M/s R.N. Gupta & Co. Ltd, Ludhiana V. ACIT, Ludhiana

ITA 926/CHANDI/2011

• Counselvise Citation: 92621514 RSA 2011
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2001-2002
• Appeal Filed On: 20-09-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Keywords: Business income; Retrospective amendment
• Section: 80HHC; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE, VICE PRESIDENT AND SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER ITA NOS. 926 TO 928/CHD/2011 ASSESSMENT YEARS: 2001-02, 2003-04 AND 2004-05 M/S R.N. GUPTA & CO LTD., VS THE ACIT, CIRCLE-1, LUDHIANA LUDHIANA PAN NO. AABCR 9636 F (APPELLANT) (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SMT. JYOTI KUMARI DATE OF HEARING : 17.11.2011 DATE OF PRONOUNCEMENT : 21.11.2011 ORDER PER H.L.KARWA, VP THESE THREE APPEALS FILED BY THE ASSESSEE INVOLVING COMMON ISSUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY TH IS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE COMMON GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT THE LD. CIT(A)-I HAS ERRED IN NOT FOLLOWING THE DIRECTION OF THE HON'BLE TRIBUNAL AND THUS EXCEEDED HIS JURISDICTION IN REJECTING THE CLAIM OF THE APPE LLANT IN RESPECT OF DEDUCTION UNDER SECTION 80HHC ON THE VALUE OF DEPB. 2 2. THAT THE LD. CIT(A)-I HAS ERRED IN FOLLOWING THE JUDGMENT OF THE HON'BLE MUMBAI HIGH COURT IN THE CASE OF KALPATARU COLOURS AND CHEMICALS IGNORING TH E SPECIFIC DIRECTIONS OF THE HON'BLE TRIBUNAL FOR DECIDING THE ISSUE ON THE BASIS OF SPECIAL BENCH JUDGMENT IN THE CASE OF M/S TOPMAN EXPORTS V ITO. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF STEEL FORGINGS RIGS AND ACCESSORIES. WHILE FRAMING THE ASSESSMENTS FOR THE YEAR UNDER CO NSIDERATION, THE ASSESSING OFFICER DISALLOWED THE DEDUCTION CLAIMED U/S 80HHC OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT'). WHILE D ISALLOWING THE DEDUCTION, THE ASSESSING OFFICER, IN VIEW OF THE AM ENDMENT TO SECTION 80HHC WITH RETROSPECTIVE EFFECT FROM 1.4.1998, HELD THAT THE PROFIT ON TRANSFER OF DEPB RECEIVED BY THE ASSESSEE, IS COVER ED UNDER CLAUSE (IIID) OF SECTION 28 OF THE INCOME TAX ACT, 1961. 4. ON APPEAL, THE CIT(A) CONFIRMED THE ORDERS OF TH E ASSESSING OFFICER FOR ALL THE ASSESSMENT YEARS UNDER CONSIDER ATION AND HENCE THE ASSESSEE HAS FILED THESE APPEALS AGAINST THE ORDER OF CIT(A) BEFORE THE TRIBUNAL. 5. WE HAVE HEARD SMT. JYOTI KUMARI, LD. DR AT LENG TH AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. 6. THE ISSUE ARISING IN THESE APPEALS RELATES TO CO MPUTATION OF DEDUCTION U/S 80HHC OF THE INCOME TAX ACT ON ACCOUN T OF INCOME BY WAY OF DUTY ENTITLEMENT PASS BOOK (DEPB). THE ISSUE WAS DECIDED BY THE CHANDIGARH BENCH OF THE TRIBUNAL VIDE ORDER DATED 3 1.8.2009 FOLLOWING 3 THE DECISION OF A SPECIAL BENCH OF MUMBAI TRIBUNAL IN M/S TOPMAN EXPORTS V ITO (2009) 29 DTR 153 (MUMBAI) AND THE MA TTER WAS REMANDED BACK TO THE FILE OF ASSESSING OFFICER TO ADJUDICATE AFRESH IN CONFORMITY WITH THE AFORESAID DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL. IT IS PERTINENT TO MENTION HERE THAT RECENTLY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V F.C.SONDHI AND CO. P. LTD (2011) 334 ITR 141 (P&H) VIDE ITS JUDGMENT DATED 16.8.2010, IN RESPECT OF ISSUE RAISED WITH REGARD TO TREATMENT OF RECEIPTS OF DEPB AND DFRC ENTITLEMENT AND DEDUCTION ALLOWABLE ON SUCH RECEIPTS U/S 80HHC OBSERVED AFTER HEARING THE RIVAL CONTENTIONS OF THE PARTIES THAT T HE VIEW TAKEN BY MUMBAI BENCH IN THE CASE OF M/S TOPMAN EXPORTS V ITO (SUPR A) AND M/S KALPATARU CHEMICALS V ACIT (ITA NO. 5769/MUM/2006 AND 5851/MUM/2006 ORDER DATED 11.8.2009, HAS BEEN REVER SED BY THE HON'BLE BOMBAY HIGH COURT IN CIT V KALAPATARU COLOUR & CHEM ICAL (2010) 328 ITR 451 (BOM). THE HON'BLE PUNJAB & HARYANA HIGH CO URT HELD AS UNDER:- 6. AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, WE ARE IN AGREEMENT WITH THE VIEW TAKEN BY THE BOMBAY HIGH COURT AND ARE OF THE VIEW THAT THE INCOME FROM DBK, DEPB AND DFRC HAS TO BE TREATED AS BUSINESS INCOME AND HAS TO BE TAKEN INTO ACCOUNT FOR DEDUCTION UNDER SECTION 80HHC. THE QUESTIONS PROPOSED ARE ANSWERED ACCORDINGLY AND MATTER IS REMANDED TO THE ITAT FOR FRESH DECISION IN ACCORDANCE WITH LAW. 7. WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FA VOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE ITAT CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF M/S FITEX INDUSTRIES V ACIT-V, LUDHIANA & 4 OTHERS IN ITA NO. 956/CHAD/2006 RELATING TO ASSESSM ENT YEARS 2003-04 AND OTHERS. THE TRIBUNAL VIDE ITS ORDER DATED 30.6 .2011 AFTER KEEPING IN VIEW OF THE OBSERVATIONS AND THE DIRECTIONS OF THE HON'BLE HIGH COURT IN THE CASE OF CIT VS F.C.SONDHI AND CO P.LTD (2011) ( 2011) 334 ITR 141 (P&H) AND FOLLOWING THE RATIO LAID DOWN BY THE HON' BLE BOMBAY HIGH COURT IN THE CASE OF CIT V KALAPATRU COLOURS AND CH EMICAL (2010) 328 ITR 451 (BOM), WHEREBY THE HON'BLE BOMBAY HIGH COUR T REVERSED THE ORDERS OF ITAT, MUMBAI SPECIAL BENCH IN THE CASE OF M/S TOPMAN EXPORTS IN ITA NO. 5769/MUM/2006 AND IN THE CASE OF M/S KALPATARU CHEMICALS V ACIT (ITA NO. 5815/MUMBAI/2006 ORDER D ATED 11.8.2009, HELD AS UNDER:- 45. WE FIND NO MERIT IN THE SAID CONTENTION OF THE LEARNED A.R. FOR THE ASSESSEE AS THE HON'BLE BOMBAY HIGH CO URT IN KALAPTARU COLOURS & CHEMICALS(SUPRA) VIDE PARA 32 H AD REFERRED TO THE SPEECH MADE BY THE FINANCE MINISTER WHILE INTRODUCING THE SAID AMENDMENT IN 2005 AND HAD ALSO CONSIDERED THE REASONS FOR THE INTRODUCTION OF CLAU SE (IIID) IN SECTION 28 OF THE ACT IN VIEW OF THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF P& G ENTERPRIS ES (93 ITD 138) (DEL) AND HAD OBSERVED AS UNDER : 32. THE TRIBUNAL HAS RELIED TO A CONSIDERABLE EXTENT ON A SPEECH MADE BY THE THEN FINANCE MINISTER ON THE FLOOR OF PARLIAMENT IN SUPPORT OF ITS CONCLUSION THAT ONLY THE PREMIUM REALIZED BY AN EXPORTER ON THE SALE OF THE DEPB CREDIT WOULD FALL WITHIN THE PURVIEW OF CLAUSE (IIID) OF SECTION 28 AND NOT THE FACE VALUE OF THE DEPB. THE ENTIRE APPROACH OF THE TRIBUNAL IS WITH RESPECT MISCONCEIVED AND UNSUSTAINABLE. THE FINANCE MINISTER SOUGHT TO INTRODUCE CLAUSE (IIID) IN SECTI ON 28 IN VIEW OF THE DECISION OF THE DELHI BENCH OF TH E TRIBUNAL IN THE CASE OF P & G ENTERPRISES [2005] 93 ITD 138 (DELHI). THE DISPUTE IN THAT CASE RELATED TO TAXING THE ENTIRE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB CREDIT AND NOT THE AMOUNT THAT WAS RECEIVED IN EXCESS OF THE FACE VALUE OF TH E DEPB CREDIT. AS A MATTER OF FACT IN THAT CASE THE 5 ASSESSEE HAD CLAIMED THAT THE ENTIRE RECEIPT ON THE TRANSFER OF THE DEPB CREDIT INCLUDING THE FACE VALUE OF THE CREDIT AS PROFITS UNDER SECTION 28(III A). THE TRIBUNAL IN THAT CASE HELD THAT THE ENTIRETY OF THE AMOUNT WOULD BE COVERED BY SECTION 28(IV). HOWEVER, THE VIEW OF THE TRIBUNAL WAS THAT SINCE EXPLANATION (BAA) IN SECTION 80HHC DID NOT ENVISAGE THE EXCLUSION OF PROFITS COVERED BY SECTIO N 28(IV), SUCH PROFITS COULD NOT BE EXCLUDED WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC. HENCE, THERE WAS NO DISPUTE IN CONSIDERING THE ENTIRETY OF THE RECEIPTS ON THE TRANSFER OF THE DEP B CREDIT AS PROFITS OF BUSINESS. THE DISPUTE WAS ONLY IN NOT TREATING THE RECEIPTS BY WAY OF TRANSFER OF THE DEPB CREDIT AS EXPORT RECEIPTS WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC. CONSEQUENTLY, THE ENTIRETY OF THE RECEIPTS ON THE TRANSFER OF THE DEPB CREDIT WHICH WAS SOUGHT TO BE INCLUDED IN SECTION 28(IV) WAS BROUGHT IN BY PARLIAMENTARY AMENDMENT IN THE FORM OF AN INSERTION OF CLAUSE (IIID) IN SECTION 28 WITH RETROSPECTIVE EFFECT. THE RE WAS NO CONTROVERSY REGARDING THE TAXABILITY OF THE QUANTUM OF RECEIPTS ON THE TRANSFER OF THE DEPB CREDIT. HENCE, FOR THESE REASONS WE ARE OF THE VIEW THAT IT CANNOT BE INFERRED FROM THE SPEECH OF THE FINANCE MINISTER THAT THE INSERTION OF CLAUSE (IIID ) IN SECTION 28 WAS MADE WITH A VIEW TO TAX ONLY THE AMOUNT WHICH HAS BEEN RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB CREDIT. 46. THE HON'BLE COURT FURTHER HELD AS UNDER : 33. THE SUBMISSION THAT PRIOR TO THE INSERTION OF CLAUSE (IIID) IN SECTION 28, THE FACE VALUE OF THE DEPB CREDIT REALIZED ON THE TRANSFER OF SUCH CREDIT CONSTITUTED EXPORT PROFITS, BUT NOT THE AMOUNT REALIZED IN EXCESS OF THE FACE VALUE OF THE DEPB IS SIMILARLY WITHOUT ANY BASIS. THIS IS BECAUSE (I) TH E OBJECT OF THE DEPB WAS TO FURNISH AN INCENTIVE TO EXPORTERS SO AS TO ADJUST THE CREDIT AGAINST THE CUSTOMS DUTY PAYABLE ON ANY GOODS IMPORTED INTO INDIA. HOWEVER, WHERE AN EXPORTER INSTEAD OF UTILIZING THE CREDIT TRANSFERS THE CREDIT AT A PREMIUM, IT CANNOT BE SAID THAT THE EXPORTER HAS UTILIZED THE CREDIT ; (II) THE LEGISLATURE CONSIDER S THAT THE CUSTOMS DUTY AND EXCISE DUTY PAID ON RAW MATERIALS USED IN THE EXPORT PRODUCT, WHEN REPAID OR REPAYABLE AS DUTY DRAWBACK, WOULD NOT CONSTITUTE EXPORT PROFIT. SIMILARLY, WHEN THE DEPB CREDIT IS NOT UTILIZED IN THE BUSINESS BUT IS TRANSFERRED FOR VALUE, THE AMOUNT RECEIVED ON THE TRANSFER WOULD BE BUSINESS PROFITS AND NOT EXPORT PROFITS IRRESPECTIVE OF WHETHER THE AMOUNT WHICH IS REALIZED IS EQUAL TO, LARGER THAN OR LESS THAN THE 6 FACE VALUE OF THE DEPB CREDIT. PARLIAMENT HAS CONSIDERED THAT THE ENTIRETY OF THE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB SHALL CONSTITUTE PROFIT S OF BUSINESS UNDER SECTION 28(IIID). SINCE SUCH PROFITS ARE NOT EXPORT PROFITS PARLIAMENT DIRECTED THAT NINETY PER CENT. OF THOSE PROFITS WOULD BE EXCLUDED WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC ; (III) PARLIAMENT CONSIDERED THAT AN EXPORTER WHO INSTEAD OF UTILIZING THE DEPB CREDIT FOR PAYING CUSTOMS DUTY ON IMPORTED GOODS, MAKES A PROFIT BY TRANSFERRING THE DEPB, WOULD FORM A SEPARATE CLASS AND SEEKS TO TAX THE RECEIPTS ON THE TRANSFER OF THE DEPB CREDIT AS BUSINESS PROFITS AND NOT EXPORT PROFITS. EXPORTERS WHO TRANSFER THE DEPB CREDIT AND MAKE A PROFIT CANNOT BE PLACED ON PAR WITH THOSE EXPORTERS WHO UTILIZE THE CREDIT FOR PAYING THE CUSTOMS DUTY ON THE IMPORTED GOODS ; (IV) THE FACT THAT PARLIAMENT DID NOT CONSIDER THE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB TO BE EXPORT PROFIT CANNOT BE A GROUND TO HOLD THAT THE RECEIPTS ON THE TRANSFER OF DEPB CREDIT ARE NOT BUSINESS PROFITS. COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITS THAT THE ENTIRE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB CREDIT IS BUSINESS PROFIT, BUT IT WAS CONTENDED THAT WHAT IS INCLUDED IN SECTION 28(IIID) IS THE AMOUNT RECEIVED ON THE 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 IS NO MERIT IN THIS CONTENTION BECAUSE (A) TH E DEPB CREDIT WAS NOT IN EXISTENCE WHEN SECTION 28(IIIB) WAS INSERTED BY THE FINANCE ACT OF 1990. DEPB CREDIT WAS INTRODUCED WITH EFFECT FROM APRIL 1, 1997 WHICH WAS AFTER THE INSERTION OF CLAUSE (IIIB) IN SECTION 28 ; (B) SECTION 28(IIIB) REFERS TO CASH ASSISTANCE (BY WHATEVER NAME CALLED) 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. 47. RESPECTFULLY FOLLOWING THE ABOVESAID RATIO LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN KALAPTARU COLOU RS & CHEMICALS(SUPRA) WE FIND NO MERIT IN THE STAND OF T HE 7 ASSESSEE THAT DEPB CREDIT HAS A FACE VALUE AND WHIL E DETERMINING THE PROFITS ELIGIBLE FOR DEDUCTION UNDE R SECTION 80HHC OF THE ACT, ONLY THE PROFITS ARISING ON THE T RANSFER OF DEPB CREDIT ARE TO BE EXCLUDED. AS OBSERVED BY US IN PARA 42 ABOVE THE DEPB CREDIT BEING AN EXPORT INCEN TIVE RECEIVED BY THE ASSESSEE IN PROPORTION TO THE FOB V ALUE OF ITS EXPORT HAS NO FACE VALUE AND THE AMOUNT RECEIVE D ON ITS TRANSFER IS TO BE CONSIDERED WHILE COMPUTING THE PR OFITS ALLOWABLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT. ADMITTEDLY, IN THE CASE OF THE ASSESSEES BEFORE US THE TURNOVER EXCEEDS RS.10 CRORES AND THE PROVISIONS OF THIRD PROVISO TO SUB-SECTION (3) OF SECTION 80HHC OF THE ACT ARE APPLICABLE AND THE ASSESSEE HAVING NOT FULFILLED TH E CONDITIONS LAID DOWN UNDER THE SAID PROVISO, THE TO TAL AMOUNT RECEIVED ON TRANSFER OF DEPB CREDIT IS TO BE EXCLUDED FROM THE PROFITS ELIGIBLE FOR DEDUCTION UN DER SECTION 80HHC OF THE ACT. HOWEVER, THE AMOUNT RECE IVED BY THE ASSESSEE ON THE TRANSFER OF DEPB CREDIT IS I NCLUDIBLE AS BUSINESS PROFIT IN THE HANDS OF THE ASSESSEE UND ER SECTION 28(IIID) OF THE ACT. 8. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL (SUPRA), WE DO NOT FIND ANY MERIT IN THE APPEALS. 9. VIDE GROUND NO.1 OF THE APPEAL, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE CIT(A) AS WELL AS THAT OF ASSESSING O FFICER IN NOT FOLLOWING THE DIRECTIONS OF THE TRIBUNAL DATED 31.8.2009 WHER EIN THE TRIBUNAL DIRECTED THE ASSESSING OFFICER TO FOLLOW THE DECISI ON OF ITAT MUMBAI SPECIAL BENCH IN THE CASE OF TOPMAN EXPORTS V ITO- 14(2) AND IN ITA NO. 5769/MUM/2006 AND IN THE CASE OF KALAPATRU COLOURS & CHEMICALS, MUMBAI VS ADDL. CIT 13(2) MUMBAI IN ITA NO. 5851/MU M/2006, ORDER DATED 11.8.2009. IT IS OBSERVED THAT THE BASIS ON WHICH THE TRIBUNAL, ITAT CHANDIGARH HAS SET ASIDE THE ISSUE TO THE ASS ESSING OFFICER HAS 8 BEEN REVERSED BY THE HON'BLE BOMBAY HIGH COURT AND ON SIMILAR LINES, THE HON'BLE PUNJAB & HARYANA HIGH COURT REMANDED A SIMI LAR ISSUE TO ITAT, CHANDIGARH FOR FRESH ADJUDICATION IN ACCORDANCE WIT H LAW, AND THEREFORE, THE DECISION TO DECIDE THE CASE AS PER LAW DULY VES TED IN THE ASSESSING OFFICER. IT IS NOT THAT THE ASSESSING OFFICER PROC EEDED TO DISALLOW THE CLAIM OF THE ASSESSEE ON ENTIRELY DIFFERENT GROUNDS . IN FACT, THE ASSESSING OFFICER HAS ONLY APPLIED LAW AS IT EXISTED ON THE D ATE OF PASSING THE ASSESSMENT ORDER. THEREFORE, WE DO NOT FIND ANY MER IT IN THE ABOVE GROUND. 10. IN THE RESULT, ALL THE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF NOVEMBER, 2011. SD/- SD/- (D.K.SRIVASTAVA) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 21 ST NOVEMBER, 2011 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR