2015 (10) TMI 2038 - AT - Income Tax

Sale value of DEPB - computation of deduction u/s 80HHC - whether only Profits on Sale of Licenses are to be treated as income of the Appellant? - Held that - As decided in Topman Exports 2012 (2) TMI 100 - SUPREME COURT OF INDIA DEPB has direct nexus with the cost of imports for manufacturing an export product, any amount realized by the assessees over and above the DEPB on transfer of the DEPB would represent profit on the transfer of DEPB and while the face value of the DEPB will fall under clause (iiib) of Section 28, difference between the sale value and the face value of the DEPB will fall under clause (iiid) of Section 28 The AO is directed to recalculate the claim made by the assessee in light of the decision of the Hon ble Apex Court. - Decided in favor of assessee. Disallowance of deduction of 10% of export incentive from the indirect cost at the time of calculation of deduction u/s. 80HHC - Held that - We find that the assessee had made an appeal before the FAA and he had rejected the claim following the judgment of Goetz India (2006 (3) TMI 75 - SUPREME Court). In the case of Pruthvi Brokers and Share Holders (P) Ltd. (2012 (7) TMI 158 - BOMBAY HIGH COURT ), the Hon ble Bombay High Court has clearly held that the appellate authorities can admit new claim made by an assessee even if same was not made before the AO, that in case of the AO the claim could be made by filing a revised return only.As the FAA did not have the benefit of the judgment of the Pruthvi Brokers(supra),so,in the interest of justice we are restoring back the matter to the file of the FAA to decide the issue afresh in light of the decision of Surendra Engg. Corpn. (2002 (12) TMI 199 - ITAT BOMBAY-H). He is directed to afford a reasonable opportunity of hearing to the assessee. Ground No.3 of the appeal is allowed in part. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Treatment of DEPB for computation of deduction under Section 80HHC.
2. Addition under Section 14A.
3. Reduction of 10% of export incentives from indirect cost in calculation of deduction under Section 80HHC.

Detailed Analysis:

1. Treatment of DEPB for Computation of Deduction under Section 80HHC:
The first issue revolves around whether the sale value of DEPB (Duty Entitlement Pass Book) should be considered as income for the purpose of deduction under Section 80HHC. The Assessing Officer (AO) did not consider the DEPB for deduction purposes, reworking the deduction under Section 80HHC. The First Appellate Authority (FAA) directed the AO to consider the DEPB sold during the year as a profit of the current year. The ITAT referred to the Supreme Court's judgment in Topman Exports, which clarified that the DEPB credit is "cash assistance" under Section 28(iiib) and any profit on its transfer falls under Section 28(iiid). The ITAT concluded that only the profit (difference between sale value and face value) should be considered for deduction purposes. The AO was directed to recalculate the claim in light of this decision.

2. Addition under Section 14A:
The second issue, concerning the addition of Rs. 27,310 under Section 14A, was dismissed as not pressed by the assessee during the hearing. Therefore, no detailed analysis was provided for this issue.

3. Reduction of 10% of Export Incentives from Indirect Cost in Calculation of Deduction under Section 80HHC:
The third issue involves the non-reduction of 10% of export incentives from indirect costs while calculating the deduction under Section 80HHC. The FAA rejected the claim based on the Supreme Court's decision in Goetz India Ltd., which stated that such claims could only be made through a revised return. The ITAT, however, referred to the Bombay High Court's judgment in Pruthvi Brokers and Share Holders (P) Ltd., which allowed appellate authorities to admit new claims even if not made before the AO. Consequently, the ITAT restored the matter to the FAA to decide afresh in light of this judgment, directing the FAA to afford a reasonable opportunity of hearing to the assessee.

Conclusion:
The appeal was partly allowed. The ITAT directed the AO to recalculate the claim regarding DEPB in line with the Supreme Court's judgment in Topman Exports. The matter concerning the reduction of 10% of export incentives was remanded back to the FAA for fresh consideration in light of the Bombay High Court's judgment in Pruthvi Brokers and Share Holders (P) Ltd. The addition under Section 14A was dismissed as not pressed. The order was pronounced in the open court on 9th September 2015.