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2015 (4) TMI 800 - AT - Income TaxDeduction u/s 80HHC of Income Tax Act, 1961 on DEPB receivables & accruals - Denial of deduction u/s 80HHC on 90% of other income - Treatment of insurance claim received and C&F Stockist interest for the purpose of deduction u/s 80HHC - Addition on account of staff welfare expenses, selling & distribution expenses in absence of complete bills & vouchers - Treatment of Deferred revenue expenditure - Held that - In the case of Topman Exports 2012 (2) TMI 100 - SUPREME COURT OF INDIA , apex court has held that DEPB is a kind of assistance given by the Government of India to an exporter to pay customs duty on its imports and it is receivable once exports are made and an application is made by the exporter for DEPB. We have, therefore, no doubt that DEPB is cash assistance receivable by a person against exports under the scheme of the Government of India and falls under cl. (iiib) of s. 28 and is chargeable to income-tax under the head Profits and gains of business or profession even before it is transferred by the assessee. We are, thus, of the considered opinion that while the face value of the DEPB will fall under cl. (iiib) of s. 28 of the Act, the difference between the sale value and the face value of the DEPB will fall under cl. (iiid) of s. 28 of the Act and the High Court was not right in taking the view in the impugned judgment that the entire sale proceeds of the DEPB realized on transfer of the DEPB and not just the difference between the sale value and the face value of the DEPB represent profit on transfer of the DEPB. where the export turnover of an assessee exceeds ₹ 10 crores, he does not get the benefit of addition of ninety per cent of export incentive under cl. (iiid) of s. 28 to his export profits, but he gets a higher figure of profits of the business, which ultimately results in computation of a bigger export profit. The High Court, therefore, was not right in coming to the conclusion that as the assessee did not (sic) have the export turnover exceeding ₹ 10 crores and as the assessee did not fulfill the conditions set out in the third proviso to s. 80HHC(3), the assessee was not entitled to a deduction under s. 80HHC on the amount received on transfer of DEPB and with a view to get over this difficulty the assessee was contending that the profits on transfer of DEPB under s. 28(iiid) would not include the face value of the DEPB. It is a wellsettled principle of statutory interpretation of a taxing statute that a subject will be liable to tax and will be entitled to exemption from tax according to the strict language of the taxing statute and if as per the words used in Expln. (baa) to s. 80HHC read with the words used in cls. (iiid) and (iiie) of s. 28, the assessee was entitled to a deduction under s. 80HHC on export profits, the benefit of such deduction cannot be denied to the assessee. Therefore, this ground is restored to the file of AO to decide it afresh in the light of judgement of Hon ble Gujarat High Court rendered in the case of Avani Exports 2012 (7) TMI 190 - GUJARAT HIGH COURT and the judgement of Hon ble Apex Court in the case of Topman Exports 2012 (2) TMI 100 - SUPREME COURT OF INDIA . This ground of assessee s appeal is allowed for statistical purposes. Denial of deduction u/s 80HHC on 90% of other income - In the case of ACG Associated Capsules Pvt. Ltd. 2012 (2) TMI 101 - SUPREME COURT OF INDIA , it was held that only ninety per cent, of the net amount of any receipt of the nature mentioned in clause (1) of section 80HHC which is actually included in the profits of the assessee is to be deducted from the profits of the assessee for determining profits of the business of the assessee under Explanation (baa) to section 80HHC. It is contended by the ld.Sr.Counsel for the assessee that the issue is covered by the judgement of Hon ble Apex Court in the case of ACG Associated Capsules Pvt.Ltd., wherein the Hon ble Supreme Court held that ninety percent of not the gross rent or gross interest but only the net interest or net rent, which had been included in the profits of the business of the assessee as computed under the head profits and gains of business or profession is to be deducted under clause(1) of Explanation (baa) to section 80HHC for determining the profits of business. Therefore, respectfully following the ration laid down by the Hon ble Apex Court, we hereby restore the issue to the file of the AO for re-computation of deduction u/s.80-HHC in the light of the judgement of Hon ble Supreme Court rendered in the case of ACG Associated Capsules Pvt.Ltd.(supra). - Accordingly, this ground of assessee s appeal is allowed for statistical purposes. In the case of Milton Laminates Ltd. 2015 (4) TMI 804 - GUJARAT HIGH COURT , the same issue was raised whether the Income Tax Appellate Tribunal was right in law in excluding 90% of the ' Other Income' viz. Interest, Misc. Income and Insurance Claim from the profits of the Business while calculating the deduction u/s. 80HHC of the Act - it was held that Applying the law laid down by the Hon'ble Supreme Court in the case of ACG Associated Capsules (P.) Ltd. (supra) the aforesaid questions are held in favour of the assessee and order passed by the ITAT in ITA No.2053/Ahd/2004 for AY 1997-98 is hereby quashed and set aside. Now, the AO to recompute the deduction under Section 80HHC of the Income-tax Act considering the law laid down by the Hon ble Supreme Court in the case of ACG Associated Capsules (P.) Ltd. Therefore, respectfully following the judgement of Hon ble Gujarat High Court in the case of Milton Laminates Ltd. 2015 (4) TMI 804 - GUJARAT HIGH COURT , we hereby dismiss this ground of the Revenue s appeal. In the result, appeal of the Revenue is dismissed. - Assessee appeal allowed for statistical purpose and revenue appeal dismissed.
Issues Involved:
1. Deduction u/s 80HHC on DEPB receivables and accruals. 2. Deduction u/s 80HHC on 90% of other income (interest, rent, and miscellaneous income). 3. Disallowance of staff welfare expenses. 4. Disallowance of selling and distribution expenses. 5. Disallowance of deferred revenue expenditure. 6. Exclusion of insurance claim and C&F stockist interest from the profit of the business for the purpose of computation of deduction u/s 80HHC. Detailed Analysis: 1. Deduction u/s 80HHC on DEPB Receivables and Accruals: The Tribunal addressed the issue of whether the assessee is entitled to a deduction u/s 80HHC on DEPB receivables and accruals. The Tribunal noted that the retrospective amendment to Section 80HHC(3) was struck down by the Gujarat High Court in Avani Exports v. CIT, which was followed by the Bombay High Court in Vijaya Silk House (Bangalore) Ltd. v. Union of India. The Tribunal also considered the Supreme Court's decision in Topman Exports v. CIT, which clarified that DEPB is "cash assistance" under Section 28(iiib) and the profit on transfer of DEPB falls under Section 28(iiid). Consequently, the Tribunal restored the issue to the AO for fresh adjudication in light of these judgments. 2. Deduction u/s 80HHC on 90% of Other Income: The Tribunal examined whether 90% of other income (interest, rent, and miscellaneous income) should be excluded under clause (baa) of the Explanation to Section 80HHC. The Tribunal referred to the Supreme Court's decision in ACG Associated Capsules Pvt. Ltd. v. CIT, which held that only 90% of the net interest or net rent included in the profits of the business should be deducted. The Tribunal restored the issue to the AO for re-computation of deduction u/s 80HHC in accordance with this judgment. 3. Disallowance of Staff Welfare Expenses: The Revenue's appeal included a ground regarding the disallowance of Rs. 2,30,067 out of total staff welfare expenses of Rs. 46,01,342 for want of verification of complete bills and vouchers. The Tribunal dismissed this ground as it had already been adjudicated in the earlier round of litigation. 4. Disallowance of Selling and Distribution Expenses: The Revenue challenged the deletion of disallowance of Rs. 41,13,604 out of total selling and distribution expenses of Rs. 822.72 lacs. The Tribunal dismissed this ground as it had been previously adjudicated. 5. Disallowance of Deferred Revenue Expenditure: The Revenue's appeal included a ground regarding the disallowance of Rs. 1,13,19,049 on account of deferred revenue expenditure. The Tribunal dismissed this ground as it had been previously adjudicated. 6. Exclusion of Insurance Claim and C&F Stockist Interest: The Tribunal addressed whether 90% of insurance claim received and C&F stockist interest should be excluded from the profit of the business for the purpose of computing deduction u/s 80HHC. The Tribunal referred to the Gujarat High Court's decision in Milton Laminates Ltd. v. ACIT and the Supreme Court's decision in ACG Associated Capsules Pvt. Ltd. v. CIT. The Tribunal held that 90% of not the gross but only the net interest or net rent included in the profits of the business should be deducted. Consequently, this ground of the Revenue's appeal was dismissed. Conclusion: - The Assessee's appeal was allowed for statistical purposes. - The Revenue's appeal was dismissed.
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