2015 (6) TMI 851 - AT - Income Tax

Reopening of assessment - while calculating deduction allowable under section 80HHC the turnover of 80IB unit was not included which resulted into under assessment of income - Held that - Since we have upheld that the first contention that the total turnover would include turnover of 80IB unit hence the AO had reasons to believe that the income of the assessee had escaped assessment hence reopening of the assessment is held to be valid. - Decided against assessee. Reducing the receipts of DEPB from deduction claimed under section 80IB - computation of deduction under section 80HHC and chargeability of income in relation to export incentives received by the assessee in the form of DEPB - Held that - The cost of customs duty is neutralized under the DEPB scheme by granting a duty credit against the export product and this credit can be utilised for paying customs duty on any item which is freely importable. DEPB is cash assistance receivable by a person against exports under the scheme of the Government of India and falls under Section 28(iiib) of the Act. Accordingly DEPB is chargeable to income tax under the head Profits and Gains of Business or Profession even before it is transferred by the taxpayer. Under Section 28(iiid) of the Act any profit on transfer of DEPB is chargeable to income tax under the head Profits and Gains of Business or Profession as an item separate from cash assistance under Section 28(iiib) of the Act. The face value of the DEPB will fall under Section 28(iiib) of the Act the difference between the sale value and the face value of the DEPB will fall under Section 28(iiid) of the Act. The cost of acquiring DEPB is not nil because the person acquires it by paying customs duty on the import content of the export product and the DEPB which accrues to a person against exports has a cost element in it. Accordingly we direct the Assessing Officer to make assessment a fresh on this issue in view of the law laid down by Hon ble Bombay High Court in the case of Vijaya Silk House (2012 (9) TMI 263 - BOMBAY HIGH COURT ) and further if need be as per the law laid down by Hon ble Supreme Court in the case of Topman Exports (2012 (2) TMI 100 - SUPREME COURT OF INDIA ). - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act.
2. Reduction of claim under section 80 IB on export incentives in the form of DEPB.
3. Reduction of claim under section 80 HHC on total export incentives received in the form of DEPB.
4. Chargeability of Income Tax on profit on transfer of Duty Entitlement Pass Book scheme.
5. Chargeability of interest under sections 234B, 234C, and 220(2).

Issue-Wise Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessee contested the reopening of the assessment on the grounds that the original assessment order under section 143(3) had already been appealed and merged with the order of the CIT(A). The Tribunal found that the reopening was valid concerning the inclusion of the turnover of the 80IB unit in the total turnover, as there was escapement of income. However, the reopening based on the DEPB receipts' eligibility for 80IB deduction was not justified, as it was a debatable issue at the time of reopening. Despite this, the reopening was upheld as valid due to the first contention.

2. Reduction of Claim under Section 80 IB on Export Incentives (DEPB):
The Tribunal upheld the AO's decision that DEPB profit was not eligible for deduction under section 80IB, as it was not income derived from an industrial undertaking. This decision was consistent with the Supreme Court's ruling in Liberty India v. CIT, which held that duty drawback/DEPB are not derived from industrial undertakings and hence no deduction is available under sections 80-I, 80-IA, and 80-IB.

3. Reduction of Claim under Section 80 HHC on Total Export Incentives (DEPB):
The Tribunal noted that amendments to sections 28 and 80HHC by the Taxation Laws Amendment Act, 2005, affected the eligibility for deductions under section 80HHC for DEPB receipts. The assessee did not meet the conditions laid out in the amendments, thus disqualifying them from the deduction. However, the Tribunal directed the AO to reassess this issue in light of the Bombay High Court's ruling in Vijaya Silk House (Bangalore) Ltd., which limited the retrospective application of the amendments, and the Supreme Court's ruling in Topman Exports, which clarified the tax treatment of DEPB.

4. Chargeability of Income Tax on Profit on Transfer of DEPB:
The Tribunal directed the AO to reassess the issue of DEPB profit chargeability in accordance with the Supreme Court's decision in Topman Exports, which distinguished between the face value of DEPB (taxable under section 28(iiib)) and the profit on transfer of DEPB (taxable under section 28(iiid)).

5. Chargeability of Interest under Sections 234B, 234C, and 220(2):
The Tribunal directed the AO to consider CBDT Circular No.2/2006 dated 17/1/2006 when determining the chargeability of interest under sections 234B, 234C, and 220(2). This issue was deemed consequential and did not require specific adjudication.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions for reassessment on certain issues. The reopening of the assessment was upheld due to valid reasons for income escapement. The Tribunal confirmed the ineligibility of DEPB profits for deductions under section 80IB and directed reassessment for section 80HHC deductions and DEPB profit chargeability in line with relevant judicial precedents.