2016 (1) TMI 121 - AT - Income Tax

Entitlement for deduction u/s 80HHC - income earned by selling of Duty Entitlement Pass Book licences in the event of the turnover of the assessee exceeding ₹ 10 crores - CIT(A) allowed the claim - Held that - Learned CIT-A had addressed the deduction u/s 80HHC of the Act by duly considering the third proviso to section 80HHC(3) of the Act by giving detailed workings of deduction in the light of the judgements in the case of Topman Exports vs CIT 2012 (2) TMI 100 - SUPREME COURT OF INDIA and in the case of GKW Ltd vs CIT 2011 (7) TMI 86 - CALCUTTA HIGH COURT . Hence we are not inclined to interfere with the findings recorded therein. - Decided in favour of assessee.

Summary

Issues Involved:
1. Entitlement of the assessee for deduction under Section 80HHC of the Income Tax Act, 1961, in respect of income earned from selling Duty Entitlement Pass Book (DEPB) licenses when the turnover exceeds Rs. 10 crores.

Issue-wise Detailed Analysis:

1. Entitlement for Deduction under Section 80HHC:

- Facts and Background:
The assessee, a partnership firm engaged in the export of fabrics and textile materials, claimed deduction under Section 80HHC for profits derived from export activities. The turnover of the assessee exceeded Rs. 10 crores, and certain sums were credited towards the sale of advance licenses and debited as export expenses. The Assessing Officer (AO) applied the amended provisions of Section 80HHC(3) third proviso, effective retrospectively from 1.4.1998, and concluded that the deduction had been rightly granted in the original assessment proceedings.

- First Appeal:
The Commissioner of Income Tax (Appeals) [CIT(A)] applied the third proviso to Section 80HHC(3) and the Supreme Court's decision in Topman Exports vs CIT, along with the Calcutta High Court's decision in GKW Ltd vs CIT. The CIT(A) directed the AO to compute the deduction to be allowed under Section 80HHC.

- Revenue's Argument:
The revenue contended that the assessee failed to satisfy the conditions laid down in the provisos to Section 80HHC(3) read with Section 28, as amended by the Taxation Laws (Amendment) Act, 2005, effective from 1.4.1998. The primary dispute was whether the duty drawback received by the assessee was more than the profit on the DEPB scheme.

- Assessee's Argument:
The assessee argued that all details were duly filed before the AO and CIT(A), and the CIT(A) had computed the deduction under Section 80HHC after considering the entire details regarding export incentives.

- Tribunal's Observation:
The Tribunal noted that the applicability of the Topman Exports decision was not disputed. It was observed that the CIT(A) had considered the detailed workings of the computation of deduction under Section 80HHC after considering the amended provisions and relevant judgments. The Tribunal found that the assessee had proved the eligibility for the deduction under Section 80HHC(3) by satisfying the conditions stipulated therein.

- Key Judgments Referenced:
- Topman Exports vs CIT: The Supreme Court clarified that DEPB is 'cash assistance' under Section 28(iiib) and profit on its transfer falls under Section 28(iiid). It held that only 90% of the profit on transfer of DEPB is excluded from 'profits of business' under Explanation (baa) to Section 80HHC.
- GKW Ltd vs CIT: The Calcutta High Court distinguished the treatment of profits on the sale of licenses under different sub-sections of Section 28, emphasizing that only actual profits on sale should be chargeable to tax.

- Conclusion:
The Tribunal upheld the CIT(A)'s decision, stating that the assessee had duly complied with the conditions stipulated in the third proviso to Section 80HHC(3). The detailed workings and the application of relevant judgments by the CIT(A) were found appropriate. The Tribunal dismissed the revenue's appeals, affirming the assessee's entitlement to the deduction under Section 80HHC.

Final Order:
The appeals of the revenue were dismissed, and the order was pronounced in open court on 15/10/2015.