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2014 (4) TMI 822 - AT - Income TaxValidity of re-computation of deduction u/s 80HHC of the Act Inclusion of income from sale of DEPB license in the profits Held that - The CIT(A) had rightly held that DEBP entitlement is available to the importer only after making the initial payment of custom duty and the credit of an amount equivalent to the duty paid is the available to the importer - Relying upon M/s Topman Exports Versus Commissioner of Income Tax, Mumbai 2012 (2) TMI 100 - SUPREME COURT OF INDIA The CIT(A) also rightly held that the credit of DEPB can be used to offset custom duty payable in respect of further imports - As per accounting principle, at the time of initial import, custom duty paid was debited to P&L account, therefore, when the corresponding credit was availed, a matching amount was shown as revenue receipt in the P&L account - the DEPB credit should be considered as a sum covered by the provisions of section 28(iv) of the Act Decided against Revenue. Re-computation of deduction u/s 80HHC of the Act - Non-exclusion of interest from profits Held that - As decided in assessee s own case for the previous year, it has been held that the context of Section 80HHC the interest income earned on fixed deposits having to be kept by the assessee for availing of credit facilities from bank, does not qualify as business income - The matter is remitted back to the AO for examination Decided in favour of Revenue. Inclusion of interest income received from AEPC and banks Held that - As decided in assessee s own case for the previous year, it has been held that, the expression any profits and gains derived from any business of an industrial undertaking or an enterprise appearing in sec. 80IA(1) has been referred to the business specified in sub section (4) of the said section. Sub section (4) does not include the business from earning of interest on FDRs - the interest income though may be in the nature of business income cannot be said to have been derived from the business of industrial undertaking within the meaning of sub section (4) of section 80IA - The decision in Pandian Chemicals Ltd. Versus Commissioner of Income-Tax 2003 (4) TMI 3 - SUPREME Court followed CIT(A) wrongly allowed the claim of the assessee treating the interest income as eligible business income Decided in favour of Revenue. Reduction of book profits Held that - The decision in Ajanta Pharma Ltd. v Commissioner of Income Tax 2010 (9) TMI 8 - SUPREME COURT followed - section 115J of the Act was a self-contained code and applied notwithstanding any provisions in the Act - section 115JB of the Act is the successor section to section 115JA and section 115JB of the Act continues to remain a self-contained code - 100% export profits earned by the assessee as computed u/s 80HHC(3) of the Act was eligible for deduction under clause (iv) of the explanation to section 115JB of the Act - the CIT(A) rightly directed the AO to recompute the income taxable u/s 115JB of the Act after allowing deduction u/s 80HHC of the Act as per earlier decision of the Tribunal Decided against Revenue.
Issues Involved:
1. Deduction under Section 80HHC related to income from the sale of DEPB licenses. 2. Deduction under Section 80HHC concerning the exclusion of interest income from business profits. 3. Deduction under Section 80IB regarding the inclusion of interest income in profits derived from eligible business. 4. Computation of income under Section 115JB after reducing book profits by the amount of deduction under Section 80HHC. Issue-wise Analysis: Ground No.1: Deduction under Section 80HHC related to income from the sale of DEPB licenses The Revenue contested the inclusion of Rs.6,90,75,728/- from the sale of DEPB licenses in the business profits for deduction under Section 80HHC. The DR argued that the profits on the sale of DEPB licenses are not included in Section 28 of the Act and cited the Supreme Court judgment in Topman Export vs. Commissioner of Income Tax and the Gujarat High Court judgment in Avani Exports & Others vs. Commissioner of Income Tax. The Commissioner of Income Tax(A) allowed the inclusion based on the principle that DEPB credits neutralize customs duty costs and should be considered under Section 28(iv). The Tribunal upheld the CIT(A)'s decision, referencing the ITAT Delhi 'B' Bench's decision in PG Enterprises Ltd. vs. DCIT, which categorized DEPB credits under Section 28(iv) and not under clauses (iiia), (iiib), or (iiic), thus allowing their inclusion in business profits for Section 80HHC deduction. The Tribunal dismissed the Revenue's ground as devoid of merits. Ground No.2: Deduction under Section 80HHC concerning the exclusion of interest income from business profits The Revenue argued that interest income should be excluded from business profits for Section 80HHC deduction, citing the Delhi High Court's decision in Commissioner of Income Tax vs. Shri Ram Honda Power Corp. and the Supreme Court's decisions in Pandian Chemicals and Sterling Foods. The Tribunal noted that the issue was covered by its earlier decision in the assessee's own case for AY 2001-02, which directed the AO to examine the nature of interest income in light of the Delhi High Court's decision and compute the deduction accordingly. The Tribunal set aside the issue to the AO for re-examination and deemed the ground allowed for statistical purposes. Ground No.3: Deduction under Section 80IB regarding the inclusion of interest income in profits derived from eligible business The Revenue contested the inclusion of Rs.87,89,652/- interest income in the profits derived from eligible business for Section 80IB deduction. The Tribunal referenced its earlier decisions in the assessee's own case for AY 2000-01 and AY 2001-02. For AY 2000-01, the Tribunal allowed the inclusion based on the Cuttack Bench's decision in ACIT vs. Maxcare Laboratories Ltd., which interpreted Section 80IA to include income with a direct nexus to the industrial undertaking. However, for AY 2001-02, the Tribunal reversed this decision, noting the amendment to Section 80IA by the Finance Act, 1999, which specified eligible business from AY 2000-01 onwards. The Tribunal upheld the AO's exclusion of interest income from eligible business profits, citing the Supreme Court's decision in Pandian Chemicals. The Tribunal allowed the Revenue's ground. Ground No.4: Computation of income under Section 115JB after reducing book profits by the amount of deduction under Section 80HHC The Revenue argued against reducing book profits by the Section 80HHC deduction for computing income under Section 115JB. The Tribunal referenced the Supreme Court's decision in Ajanta Pharma Ltd. vs. Commissioner of Income Tax, which held that Section 115JB is a self-contained code and allows 100% export profits deduction under Section 80HHC. The Tribunal upheld the CIT(A)'s direction to recompute income under Section 115JB after allowing the Section 80HHC deduction, dismissing the Revenue's ground as devoid of merits. Conclusion: The Tribunal dismissed grounds 1 and 4 of the Revenue's appeal, allowed ground 3, and set aside ground 2 for re-examination by the AO. The appeal was partly allowed as indicated.
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