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TMI Blog2016 (1) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... V/C-37/10-11 dated 30-05-2012 for the Asst Year 2000-01 Appeal No. 852/CIT(A)-XXIV/C-37/10-11 dated 30-05-2012 for the Asst Year 2001-02 Appeal No. 254/CIT(A)-XXIV/C-37/07-08 dated 30-05-2012 for the Asst Year 2002-03 Appeal No.1/CIT(A)-XXIV/A.C. Cir-37/07-08 dated 30-05-2012 for the Asst Year 2003-04 Appeal No. 134/CIT(A)-XXIV/A.C. Cir/06-07 dated 30-05-2012 for the Asst Year 2004-05 passed against the order of assessment framed by the Learned AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. Shri.Sanjay Mukherjee, JCIT, the Learned DR argued on behalf of the revenue and Shri. Manish Tiwari, FCA, the Learned AR argued on behalf of the assessee. 3. The only issue to be decided in all these appeals is that whether the assessee is entitled for deduction u/s 80HHC of the Act in respect of income earned by selling of Duty Entitlement Pass Book licences in the event of the turnover of the assessee exceeding ₹ 10 crores. Hence all the appeals are taken up together and disposed off by this common order for the sake of convenience. 4. The brief facts of this issue is that the assessee is a partnership firm engaged in the business of export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the profit on DEPB scheme as stipulated in the third proviso to section 80HHC(3) of the Act which has brought in the statute by Taxation Laws (Amendment) Act, 2005 with retrospective effect from 1.4.1998. In response to this, the Learned AR vehemently supported the order of the Learned CITA and stated that all the details were duly filed before the Learned AO and Learned CITA and the Learned CITA after considering the entire details regarding the export incentives computed the deduction u/s 80HHC of the Act in the appellate order itself and directed the Learned AO to grant the same to the assessee and accordingly argued that the conditions stipulated in third proviso to section 80HHC(3) of the Act have been duly complied with by the assessee. 6. We have heard the rival submissions and perused the materials available on record. The Learned DR during the course of hearing fairly conceded that the applicability of Topman Exports decision in the instant case is not disputed. We hold that though it is not clearly discernible from the assessment order as to whether the assessee had duly exercised the option in terms of third proviso to section 80HHC(3) of the Act before the Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e value of DEPB gets excluded from 'profits of business' in terms of Explanation (baa) under section 80HHC and, as a result, assessee gets a bigger figure of 'profits of business' which becomes multiplier in formula under section 80HHC(3)(a) for arriving at figure of profits derived from exports - Held, yes [In favour of assessee]. Held: On a reading of the paragraphs of the Hand Book on DEPB and the Export and Import Policy of the Government of India, 1997-2002, it is clear that the objective of DEPB scheme is to neutralize the incidence of customs duty on the import content of the export products. Hence, it has direct nexus with the cost of the imports made by an exporter for manufacturing the export products. The neutralization of the cost of customs duty under the DEPB scheme, however, is by granting a duty credit against the export product and this credit can be utilized for paying customs duty on any item which is freely importable. DEPB is issued against the exports to the exporter and is transferable by the exporter. [Para 10] It is necessary to consider the relevant provisions of section 28 for determining whether DEPB will fall under clause (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that clause (iiia) of section 28 treats profits on the sale of an import license as income chargeable to tax and when the license is sold, the entire amount is treated as profits of business under clause (iiia) of section 28 and, thus, there is no justification to treat the amount which is received by an exporter on the transfer of the DEPB any differently than the profits which are made on the sale of an import license under clause (iiia ) of section 28. In taking the view that when the import license is sold the entire amount is treated as profits of business, the High Court has visualized a situation where the cost of acquiring the import license is nil. The cost of acquiring DEPB, on the other hand, is not nil because the person acquires it by paying customs duty on the import content of the export product and the DEPB which accrues to a person against exports has a cost element in it. Accordingly, when DEPB is sold by a person, his profit on transfer of DEPB would be the sale value of the DEPB less the face value of DEPB which represents the cost of the DEPB. The second reason given by the High Court in the impugned judgment is that under the DEPB scheme, DEPB is given at a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer of DEPB under clause (iiid ) for the same assessment year. Where, however, the DEPB accrues to a person in one previous year and the transfer of DEPB takes place in a subsequent previous year, then the DEPB will be chargeable as income of the person for the first assessment year chargeable under clause (iiib ) of section 28 and the difference between the DEPB credit and the sale value of the DEPB credit would be income in his hands for the subsequent assessment year chargeable under clause (iiid ) of section 28. This interpretation, therefore, does not lead to double taxation of the same income, which the legislature must be presumed to have avoided. [Para 16] The High Court has held that as the assessee had an export turnover exceeding ₹ 10 crores and did not fulfil the conditions set out in the third proviso to section 80HHC(3) the assessee was not entitled to a deduction under section 80HHC on the amount received on transfer of DEPB and to get over this difficulty the assessee contended that the profits on transfer of DEPB in section 28(iiid) would not include the face value of the DEPB so that the assessees get a deduction under section 80HHC on the face value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;. But, where the DEPB accrues to the assessee in the first previous year and the assessee transfers the DEPB certificate in the second previous year, only ninety per cent of the profits on transfer of DEPB covered under clause (iiid ) and not ninety per cent of the entire sale value including the face value of the DEPB will get excluded from the 'profits of the business'. Thus, where the ninety per cent of the face value of the DEPB does not get excluded from 'profits of the business' under Explanation (baa) and only ninety per cent of the difference between the face value of the DEPB and the sale value of the DEPB gets excluded from 'profits of the business', the assessee gets a bigger figure of 'profits of the business' and this is possible when the DEPB accrues to the assessee in one previous year and transfer of the DEPB takes place in the subsequent previous year. The result in such case is that a higher figure of 'profits of the business' becomes the multiplier in the aforesaid formula under sub-section (3)(a) of section 80HHC for arriving at the figure of profits derived from exports. [Para 20] To the figure of profits derive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has made profits on transfer of DEPB under clause (iiid ) of section 28, he would not get the benefit of addition to export profits under third or fourth proviso to sub-section (3) of section 80HHC, but he would get the benefit of exclusion of a smaller figure from 'profits of the business' under Explanation (baa) to section 80HHC and there is nothing in Explanation (baa) to section 80HHC to show that this benefit of exclusion of a smaller figure from 'profits of the business' will not be available to an assessee having an export turnover exceeding ₹ 10 crores. In other words, where the export turnover of an assessee exceeds ₹ 10 crores, he does not get the benefit of addition of ninety per cent of export incentive under clause (iiid ) of section 28 to his export profits, but he gets a higher figure of profits of the business, which ultimately results in computation of a bigger export profit. The High Court, therefore, was not right in coming to the conclusion that as the assessee did not have the export turnover exceeding ₹ 10 crores and as the assessee did not fulfil the conditions set out in the third proviso to section 80HHC (iii), the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the period of validity thereof any in such cases, no actual benefit is available to an assessee whereas in the cases covered by subsections (iiib) or (iiic), there is no scope of non-utilisation of the cash assistance or drawback mentioned therein and as such, those are Automatically chargeable to tax Therefore, the Tribunal below committed a substantial error of law in treating the amount of ₹ 228.34 lakh as chargeable to income tax notwithstanding the fact that the same did not come within the purview of Section 28(iiia) of the Act when the license had not been sold and no profit had come in the hand of appellant. 6.2 We find that the Learned CITA had addressed the deduction u/s 80HHC of the Act by duly considering the third proviso to section 80HHC(3) of the Act by giving detailed workings of deduction in the light of the judgements of the Apex Court and the Jurisdictional High Court as stated supra. Hence we are not inclined to interfere with the findings recorded therein. Accordingly, the grounds raised by the revenue are dismissed. 7. In the result, the appeals of the revenue are dismissed. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 15 / 10/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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