2008 (5) TMI 667 - AT - Income Tax

Summary

Issues Involved:
1. Adjustment of Special Import Licenses (SIL) realization in business profits for section 80-HHC deduction.
2. Adjustment of Duty Entitlement Pass Book (DEPB) face value in business profits for section 80-HHC deduction.
3. Legitimacy of granting relief under section 154 by CIT (Appeals).

Detailed Analysis:

1. Adjustment of Special Import Licenses (SIL) Realization in Business Profits for Section 80-HHC Deduction:

The assessee, an export house, received Special Import Licenses (SIL) as an export incentive and claimed deductions under section 80-HHC. The Assessing Officer (AO) argued that the value of SIL, similar to export incentives, should be reduced by 90% from the business profits per section 80-HHC (baa). However, the CIT (Appeals) held that SIL benefits were not covered under section 28(iiia) to 28(iiie) and should not be excluded from business profits. Upon rectification under section 154, the CIT (Appeals) confirmed that SIL benefits did not grant any concession in import duty and were not covered under section 28(iiia) to 28(iiie), thus not subject to exclusion under clause (baa). The Tribunal upheld this view, stating that SIL receipts are business income under section 28(iv) and not subject to exclusion under clause (baa) of section 80-HHC.

2. Adjustment of Duty Entitlement Pass Book (DEPB) Face Value in Business Profits for Section 80-HHC Deduction:

The assessee also received DEPB receipts. The AO reduced 90% of the DEPB face value from business profits for section 80-HHC deduction. The CIT (Appeals) initially agreed but rectified the order, stating that only the profit element of DEPB receipts should be considered under section 28(iiid), not the entire face value. The Tribunal concurred, explaining that DEPB receipts consist of cost and profit elements. The profit element is taxable under section 28(iiid) and subject to exclusion under clause (baa), while the cost element is taxable under section 28(iv) and not subject to exclusion. The Tribunal directed the AO to compute the deduction accordingly.

3. Legitimacy of Granting Relief Under Section 154 by CIT (Appeals):

The Revenue contended that the relief granted under section 154 was outside its ambit, arguing that the CIT (Appeals) had initially considered all relevant facts and law. The Tribunal, however, noted that mistakes apparent from the record, including mistakes of law, can be rectified under section 154. Citing precedents, the Tribunal upheld the CIT (Appeals)'s rectification, confirming that the original order contained errors in applying the law regarding SIL and DEPB adjustments.

Conclusion:

The Tribunal concluded that the CIT (Appeals) correctly rectified the mistakes under section 154, affirming that SIL receipts should not be excluded under clause (baa) and only the profit element of DEPB receipts should be considered for exclusion. The appeals by the Revenue were dismissed, and the appeals by the assessee were partly allowed, directing the AO to recompute the deductions under section 80-HHC accordingly.