2014 (6) TMI 102 - AT - Income Tax

Recall of order - Rectification of mistake apparent on record - Computation of deduction u/s 80HHC of the Act - Exclusion of 90% of other income Held that - Now Clause (iii) of Section 28, as inserted by the Finance Act, 2005 with retrospective effect 01.04.1998 has been struck - Following Topman Exports v. CIT 2012 (2) TMI 100 - SUPREME COURT OF INDIA - profit should be assessed on the transfer of duty entitlement pass book scheme - 90% receipts have to be excluded under Clause baa of other income referred of explanation is to be considered net not gross - for the purposes of Section 80HHC, the DEP Credit is not to be included as an entire amount received for calculation of deduction and also 90% on profit alone to be deducted, 90% of net interest or is to be included in the profit - when law changed by the reasons that High Court has decided the issue in favour of the assessee, then it is a matter of rectification thus, the order is recalled Decided in favour of Assessee.

Summary

Issues Involved:
1. Rectification of mistakes apparent from the record in the Tribunal's order dated 06.08.2010.
2. Exclusion of 90% of other incomes from the profit of the business for the purpose of computation of deduction under section 80HHC.
3. Retrospective application of the third proviso to section 80HHC(3) and its impact on DEPB income.
4. Determination of the net versus gross amount for exclusion under clause (baa) of Explanation to section 80HHC.

Issue-wise Detailed Analysis:

1. Rectification of Mistakes Apparent from Record:
The assessee filed Miscellaneous Applications (M.A.) seeking rectification of certain mistakes in the Tribunal's order dated 06.08.2010. The legal position on relevant issues was reversed due to subsequent Supreme Court decisions. The Tribunal acknowledged that a subsequent decision of the jurisdictional High Court or the Supreme Court gives rise to a mistake apparent from the record which must be rectified under section 254(2) of the Income-tax Act. The Tribunal referenced the Gujarat High Court decision in CIT v. Saurashtra Kutch Stock Exchange (262 ITR 146) and its affirmation by the Supreme Court (305 ITR 277) to support this position.

2. Exclusion of 90% of Other Incomes:
The Tribunal initially held that 90% of the gross income from other sources (insurance claim and C & F Stockist interest) must be excluded under clause (baa) of the Explanation to section 80HHC. This decision was based on the Bombay High Court ruling in CIT v. Asian Star Co. Ltd. (326 ITR 56). However, this position was later overruled by the Supreme Court in ACG Associated Capsules Pvt. Ltd. (343 ITR 89), which clarified that only 90% of the net amount of any receipt should be excluded. The Tribunal recognized this as a mistake apparent from the record and required rectification.

3. Retrospective Application of Third Proviso to Section 80HHC(3):
The Tribunal initially upheld the CIT(A)'s decision to disallow the deduction under section 80HHC on DEPB receivables and accruals, based on the retrospective amendment introduced by the Taxation Laws (Second Amendment) Act, 2005. However, the Gujarat High Court in Avani Exports v. CIT (348 ITR 391) and the Bombay High Court in Vijaya Silk House (Bangalore) Ltd. v. Union of India (349 ITR 566) struck down the retrospective application of this amendment. The Tribunal acknowledged that this change in legal position necessitated a rectification of the order.

4. Determination of Net versus Gross Amount for Exclusion:
The Tribunal initially excluded 90% of gross receipts (interest income, rent income, and other miscellaneous income) under clause (baa) of the Explanation to section 80HHC, relying on the Bombay High Court decision in CIT v. Asian Star Co. Ltd. (326 ITR 56). However, the Supreme Court in ACG Associated Capsules Pvt. Ltd. (343 ITR 89) clarified that only 90% of the net amount of such receipts should be excluded. This necessitated a rectification of the Tribunal's order to align with the Supreme Court's ruling.

Conclusion:
The Tribunal recognized the necessity to rectify its previous order dated 06.08.2010 due to subsequent changes in the legal position by the Supreme Court and High Courts. The Tribunal allowed the assessee's Miscellaneous Applications and directed the Registry to fix the case before the regular Bench for reconsideration in light of the updated legal positions. The orders were pronounced in open Court on 16.05.2014.