2018 (10) TMI 1908 - AT - Income Tax

Rectification of application u/s 154 - deduction u/s. 80HHC - whether CIT(A) erred in holding that the DEPB benefit in the case of appellant was 'face value of DEPB' or 'profit on transfer of DEPB' was a debatable issue - HELD THAT - The decision of Hon‟ble Supreme Court in the case ACIT v. Saurashtra Kutch Stock Exchange Ltd. 2008 (9) TMI 11 - SUPREME COURT as well as circular of the department vide circular no. 68 dated 17.11.1971 binds the Revenue and supports the contention of the assessee that the assessee will be entitled for deduction u/s. 80HHC with respect to the face value of DEPB as contemplated by Hon‟ble Supreme Court in the case of Topman Export 2012 (2) TMI 100 - SUPREME COURT as face value of DEPB is covered u/s 28(iiib) of the 1961 Act as cash assistance‟ and the assessee shall be entitled for deduction u/s 80HHC read with first proviso to Section 80HHC(3). The assessee will be entitled for deduction u/s 80HHC on profits on sale of DEPB which is covered u/s 28(iiid) of the 1961 Act provided conditions as stipulated in third proviso to Section 80HHC(3) are met as it is admitted by the assessee that its turnover is more than Rs ten crores . our decision is in line with decision of Hon‟ble Supreme Court in the case of Topman Exports(supra) read in conjunction with provisions of Section 28(iiib), 28(iiid) and Section 80HHC of the 1961 Act . The AO shall allow relief to the assessee strictly in accordance with decision of Hon‟ble Supreme Court in the case of Topman Exports (supra) after considering assessee‟s factual matrix. We order accordingly.

Issues Involved:
1. Rejection of rectification application under Section 154 of the Income Tax Act.
2. Applicability of the Supreme Court decision in Topman Exports v. CIT to the case at hand.
3. Determination of whether DEPB benefits should be classified as "face value of DEPB" or "profit on transfer of DEPB."

Issue-Wise Detailed Analysis:

1. Rejection of Rectification Application under Section 154 of the Income Tax Act:

The primary issue was whether the rectification application filed by the assessee under Section 154 of the Income Tax Act could be considered. The assessee argued that the Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)] erred in rejecting the application, claiming that the DEPB benefit was a debatable issue. The AO had rejected the rectification application, stating that there was no mistake apparent from the record that could be corrected within the limited mandate of Section 154. The CIT(A) upheld the AO's decision, asserting that the issue was debatable and required traveling beyond the records to ascertain the claim.

2. Applicability of Supreme Court Decision in Topman Exports v. CIT:

The assessee relied on the Supreme Court decision in Topman Exports v. CIT, which held that the face value of DEPB is "cash assistance" covered by Section 28(iiib) and only the profit on transfer of DEPB would be covered under Section 28(iiid). The assessee contended that this interpretation should be applied to their case, allowing them a deduction under Section 80HHC for the face value of DEPB. The AO and CIT(A) did not apply this decision, considering the issue debatable and beyond the scope of Section 154.

3. Classification of DEPB Benefits:

The core debate was whether the DEPB benefit should be classified as "face value of DEPB" or "profit on transfer of DEPB." The AO treated the DEPB benefit as profit on transfer of DEPB, falling under Section 28(iiid), and thus did not allow the rectification under Section 154. The CIT(A) supported this view, stating that the applicability of the Supreme Court's decision in Topman Exports would only come into play after resolving whether the DEPB benefit was profit on transfer or face value.

Tribunal's Findings:

The tribunal carefully considered the rival contentions and the material on record. It observed that the Supreme Court's interpretation of the law in Topman Exports is retrospective and applies from the date of enactment of the provision. Therefore, non-consideration of this decision by the Revenue constituted a mistake apparent from the record, which could be rectified under Section 154. The tribunal referenced the Supreme Court decision in ACIT v. Saurashtra Kutch Stock Exchange Ltd. and the CBDT Circular No. 68, which supports rectification based on subsequent Supreme Court interpretations.

The tribunal concluded that the assessee is entitled to a deduction under Section 80HHC for the face value of DEPB as "cash assistance" under Section 28(iiib). However, for profits on the sale of DEPB covered under Section 28(iiid), the deduction would only be allowed if the conditions stipulated in the third proviso to Section 80HHC(3) are met, considering the assessee's turnover exceeded Rs. ten crores.

Conclusion:

The tribunal allowed the appeal, directing the AO to grant relief to the assessee in line with the Supreme Court decision in Topman Exports, considering the factual matrix of the assessee's case. The appeal of the assessee was allowed, and the order was pronounced in the open court on 05.10.2018.

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