2011 (12) TMI 499 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of deduction under sec. 80HHC on account of DEPB receipts.

Detailed Analysis:

Issue 1: Disallowance of deduction under sec. 80HHC on account of DEPB receipts
The assessee had claimed a deduction under sec. 80HHC of the Income-tax Act, 1961, for the Assessment Year 2002-03. The Assessing Officer issued a notice under sec. 148, stating that the deduction claimed in respect of Duty Entitlement Pass Book (DEPB) receipts was incorrect as per the Proviso to sec. 80HHC(3) of the Act. The AO allowed a deduction of &8377; 2,45,90,538/- instead of the claimed &8377; 3,05,53,968/-. The assessee appealed to the CIT(A) who directed the AO to disallow a deduction of &8377; 53,67,087/- on account of DEPB receipts, granting relief of &8377; 5,96,343/-. The assessee further appealed against the CIT(A)'s order regarding the disallowance of deduction under sec. 80HHC at &8377; 53,67,087/-.

The Tribunal noted that the decision of the Special Bench of ITAT in the case of M/s. Topman Exports had been overruled by the Bombay High Court in the case of CIT vs. Kalptaru Colours & Chemical. The High Court held that the sale proceeds of DEPB, including face value, should be treated as profit assessable under sec. 28(iiid) of the Act. The Tribunal found that the conditions set out in the third Proviso to sec. 80HHC(3) were not satisfied by the assessee, as the export turnover exceeded &8377; 10 crore and the twin conditions regarding the choice between Duty Drawback or DEPB Scheme were not met. Therefore, the assessee was not entitled to the deduction under sec. 80HHC on the amount received from the transfer of DEPB. The Tribunal upheld the CIT(A)'s order based on the decision of the Bombay High Court, dismissing the appeal filed by the assessee.

In conclusion, the Tribunal upheld the disallowance of deduction under sec. 80HHC on account of DEPB receipts, based on the interpretation of relevant provisions and the decision of the Bombay High Court, resulting in the dismissal of the assessee's appeal.