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2012 (11) TMI 576 - AT - Income TaxWhether CIT(A) was justified in upholding the AO s action of curtailing deduction u/s 80HHC as claimed by assessee, on an erroneous interpretation of provisions of section 28(iiid)and section 80HHC Held that - Following the decision of court in case of M/s Topman Exports Versus Commissioner of Income Tax, Mumbai 2012 (2) TMI 100 - SUPREME COURT OF INDIA Entire amount received on sale of the Duty Entitlement Pass Book (DEPB) represents profit on transfer of DEPB for the purpose of the computation of deduction u/s 80HHC. DEPB has direct nexus with the cost of imports for manufacturing an export product, any amount realized by the assessees over and above the DEPB on transfer of the DEPB would represent profit on the transfer of DEPB and while the face value of the DEPB will fall under clause (iiib) of Section 28, difference between the sale value and the face value of the DEPB will fall under clause (iiid) of Section 28 and is taxable accordingly - Assessing Officer is directed to recompute deduction under section 80HHC of the Act in line with the directions of the Hon ble Apex Court In the result, appeal filed by the assessee are allowed for statistical purposes
Issues Involved:
1. Validity of the order passed without mandatory approval under section 153D of the IT Act, 1961. 2. Computation of deduction under section 80HHC of the IT Act in respect of DEPB premium/profit on sale of DEPB/premium on sale of SPM. Issue-wise Detailed Analysis: 1. Validity of the Order Passed Without Mandatory Approval: - The assessee raised concerns regarding the validity of the order passed without the mandatory approval of the Additional Commissioner of Income Tax (Addl. CIT) as envisaged under section 153D of the Income Tax Act, 1961. However, the learned Authorized Representative (A.R.) for the assessee did not press this ground in both appeals. Consequently, these grounds were dismissed as not pressed. 2. Computation of Deduction Under Section 80HHC: - The primary issue in both appeals was the computation of deduction under section 80HHC of the Income Tax Act concerning DEPB receipts. The assessee argued that the issue was covered by the Supreme Court's decision in CIT Vs. Topman Exports [67 DTR 185(SC)]. - The Tribunal examined the rival contentions and referred to the Supreme Court's judgment in M/s Topman Exports Vs. CIT, which clarified the treatment of DEPB receipts under section 28 of the Act. The Supreme Court held that DEPB is "cash assistance" receivable by a person against exports and is chargeable to income tax under the head "Profits and Gains of Business or Profession" under clause (iiib) of Section 28, even before it is transferred by the assessee. - Furthermore, the Supreme Court distinguished between the face value of DEPB and the profit on transfer of DEPB. The face value falls under clause (iiib) of Section 28, while the difference between the sale value and the face value falls under clause (iiid) of Section 28. - The Supreme Court also addressed the issue of double taxation, stating that DEPB and profit on transfer of DEPB are treated as separate items of income under clauses (iiib) and (iiid) of Section 28. Thus, DEPB is chargeable as income in the year it accrues, and the profit on transfer is chargeable in the year of transfer, avoiding double taxation. - Regarding the computation of deduction under section 80HHC, the Supreme Court elucidated that the deduction is based on the formula: Profits derived from exports = Profits of the business x Export Turnover / Total Turnover. The Court also clarified the treatment of DEPB under Explanation (baa) to Section 80HHC, which excludes ninety percent of the DEPB from "profits of the business." - For export turnover exceeding Rs. 10 crores, the Supreme Court held that the assessee would not get the benefit of addition of ninety percent of export incentive under clause (iiid) of Section 28 to export profits but would get a higher figure of "profits of the business," resulting in a bigger export profit. - The Tribunal, following the Supreme Court's decision in M/s Topman Exports Vs. CIT, directed the Assessing Officer to recompute the deduction under section 80HHC in line with the Supreme Court's directions. Conclusion: - Both appeals filed by the assessee were allowed for statistical purposes, with the Assessing Officer directed to recompute the deduction under section 80HHC in accordance with the Supreme Court's judgment in M/s Topman Exports Vs. CIT.
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