2008 (3) TMI 349 - AT - Income Tax

Summary

Issues Involved:
1. Computation of deduction u/s 80HHC with reference to export incentives including DEPB.
2. Whether profit on the sale of DEPB entitlement constitutes income chargeable to tax.
3. Determination of profit on the sale of DEPB entitlement.
4. Whether the entire sale proceeds of DEPB should be considered for proportionate increase of profits derived from exports.

Summary:

Issue 1: Computation of Deduction u/s 80HHC with Reference to Export Incentives Including DEPB
The assessee, engaged in the manufacturing and export of textile goods, claimed a deduction u/s 80HHC. The AO excluded 90% of export incentives (DEPB) while computing 'profits of business', resulting in a negative profit and denial of deduction u/s 80HHC. The CIT(A) confirmed the AO's order. However, subsequent amendments to s. 80HHC allowed the assessee to claim deduction on the profit from the sale of DEPB entitlement, leading to a revised computation of eligible profits.

Issue 2: Whether Profit on the Sale of DEPB Entitlement Constitutes Income Chargeable to Tax
The assessee contended that profit on the sale of DEPB entitlement should not be considered income as it is not included in the definition of income u/s 2(24). The Tribunal rejected this contention, citing Supreme Court judgments that the definition of 'income' is inclusive and not exhaustive. The profit on the sale of DEPB entitlement falls within the ambit of 'profits and gains' and is chargeable to tax.

Issue 3: Determination of Profit on the Sale of DEPB Entitlement
The assessee argued that only the profit, not the entire receipt from the sale of DEPB entitlement, should be taxed. The Tribunal agreed that profit should be determined after deducting any expenditure incurred. However, in this case, the assessee failed to prove any specific expenditure incurred in obtaining DEPB credit. The Tribunal held that the entire sale proceeds of DEPB entitlement should be considered as profit since no specific expenditure was incurred.

Issue 4: Whether the Entire Sale Proceeds of DEPB Should Be Considered for Proportionate Increase of Profits Derived from Exports
The Revenue's appeal contended that the entire sale proceeds of DEPB should be considered for proportionate increase of profits derived from exports. The Tribunal found this ground misconceived and prejudicial to the interests of Revenue, dismissing it as the Departmental Representative could not substantiate the argument.

Conclusion:
The Tribunal dismissed the appeal and cross-objection of the assessee, upheld the CIT(A)'s revised computation of eligible profits, and rejected the Revenue's appeal as misconceived. The profit on the sale of DEPB entitlement is chargeable to tax, and the entire sale proceeds should be considered as profit in the absence of specific expenditure incurred.