2012 (5) TMI 200 - HC - Income Tax

Profit from sale of DEPB - Deduction u/s 80HHC - held that - the matter is no longer res integra as the same has been finally settled by Hon ble the Supreme Court in a recent judgment rendered in the case of Topman Exports (2012 (2) TMI 100 - SUPREME COURT OF INDIA).

Issues Involved:
1. Computation of deduction under Section 80HHC of the Income Tax Act, 1961 on export incentives: Duty Entitlement Pass Book (DEPB), Duty Draw Back (DBK), and Duty Free Remission Scheme (DFRC).

Detailed Analysis:

Issue 1: Computation of Deduction under Section 80HHC on Export Incentives (DEPB, DBK, DFRC)

Tribunal's Initial Decision:
The Tribunal, following the Bombay High Court's decision in CIT v. Kalpataru Colours & Chemicals, held that the entire amount received on the sale of DEPB represents profit on transfer of DEPB under Section 28(iiid) of the Act. This view was initially adopted by the Chandigarh Bench of the Tribunal, which remanded the matter to the Assessing Officer for fresh adjudication.

Supreme Court's Judgment in Topman Exports:
The Supreme Court in Topman Exports v. CIT overruled the Bombay High Court's decision, holding that only the amount received by the assessee less the face value of the DEPB represents profit on transfer of DEPB. The face value of DEPB is considered under Section 28(iiib), while the profit on transfer (difference between sale value and face value) is considered under Section 28(iiid).

High Court's Application of Supreme Court's Judgment:
The Punjab and Haryana High Court noted that their previous decisions, which followed the Bombay High Court's judgment, were now overruled. The High Court acknowledged that the Supreme Court's ruling in Topman Exports clarified the correct interpretation of Sections 28(iiib) and 28(iiid) regarding DEPB.

Facts of the Case:
The appellant filed returns for the Assessment Year 2004-05, claiming deductions under Section 80HHC on export incentives. The Assessing Officer and CIT(A) rejected this claim, leading to an appeal before the Tribunal, which initially followed the Bombay High Court's now-overruled decision.

Tribunal's Observations Post-Supreme Court Judgment:
The Tribunal, in its order dated 30.6.2011, followed the Bombay High Court's view, which was later overturned by the Supreme Court. The Tribunal had directed the Assessing Officer to exclude the entire amount received on the transfer of DEPB from profits eligible for deduction under Section 80HHC.

Supreme Court's Detailed Observations:
The Supreme Court emphasized that DEPB is a form of "cash assistance" under Section 28(iiib) and that only the profit on transfer (sale value minus face value) falls under Section 28(iiid). The Court clarified that the face value of DEPB has a cost element and should not be considered as nil.

High Court's Final Decision:
The High Court set aside the Tribunal's orders based on the Bombay High Court's judgment and remanded the matters back to the Assessing Officer to compute the deduction under Section 80HHC in line with the Supreme Court's judgment in Topman Exports. The High Court affirmed that the face value of DEPB should be considered under Section 28(iiib), and only the profit on transfer should be considered under Section 28(iiid).

Conclusion:
The appeals were allowed, and the matters were remanded to the Assessing Officer to recompute the deductions as per the Supreme Court's directives in Topman Exports. The High Court ensured that the computation aligns with the correct legal interpretation of Sections 28(iiib) and 28(iiid) regarding DEPB and other export incentives.

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