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2015 (7) TMI 335 - AT - Income TaxDisallowing deduction u/s 80HHC on sale of DEPB - Held that - This issue is covered in favour of assessee by the decision of Hon ble Supreme Court Court in the case of Topman Exports vs. CIT (2012 (2) TMI 100 - SUPREME COURT OF INDIA) wherein reversing the decision in the case of CIT vs. Kalpataru Colours & Chemicals (2010 (6) TMI 63 - BOMBAY HIGH COURT ) has been decided in favour of assessee by observing as the DEPB credit has direct nexus with the cost of imports for manufacturing an export product, any amount realized by the assessee over and above the DEPB credit on transfer of the DEPB credit would represent profit on the transfer of the DEPB credit. Thus, while the face value of the DEPB credit will fall under clause (iiib) of section 28 of the Act, the difference between the sale value and the face value of the DEPB credit will fall under clause (iiid) of section 28 of the Act. The cost of acquiring the DEPB credit is not nil because the person acquires it by paying customs duty on the import content of the export product and the DEPB credit which accrues to a person against exports has a cost element in it. The DEPB credit represents part of the cost incurred by a person for manufacture of the export product and hence even where the DEPB credit is not utilized by the exporter but is transferred to another person, the credit continues to remain as a cost to the exporter. When, therefore, the DEPB credit is transferred by a person, the entire sum received by him on such transfer does not become his profit. It is only the amount that he receives in excess of the DEPB credit which represents his profits on transfer of the DEPB credit - Decided in favour of assessee. Disallowing the adjustment under section 145A - CIT(A) added excise duty u/s 145 (a) while valuing the closing stock - Held that - The issue of Asst. Year 2005-06 travelled upto the Tribunal and the Tribunal decided the issue in favour of assessee held Sec. 145A was inducted to clarify that while computing the value of the inventory as per the method of accounting regularly employed by the assessee, the same shall include the amount of any tax, duty, cess or fees paid or liability incurred for the same under any law in force, notwithstanding anything to the contrary contained in Section1 45. The explanation to section 145A provides that for the purposes of this section, any tax, duty, cess or fees (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment. In this circumstances the appellant has no choice but to include the excise duty liability for the inventory. Therefore, this ground of appeal is dismissed. Nothing contrary was brought to our knowledge so we hold that CIT(A) erred in disallowing the adjustment under section 145A of ₹ 5,23,379/-. The Assessing Officer failed to refer to his order for previous year. The same practice was followed for all preceding assessment years. As in the closing stock of current year excise duty of ₹ 5,23,379/- was not included also excise duty of ₹ 5,22,238 was not included in opening stock of current Assessment Year. The Assessing Officer has not considered the same consistent policy, being followed for all preceding Assessment Years. So, he has not followed the same principles while considering the value of opening stock. In this background, addition made on this ground is required to be restricted to ₹ 1,141/- considering the valuation of opening stock, which is also exclusive of excise duty. - Decided in favour of assessee.
Issues:
1. Disallowance of deduction u/s 80HHC on sale of DEPB. 2. Disallowance under section 145A for closing stock valuation. Issue 1: Disallowance of deduction u/s 80HHC on sale of DEPB: The assessee, engaged in the pharma business, appealed against the disallowance of deduction u/s 80HHC on DEPB sale. Initially, the DEPB license income was excluded from profits eligible for deduction u/s 80HHC, and the appeal to CIT(A) was dismissed. The Tribunal restored the matter to the Assessing Officer, who maintained the original findings. The assessee cited a Bombay High Court decision in their favor, but the CIT(A) upheld the disallowance. The assessee then appealed to ITAT, presenting a Supreme Court decision favoring their case. ITAT, noting the similarity of facts and the absence of contrary evidence, directed the Assessing Officer to grant relief to the assessee based on the Supreme Court ruling, allowing the appeal. Issue 2: Disallowance under section 145A for closing stock valuation: In the appeal for AY 2007-08, the assessee challenged the addition made by the AO under section 145A for closing stock valuation. The CIT(A) had dismissed a similar ground in AY 2005-06, citing the inclusion of excise duty liability in inventory valuation. The matter was taken to ITAT, which had previously decided in favor of the assessee for AY 2005-06. The ITAT directed the AO to restrict the addition and delete a portion of it, aligning with the principle that adjustments in stock valuation affect both opening and closing stock. The ITAT found the AO erred in disallowing the adjustment under section 145A and directed the AO to restrict the addition based on consistent practices followed for preceding years, ultimately allowing the appeal. In conclusion, both appeals were allowed by ITAT based on the legal discussions and precedents cited, providing relief to the assessee in both cases.
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