANNOT BE CHANGED NOW. AS DISCUSSED ABOVE, THE ITAT AND THE HIG H COURT DID NOT DIRECT THE AO TO RE-COMPUTE THE INCOME U/S 28(IIID). MO REOVER, THE BOMBAY SANJAY SALES CORPORATION 4 HIGH COURT IN CASE OF KALPATARU COLOURS AND CHEMICALS [2010] 192 TAXMAN 435 (BOMBAY) HAS ALSO HELD THAT ENTIRETY OF SALE CON SIDERATION OF DEPB WOULD FALL WITHIN THE PURVIEW OF SECTION 28 (IIID) AN D THAT WAS ALSO THE VIEW OF THE AO RIGHT FROM BEGINNING. IN VIEW OF ABOVE, THE GROUND OF THE APPELLANT IS DISMISSED. 7. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS. LEARNED COUNSEL OF THE ASSESSEE CONTENDED THAT THE DECISION OF HON'BLE BOMBAY HIGH COURT FOLLOWED BY AUTHORITIES BELOW HAS BEEN REVERS ED BY HON'BLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS (SUPRA). HENCE, HE SUBMITTED THAT ON THE TOUCHSTONE OF THE DECISION THE MATTER MAY BE REMITT ED TO THE FILE OF THE ASSESSING OFFICER TO DECIDED AS PER THE RATIO FROM THE SAID DECSION. 9. PER CONTRA LEARNED DEPARTMENTAL REPRESENTATIVE A GREED THAT THE ISSUE HAS NOW BEEN DEALT WITH BY HON'BLE SUPREME COURT. 10. UPON CAREFUL CONSIDERATION WE NOTE THAT HON'BLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS (SUPRA) HAS HELD AS UNDER :- (HEAD NOTE ONLY) ON A READING OF THE PARAGRAPHS OF THE HAND BOOK ON DEPB AND THE EXPORT AND IMPORT POLICY OF THE GOVERNMENT OF INDIA, 1997-200 2, IT IS CLEAR THAT THE OBJECTIVE OF DEPB SCHEME IS TO NEUTRALIZE THE INCID ENCE OF CUSTOMS DUTY ON THE IMPORT CONTENT OF THE EXPORT PRODUCTS. HENCE, IT HAS D IRECT NEXUS WITH THE COST OF THE IMPORTS MADE BY AN EXPORTER FOR MANUFA CTURING THE EXPORT PRODUCTS. THE NEUTRALIZATION OF THE COST OF CUSTOMS DUTY UNDER THE DEPB SCHEME, HOWEVER, IS BY GRANTING A DUTY CREDIT AGAINST THE EXPORT PRODUCT AND THIS CREDIT CAN BE UTILIZED FOR PAYING CUSTOMS DUTY O N ANY ITEM WHICH IS FREELY IMPORTABLE. DEPB IS ISSUED AGAINST THE EXPORTS TO THE EXPORTER AND IS TRANSFERABLE BY THE EXPORTER. [PARA 10] IT IS NECESSARY TO CONSIDER THE RELEVANT PROVISIONS O F SECTION 28 FOR DETERMINING WHETHER DEPB WILL FALL UNDER CLAUSE (NIB ) OR UNDER CLAUSE (LIID) OF SECTION 28. [PARA 11] IT WILL BE CLEAR FROM THE PROVISIONS OF SECTION 28 THA T UNDER CLAUSE (IIIB) CASH ASSISTANCE (BY WHATEVER NAME CALLED) RECEIVED OR REC EIVABLE BY ANY PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA IS BY ITSELF INCOME CHARGEABLE TO INCOME TAX UNDER THE HEAD 'PROFI TS AND GAINS OF BUSINESS OR PROFESSION'. DEPB IS A KIND OF ASSISTANC E GIVEN BY THE GOVERNMENT OF INDIA TO AN EXPORTER TO PAY CUSTOMS DUTY ON ITS IMPORTS AND IT IS RECEIVABLE ONCE EXPORTS ARE MADE AND AN APPLICATI ON IS MADE BY THE EXPORTER FOR DEPB. THEREFORE, THERE IS NO DOUBT THAT DEPB IS 'CASH SANJAY SALES CORPORATION 5 ASSISTANCE' RECEIVABLE BY A PERSON AGAINST EXPORTS U NDER THE SCHEME OF THE GOVERNMENT OF INDIA AND FALLS UNDER CLAUSE (IIIB) O F SECTION 28 AND IS CHARGEABLE TO INCOME TAX UNDER THE HEAD 'PROFITS AND GA INS OF BUSINESS OR PROFESSION' EVEN BEFORE IT IS TRANSFERRED BY THE ASS ESSEE. [PARA 12] UNDER CLAUSE (IIID) OF SECTION 28, ANY PROFIT ON TRANS FER OF DEPB IS CHARGEABLE TO INCOME TAX UNDER THE HEAD 'PROFITS AND GAINS OF BU SINESS OR PROFESSION' AS AN ITEM SEPARATE FROM CASH ASSISTANCE UNDER CLAUSE ( IIIB). THE WORD 'PROFIT' MEANS THE GROSS PROCEEDS OF A BUSINESS TRANSACTION LES S THE COSTS OF THE TRANSACTION. 'PROFITS' IMPLY A COMPARISON OF THE VALUE OF AN ASSE T 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 PRO FIT OR GAIN MADE BY A PERSON. AS DEPB HAS DIRECT NEXUS WITH THE COST OF IMPO RTS FOR MANUFACTURING AN EXPORT PRODUCT, ANY AMOUNT REALIZED BY THE ASSESSEE OVER AND ABOVE THE DEPB ON TRANSFER OF THE DEPB WOULD REPRESENT PROFIT ON THE TRANSFER OF DEPB (PARA 13) IT IS THUS, OPINED THAT WHILE THE FACE VALUE OF THE DEP B WILL FALL UNDER CLAUSE (IIIB) OF SECTION 28, THE DIFFERENCE BETWEEN THE SA LE VALUE AND THE FACE VALUE OF THE DEPB WILL FALL UNDER CLAUSE (IIID ) OF SECTION 28 AND THE HIGH COURT WAS NOT RIGHT IN TAKING THE VIEW IN THE IMPUGNED JUDGMENT THAT THE ENTIRE SALE PROCEEDS OF THE DEPB REALIZED ON TRANSFER OF THE DEPB AND NOT JUST THE DIFFERENCE BETWEEN THE SALE VALUE AND THE FACE VALUE OF THE DEPB REPRESENT PROFIT ON TRANSFER OF THE DEPB. [PARA 14] ONE MAY NOW POINT OUT THE ERRORS IN THE IMPUGNED JUDGM ENT OF THE HIGH COURT. THE FIRST REASON GIVEN BY THE HIGH COURT IS THAT CLAUSE (IIIA) OF SECTION 28 TREATS PROFITS ON THE SALE OF AN IMPORT LICENSE AS IN COME CHARGEABLE TO TAX AND WHEN THE LICENSE IS SOLD, THE ENTIRE AMOUNT IS TR EATED AS PROFITS OF BUSINESS UNDER CLAUSE (IIIA) OF SECTION 28 AND, THUS, THERE IS NO JUSTIFICATION TO TREAT THE AMOUNT WHICH IS RECEIVED BY AN EXPORTER ON THE TRANSFER OF THE DEPB ANY DIFFERENTLY THAN THE PROFITS WHICH ARE MADE ON THE SALE OF AN IMPORT LICENSE UNDER CLAUSE (IIIA ) OF SECTION 28. IN TAKING THE VIEW THAT WHEN THE IMPORT LICENSE IS SOLD THE ENTIRE AMOUNT IS TREATED AS PROFITS OF BUSINESS, THE HIGH COURT HAS VISUALIZED A SITUATION WHERE THE CO ST OF ACQUIRING THE IMPORT LICENSE IS NIL. THE COST OF ACQUIRING DEPB, ON THE OTHER HAND, IS NOT NIL BECAUSE THE PERSON ACQUIRES IT BY PAYING CUSTOMS D UTY ON THE IMPORT CONTENT OF THE EXPORT PRODUCT AND THE DEPB WHICH ACCRUE S TO A PERSON AGAINST EXPORTS HAS A COST ELEMENT IN IT. ACCORDINGLY, WHEN DEPB IS SOLD BY A PERSON, HIS PROFIT ON TRANSFER OF DEPB WOULD BE THE SALE VALUE OF THE DEPB LESS THE FACE VALUE OF DEPB WHICH REPRESENTS THE COST OF THE DEPB. THE SECOND REASON GIVEN BY THE HIGH COURT IN THE IMPUGNED JUDGMENT IS THAT UNDER THE DEPB SCHEME, DEPB IS GIVEN AT A PERCENTAGE O F THE FOB VALUE OF THE EXPORTS SO AS TO NEUTRALIZE THE INCIDENCE OF CUSTO MS DUTY ON THE IMPORT CONTENT OF THE EXPORT PRODUCTS, BUT THE EXPORTER MAY NO T HIMSELF UTILIZE THE DEPB FOR PAYING CUSTOMS DUTY BUT MAY TRANSFER IT TO SOM EONE ELSE AND, THEREFORE, THE ENTIRE SUM RECEIVED ON TRANSFER OF DEPB WOULD BE COVERED UNDER CLAUSE (IIID) OF SECTION 28. THE HIGH COURT HAS FAILED TO APPRECIATE THAT DEPB REPRESENTS PART OF THE COST INCURRED BY A PERSON FOR MANUFACTURE OF THE SANJAY SALES CORPORATION 6 EXPORT PRODUCT AND, HENCE, EVEN WHERE THE DEPB IS NOT UTILIZED BY THE EXPORTER BUT IS TRANSFERRED TO ANOTHER PERSON, THE DEP B CONTINUES TO REMAIN AS A COST TO THE EXPORTER. WHEN, THEREFORE, DEPB IS TRAN SFERRED BY A PERSON, THE ENTIRE SUM RECEIVED BY HIM ON SUCH TRANSFER DOES NOT BECOME HIS PROFITS. IT IS ONLY THE AMOUNT THAT HE RECEIVES IN EXCESS OF THE DEPB WHICH REPRESENTS HIS PROFITS ON TRANSFER OF THE DEPB. [PAR A 15] THE HIGH COURT HAS SOUGHT TO MEET THE ARGUMENT OF DOUBLE TAXATION MADE ON BEHALF OF THE ASSESSEES BY HOLDING THAT WHERE THE FAC E VALUE OF THE DEPB WAS OFFERED TO TAX IN THE YEAR IN WHICH THE CREDIT ACCRUED TO THE ASSESSEE AS BUSINESS PROFITS, THEN ANY FURTHER PROFIT ARISING ON TRA NSFER OF DEPB WOULD BE TAXED AS PROFITS OF BUSINESS UNDER SECTION 28(IIID) I N THE YEAR IN WHICH THE TRANSFER OF DEPB TOOK PLACE. THIS VIEW OF THE HIGH CO URT, IS CONTRARY TO THE LANGUAGE OF SECTION 28 UNDER WHICH 'CASH ASSISTANCE' RECEIVED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS SUCH AS THE DEPB AND 'P ROFIT ON TRANSFER OF THE DEPB' ARE TREATED AS TWO SEPARATE ITEMS OF INCOM E UNDER CLAUSES (NIB) AND (IIID) OF SECTION 28. IF ACCRUAL OF DEPB AND PRO FIT ON TRANSFER OF DEPB ARE TREATED AS TWO SEPARATE ITEMS OF INCOME CHARGEABLE TO TA X UNDER CLAUSES (IIIB) AND (IIID) OF SECTION 28, THEN DEPB WILL BE CHARGEABL E AS INCOME UNDER CLAUSE (LIIB ) OF SECTION 28 IN THE YEAR IN WHICH THE PERSON APPLIES FOR DEPB CREDIT AGAINST THE EXPORTS AND THE PROFIT ON TRANSFER OF THE DEP B BY THAT PERSON WILL BE CHARGEABLE AS INCOME UNDER CLAUSE (IIID ) OF SEC TION 28 IN HIS HANDS IN THE YEAR IN WHICH HE MAKES THE TRANSFER. ACCORDINGLY, IF IN THE SAME PREVIOUS YEAR THE DEPB ACCRUES TO A PERSON AND HE ALSO EARNS PROFIT ON TRANSFER OF THE DEPB, THE DEPB WILL BE BUSINESS PROFITS UNDER CLAUSE (IIIB) AND THE DIFFERENCE BETWEEN THE SALE VALUE AND THE DEPB (FAC E VALUE) WOULD BE THE PROFITS ON THE TRANSFER OF DEPB UNDER CLAUSE (IIID ) F OR THE SAME ASSESSMENT YEAR. WHERE, HOWEVER, THE DEPB ACCRUES TO A PERSON IN ONE PREVIOUS YEAR AND THE TRANSFER OF DEPB TAKES PLACE IN A SUBSEQUENT PREVIOUS YEAR, THEN THE DEPB WILL BE CHARGEABLE AS INCOME OF THE PERSON FOR THE FIRST ASSESSMENT YEAR CHARGEABLE UNDER CLAUSE (IIIB ) OF SECTION 28 A ND THE DIFFERENCE BETWEEN THE DEPB CREDIT AND THE SALE VALUE OF THE DEPB CREDIT W OULD BE INCOME IN HIS HANDS FOR THE SUBSEQUENT ASSESSMENT YEAR CHARGEAB LE UNDER CLAUSE (IIID) OF SECTION 28. THIS INTERPRETATION, THEREFORE, DOES NOT LEAD TO DOUBLE TAXATION OF THE SAME INCOME, WHICH THE LEGISLATURE MUST BE PRES UMED TO HAVE AVOIDED. [PARA 16] THE HIGH COURT HAS HELD THAT AS THE ASSESSEE HAD AN EX PORT TURNOVER EXCEEDING RS. 10 CRORES AND DID NOT FULFILL THE COND ITIONS SET OUT IN THE THIRD PROVISO TO SECTION 80HHC(3) THE ASSESSEE WAS NOT ENTITLE D TO A DEDUCTION UNDER SECTION 80HHC ON THE AMOUNT RECEIVED ON TRANSFER OF DEPB AND TO GET OVER THIS DIFFICULTY THE ASSESSEE CONTENDED THAT THE PR OFITS ON TRANSFER OF DEPB IN SECTION 28(IIID) WOULD NOT INCLUDE THE FACE VALUE OF THE DEPB SO THAT THE ASSESSEES GET A DEDUCTION UNDER SECTION 80HHC ON T HE FACE VALUE OF THE DEPB. THIS FINDING OF THE HIGH COURT IS NOT BASED ON AN ACCURATE UNDERSTANDING SCHEME OF SECTION 80HHC. [PARA 17] SUB-SECTION (1) OF SECTION 80HHC MAKES IT CLEAR THAT A N ASSESSEE ENGAGED IN THE BUSINESS OF EXPORT OUT OF INDIA OF ANY GOODS OR M ERCHANDISE TO WHICH THIS SECTION APPLIES SHALL BE ALLOWED, IN COMPUTING HIS TO TAL INCOME, A DEDUCTION TO THE EXTENT OF PROFITS REFERRED TO IN SUB-SECTION (IB), DERIVED BY HIM FROM THE SANJAY SALES CORPORATION 7 EXPORT OF SUCH GOODS OR MERCHANDISE. SUB-SECTION (IB) OF SECTION 80HHC GIVES THE PERCENTAGES OF DEDUCTION OF THE PROFITS ALL OWABLE FOR THE DIFFERENT ASSESSMENT YEARS FROM THE ASSESSMENT YEARS 2001-2002 TO 2004-2005. SUB- SECTION (3)(A ) OF SECTION 80HHC PROVIDES THAT WHERE THE EXPORT OUT OF INDIA IS OF GOODS OR MERCHANDISE MANUFACTURED OR PROCESSED B Y THE ASSESSEE, THE PROFITS DERIVED FROM SUCH EXPORTS SHALL BE THE AMOUNT W HICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROPORTION AS THE EXP ORT TURNOVER IN RESPECT OF SUCH GOODS BEARS TO THE TOTAL TURNOVER OF THE BUSINES S CARRIED ON BY THE ASSESSEE. [PARA 19] EXPLANATION (BAA ) UNDER SECTION 80HHC STATES THAT 'PRO FITS OF THE BUSINESS' IN THE AFORESAID FORMULA MEANS THE PROFITS OF THE BUS INESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PRO FESSION' AS REDUCED BY (I) NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSES (II IA), (IIIB), (IIIC ), (IIID) AND (IIIE) OF SECTION 28 OR OF ANY RECEIPTS BY WAY OF BR OKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF SIMIL AR NATURE INCLUDING ANY SUCH RECEIPTS AND (2) THE PROFITS OF ANY BRANCH, OFFI CE, WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATED OUTSIDE IND IA. THUS, NINETY PER CENT OF THE DEPB WHICH IS 'CASH ASSISTANCE' AGAINST E XPORTS AND IS COVERED UNDER CLAUSE (IIIB) OF SECTION 28 WILL GET EXCLUDED F ROM THE 'PROFITS OF THE BUSINESS' OF THE ASSESSEE IF SUCH DEPB HAS ACCRUED TO THE ASSESSEE DURING THE PREVIOUS YEAR. SIMILARLY, IF DURING THE SAME PRE VIOUS YEAR, THE ASSESSEE HAS TRANSFERRED THE DEPB AND THE SALE VALUE OF SUCH D EPB IS MORE THAN THE FACE VALUE OF THE DEPB, THE DIFFERENCE BETWEEN THE S ALE VALUE OF THE DEPB AND THE FACE VALUE OF THE DEPB WILL REPRESENT THE PROF IT ON TRANSFER OF DEPB COVERED UNDER CLAUSE (IIID) OF SECTION 28 AND NINET Y PER CENT OF SUCH PROFIT ON TRANSFER OF DEPB CERTIFICATE WILL GET EXCLUDED FROM 'PROFITS OF THE BUSINESS'. BUT, WHERE THE DEPB ACCRUES TO THE ASSESSEE IN THE FIRS T PREVIOUS YEAR AND THE ASSESSEE TRANSFERS THE DEPB CERTIFICATE IN THE SEC OND PREVIOUS YEAR, ONLY NINETY PER CENT OF THE PROFITS ON TRANSFER OF DEPB CO VERED UNDER CLAUSE (IIID) AND NOT NINETY PER CENT OF THE ENTIRE SALE VALUE INCLUD ING THE FACE VALUE OF THE DEPB WILL GET EXCLUDED FROM THE 'PROFITS OF THE BUSINES S'. THUS, WHERE THE NINETY PER CENT OF THE FACE VALUE OF THE DEPB DOES NO T 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 AND THE SALE VALUE OF THE DEPB GETS EXCLUDED FROM 'PROFITS OF THE BUSINESS', TH E ASSESSEE GETS A BIGGER FIGURE OF PROFITS OF THE BUSINESS' AND THIS IS POSS IBLE WHEN THE DEPB ACCRUES TO THE ASSESSEE IN ONE PREVIOUS YEAR AND TRANSFER OF THE DEPB TAKES PLACE IN THE SUBSEQUENT PREVIOUS YEAR. THE RESULT IN SUCH CASE IS THAT A HIGHER FIGURE OF 'PROFITS OF THE BUSINESS' BECOMES THE MULTIPLIER I N THE AFORESAID FORMULA UNDER SUB-SECTION (3) (A) OF SECTION SOHHC FOR ARRIVI NG AT THE FIGURE OF PROFITS DERIVED FROM EXPORTS. [PARA 20] TO THE FIGURE OF PROFITS DERIVED FROM EXPORTS WORKED O UT AS PER THE AFORESAID FORMULA UNDER SUB-SECTION (3)(A) OF SECTION 80HHC, TH E ADDITIONS AS MENTIONED IN FIRST, SECOND, THIRD AND FOURTH PROVISO U NDER SUB-SECTION (3) ARE MADE TO PROFITS DERIVED FROM EXPORTS. UNDER THE FIRST PR OVISO, NINETY PER CENT OF THE SUM REFERRED TO IN CLAUSES (IIIA), (IIIB) AND (IIIC) OF SECTION 28 ARE ADDED IN THE SAME PROPORTION AS EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. IN THIS FIRST P ROVISO, THERE IS NO ADDITION OF ANY SUM REFERRED TO IN CLAUSE (IIID) OR CLAUSE (I IIE). HENCE, PROFIT ON TRANSFER SANJAY SALES CORPORATION 8 OF DEPB OR DFRC ARE NOT TO BE ADDED UNDER THE FIRST PR OVISO. WHERE THEREFORE IN THE PREVIOUS YEAR NO DEPB OR DFRC ACCRU ES TO THE ASSESSEE, HE WOULD NOT BE ENTITLED TO THE BENEFIT OF THE FIRST PROVISO TO SUB-SECTION (3) OF SECTION 80HHC BECAUSE HE WOULD NOT HAVE ANY SUM REFE RRED TO IN CLAUSE (IIIB) OF SECTION 28. THE SECOND PROVISO TO SUB-SECT ION (3) OF SECTION 80HHC STATES THAT IN CASE OF AN ASSESSEE HAVING EXPORT TURNOVE R NOT EXCEEDING RS. 10 CRORES DURING THE PREVIOUS YEAR, AFTER GIVING EF FECT TO THE FIRST PROVISO, THE EXPORT PROFITS ARE TO BE INCREASED FURTHER BY THE AMOUN T WHICH BEARS TO NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSES (HI D) AND (ME) OF SECTION 28, THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTA L TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. THE THIRD PROVIS O TO SUB-SECTION (3) STATES THAT IN CASE OF AN ASSESSEE HAVING EXPORT TURNOV ER EXCEEDING RS. 10 CRORES, SIMILAR ADDITION OF NINETY PER CENT OF THE SUM S REFERRED TO IN CLAUSE (HID ) OF SECTION 28 ONLY IF THE ASSESSEE HAS THE NEC ESSARY AND SUFFICIENT EVIDENCE TO PROVE THAT (A ) HE HAD AN OPTION TO CHOOSE EITHER THE DUTY DRAWBACK OR THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEIN G THE DUTY REMISSION SCHEME; AND (B) THE RATE OF DRAWBACK CREDI T ATTRIBUTABLE TO THE CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWAB LE UNDER THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSIO N SCHEME. THEREFORE, IF THE ASSESSEE HAVING EXPORT TURNOVER OF M ORE THAN RS. 10 CRORES DOES NOT SATISFY THESE TWO CONDITIONS, HE WILL NOT BE ENTITLED TO THE ADDITION OF PROFIT ON TRANSFER OF DEPB UNDER THE THIRD PROVISO TO S UB-SECTION (3) OF SECTION 80HHC. [PARA 21] THE AFORESAID DISCUSSION WOULD SHOW THAT WHERE AN ASS ESSEE HAS AN EXPORT TURNOVER EXCEEDING RS. 10 CRORES AND HAS MADE PROFIT S ON TRANSFER OF DEPB UNDER CLAUSE (HID ) OF SECTION 28, HE WOULD NOT GET TH E BENEFIT OF ADDITION TO EXPORT PROFITS UNDER THIRD OR FOURTH PROVISO TO SUB-SEC TION (3) OF SECTION 80HHC, BUT HE WOULD GET THE BENEFIT OF EXCLUSION OF A SMALLER FIGURE FROM 'PROFITS OF THE BUSINESS' UNDER EXPLANATION (BAA) TO SECTION 80HHC AND THERE IS NOTHING IN EXPLANATION (BAA) TO SECTION 80HHC TO SHO W THAT THIS BENEFIT OF EXCLUSION OF A SMALLER FIGURE FROM 'PROFITS OF THE B USINESS' WILL NOT BE AVAILABLE TO AN ASSESSEE HAVING AN EXPORT TURNOVER EXC EEDING RS. 10 CRORES. IN OTHER WORDS, WHERE THE EXPORT TURNOVER OF AN ASSESSE E EXCEEDS RS. 10 CRORES, HE DOES NOT GET THE BENEFIT OF ADDITION OF NINE TY PER CENT OF EXPORT INCENTIVE UNDER CLAUSE (IIID) OF SECTION 28 TO HIS EX PORT PROFITS, BUT HE GETS A HIGHER FIGURE OF PROFITS OF THE BUSINESS, WHICH ULTIM ATELY RESULTS IN COMPUTATION OF A BIGGER EXPORT PROFIT. THE HIGH COURT, THEREFORE, WAS NOT RIGHT IN COMING TO THE CONCLUSION THAT AS THE ASSESSEE DID NOT HAVE THE EXPORT TURNOVER EXCEEDING RS. 10 CRORES AND AS THE ASS ESSEE DID NOT FULFIL THE CONDITIONS SET OUT IN THE THIRD PROVISO TO SECTION 80HH C (HI), THE ASSESSEE WAS NOT ENTITLED TO A DEDUCTION UNDER SECTION 80HHC ON TH E AMOUNT RECEIVED ON TRANSFER OF DEPB AND WITH A VIEW TO GET OVER THIS DI FFICULTY THE ASSESSEE WAS CONTENDING THAT THE PROFITS ON TRANSFER OF DEPB UN DER SECTION 28 (IIID) WOULD NOT INCLUDE THE FACE VALUE OF THE DEPB. IT IS A WELL-SETTLED PRINCIPLE OF STATUTORY INTERPRETATION OF A TAXING STATUTE THAT A SUBJECT WILL BE LIABLE TO TAX AND WILL BE ENTITLED TO EXEMPTION FROM TAX ACCORDING TO THE STRICT LANGUAGE OF THE TAXING STATUTE AND IF AS PER THE WORDS USED IN EXPLA NATION (BAA) TO SECTION 80HIIC READ WITH THE WORDS USED IN CLAUSES I( IID ) AND (IIIE) OF SECTION 28, THE ASSESSEE WAS ENTITLED TO A DEDUCTION UNDER SECTI ON 80HHC ON EXPORT SANJAY SALES CORPORATION 9 PROFITS, THE BENEFIT OF SUCH DEDUCTION CANNOT BE DENIED TO THE ASSESSEE. [PARA 22] THE IMPUGNED JUDGMENT AND ORDERS OF THE HIGH COURT AR E ACCORDINGLY, SET ASIDE. THE APPEALS ARE ALLOWED TO THE EXTENT INDICATED I N THIS JUDGMENT. THE ASSESSING OFFICER IS DIRECTED TO COMPUTE THE DEDUCTI ON UNDER SECTION 80HHC IN THE CASE OF THE ASSESSEE IN ACCORDANCE WITH THIS J UDGMENT. [PARA 23]. 11. RESPECTFULLY FOLLOWING THE PRECEDENT WE SET ASI DE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF JUDGEMENT OF HON'BLE APEX COURT AS ABOVE. 12. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 29.9.2021. SD/- SD/- (PAVANKUMAR GADALE) (SHAM IM YAHYA) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI; DATED : 29/09/2021 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) PS ITAT, MUMBAI