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TMI Blog2008 (6) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... as assessee has not incurred any cost in obtaining the DEPB; 2. confirming disallowance of Rs. 8,825 out of the commission expenses paid to various auto drivers; and 3. confirming the disallowance out of following expenses: Car maintenance Rs. 54,208 Depreciation on car Rs. 25,741 Telephone expenses Rs. 17,870 Ground No. 1 2. During the year the assessee had shown receipt of Rs. 32,50,323 towards DEPB premium, in computing (deduction) under s. 80HHC, the assessee reduced 90 per cent of this amount for computing profit and gains of business under Expln. (baa) to s. 80HHC and then added it in terms of s. 80HHC(3). Thus the assessee considered DEPB license as income from business and claimed deduction under s. 80HHC accordingly. The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it is clear from the section itself that in respect of cl. (iiid), only profit amount is to be taken into consideration for the purpose of computing "profit of the business" as per Expln. (baa) to s. 80HHC. Under the amended provisions, if DEPB is used by the exporter for his own import and is not transferred, the advantage in the form of non-payment of duty to the extent of the face value of DEPB is undisputedly eligible for deduction under s. 80HHC. It further shows that only the profit on transfer of DEPB is to be excluded for computing deduction under s. 80HHC. We also find substance in the submission of learned Authorised Representative that in most of the cases it happens that DEPB is earned on export of goods, but application is ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was maintaining accounts on accrual basis, it accounted for the sale value of DEPB licenses sold in next year, during the year itself by crediting to the P&L a/c by Rs. 21,94,158 and debiting the duty drawback receivable account by Rs. 21,94,158. Thus, it can be noted that there was no transfer of DEPB licenses during the year to the extent of Rs. 21,94,158. Further, on sale of the DEPB license, the assessee had not earned any profit but had incurred a loss of Rs. 1,42,813 (Rs. 33,93,136 - Rs. 32,50,323). As per amended s. 80HHC(3) what is to be reduced is the profit on transfer of DEPB licenses. Since, there is no profit on sale of the DEPB license in the present case, nothing is to be reduced from the profit and gains of business for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold that there is no cost incurred in obtaining the DEPB. The cost is the amount of custom duty involved in import contents of the export products. Thus the amount of DEPB licenses is the cost itself and if it is sold at premium, there is a profit otherwise there would be loss. The Hon'ble Gujarat High Court in the case of CIT vs. India Gelatine & Chemicals Ltd. (2005) 194 CTR (Guj) 492 : (2005) 275 ITR 284 (Guj) has also been pleased to hold that duty drawback scheme is to reimburse exporters for tariffs paid on the imported raw materials and intermediates and excise duties paid on domestically produced inputs which enter into export production. 8. Under the above circumstances of the case and the decision, the cost of DEPB is the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchases. The details of the commission indicating name of person, address, sales invoice number and amount of commission has been enclosed at page No. 1 of the paper book. The learned Authorised Representative submitted that the learned CIT(A) has accepted the payments where tax is deducted whereas it is worth noting that the payment of Rs. 17,650 was made to various auto-rickshaw drivers and TDS was not deducted therefrom since payment to single person was less than Rs. 5,000. The learned Departmental Representative on the other hand placed reliance on the orders of lower authorities. 11. On perusal of details of commission on sales during the year placed at page No. 1 of the paper book, we find that only in two cases i.e., Mr. Pranlal T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to justify the first appellate order. 13. Considering above submissions and the decision relied upon by the learned Authorised Representative, we are of the view that looking into the size of the business of the assessee the disallowance made by the AO is on higher side, we thus restrict the same to 10 per cent of the claimed expenses on car maintenance. So far as claim pf deprecation on the car is concerned, we, in view of the decision in the case of Kailash Chand Gupta vs. Dy. CIT of this Bench, direct the AO to allow the same since it is a statutory provision which does not depend upon the extent of user of the car for personal purpose or for the purpose of business. 14. The AO disallowed Rs. 27,104 out of telephone expenses claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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