2021 (10) TMI 351 - AT - Income Tax

Income from sale of DEPB - profit on transfer of DEPB u/s 28(iiid) was taxed instead of DEPB credit credited by the assessee in his P L account - HELD THAT - As relying on M/S TOPMAN EXPORTS VERSUS COMMISSIONER OF INCOME TAX, MUMBAI 2012 (2) TMI 100 - SUPREME COURT it is a well-settled principle of statutory interpretation of a taxing statute that a subject will be liable to tax and will be entitled to exemption from tax according to the strict language of the taxing statute and if as per the words used in Explanation (baa) to section 80HHC read with the words used in clauses i(iid ) and (iiie) of section 28, the assessee was entitled to a deduction under section 80HHC on export profits, the benefit of such deduction cannot be denied to the assessee. Respectfully following the precedent we set aside the issue to the file of the Assessing Officer to decide the issue afresh in the light of judgement of Hon'ble Apex Court as above. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Taxation of income from sale of DEPB.
2. Eligibility for deduction under section 80HHC.

Issue-wise Detailed Analysis:

1. Taxation of Income from Sale of DEPB:
The primary issue revolves around the correct amount to be considered as income from the sale of Duty Entitlement Pass Book (DEPB). The assessee declared DEPB income at ?91,43,752/-, while the Assessing Officer (AO) taxed it at ?1,19,67,955/-. The AO's stance was that the entire sales proceeds from the transfer of DEPB licenses should be treated as profits under section 28(iiid). This was upheld by the CIT(A) and further confirmed by the ITAT based on earlier judgments. However, the Hon'ble Supreme Court in the case of Topman Exports clarified that the face value of DEPB falls under section 28(iiib), and only the profit on transfer (i.e., the excess of sale price over the face value) falls under section 28(iiid). This distinction is crucial as it impacts the taxable amount.

2. Eligibility for Deduction under Section 80HHC:
The second issue pertains to the eligibility for deduction under section 80HHC, particularly in light of the income from DEPB. The AO and CIT(A) held that 90% of the DEPB income would not be eligible for deduction under section 80HHC. The Hon'ble Supreme Court in Topman Exports provided clarity, stating that the face value of DEPB is considered under section 28(iiib) and the profit on transfer under section 28(iiid). This distinction affects the computation of profits for the purpose of section 80HHC. The Supreme Court's judgment emphasized that the face value of DEPB should be excluded from 'profits of the business' under Explanation (baa) to section 80HHC, while only 90% of the profit on transfer should be excluded, thereby potentially increasing the deduction available under section 80HHC.

Conclusion:
The judgment concludes by setting aside the issue to the file of the Assessing Officer to be decided afresh in light of the Supreme Court's judgment in Topman Exports. This entails recomputing the DEPB income and the corresponding deduction under section 80HHC, ensuring compliance with the clarified legal position. The appeal by the assessee is allowed for statistical purposes, with the AO directed to follow the Supreme Court's guidelines in the reassessment.