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TMI Blog2009 (11) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... total DEPB receipts shall be disregarded for the purpose of calculation of deduction u/s. 80HHC. 3) The learned CIT(A) ought to have arrived at the profit arising on transfer of DEPB, by arriving at the cost of DEPB on some proper basis and ought not have considered the total sales consideration received on transfer of DEPB as profit arising on transfer of DEPB. 2. We have heard the learned AR and learned DR. Issue is now fully covered by the decision of ITAT, Special Bench in Topman Exports Vs. ITO (2009) 125 TTJ, Mumbai, Special Bench, Ahmedabad in ITA No. 17/A/2007 and ITA No. 619/Ahmedabad/2007 for the assessment years 2004-2005 and 2003-2004 and matter was restored to the file of the Assessing Officer for computing deduction under Section 80HHC in accordance with the judgment in the Topman Exports Case. For the sake of convenience, we reproduce operative part of the judgment as under: 11. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. In our considered view, the issue is squarely covered by the decision of ITAT Mumbai Special Bench in the case of M/s.Topman Exports(supra). For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Identical view has been taken in the case of Padmasundara Rao (Decd.) Ors. Vs. State of Tamil Nadu Ors (2002) 176 CTR (SC) 104 : (2002) 255 ITR 147 (SC) holding that while interpreting a statute legislative intention must be found in the words used by the legislature . In the like manner it has been reiterated in the case of Commr. Of Agrl, IT vs. Plantation Corporation of Kerala Ltd. (2000) 164 CTR (SC) 502 : (2001) 247 ITR 155 (SC) that : So long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible . 46. Coming back to the issue under consideration we note that the language of clause (iiid) and (iiie) of section 28 is crystal clear which talks of any profit on the transfer of DEPB/DFRC. The reference is not to the sale proceeds but to the profit on the transfer of DEPB/DFRC. A line of demarcation needs to be drawn between the provisions in which gross amount is considered and the provisions in which only the profit demerit has been the subject matter of consideration. We need not wander here and there in search of such distinction, which is highlighted from section 28 itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one date over the other, constitutes profit. Their Lordships of the Hon'ble Supreme Court in E.D. Sassoon Company (supra) has laid down to this effect. The word 'profits' has in my opinion a well defined legal meaning, and this meaning considers with the fundamental conception of profits in general parlance although in mercantile phraseology the word may at lime bear meanings indicated by the special context which deviate in some respects from this fundamental signification. 'Profits' implies a comparison between the state of a business at two specific dates usually separated by an interval year. The fundamental meaning is the amount of gain made by the business during the year. This can only be ascertained by a comparison of the assets of the business at the two dates . 48. Going by the concept of comparison of the assets of business on two dates, it can be seen that at the stage of receipt of DEPB on its accrual the face value of ₹ 100/- constituted an asset in the hands of the exporter which could be utilized by him in any of the ways open to him. If the exporter chooses to sell the DEPB for ₹ 110 at a subsequent date, then the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The speech of the Finance Minister, as extracted above, divulges the intention of the scope of section 28(iiid) as covering only the premium on sale of DEPB and not the face value. . . 72. Reverting to the main question posted before this special bench for consideration as to whether the entire amount received on sale of DEPB entitlements represents profit chargeable u/s 28 (iiid) or some artificial cost is to be interpolated, we find that the relevance of this question is only in the context of the computation of deduction u/s 80HHC. We have held above that sub-section (3) dealing with the computation of the profits derived from export of goods or merchandize is a complete code in itself, thus the computation of eligible profits is to be made firmly as per this subsection with the aid of Explanation as interpreted by the Hon'ble Supreme Court in the case of Hero Exports (supra) and K. Ravindranathan (supra). The AO has denied the deduction u/s 80HHC by holding that the entire sale proceeds of DEPB fall under section 28(iiid) and since in that view of the matter, there is no positive income, the deduction is impermissible. On the contrary the view point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80HHC(4C). We have held that the face value of DEPB under the scheme of the Income-tax Act, 1961 falls under section 28(iiib) and the profit element t on the sale of DEPB, that is the excess of sale proceeds over the face value of DEPB falls u/s 28(iiid). 'Profits of business' as per Explanation (baa) provides for the Exclusion of ninety per cent of any sum referred to in section 28(iiia to iiie). Then first proviso to sub-section (3) states that the profits computed under clauses (a) or (b) or (c) shall be further increased by the amount which bears to the ninety per cent of any sum referred to in section 28(iiia, iiib and iiie). It means that the ninety cent of the face value of DEPB which was reduced while computing the 'profits of the business' shall stand included when effect is given to first proviso. If we go with this argument that the fact value of DEPB is to be reduced from the cost of purchase then in the case of merchant exporter with turnover of less than ₹ 10 crores, an anomalous situation will crop up inasmuch as the amount of eligible profit will far exceed the actual profit as demonstrated below. Export turnover ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exporter made export turnover of ₹ 1000/- and he earned ₹ 200/- from the export transaction in addition to ₹ 100/- towards the face value of DEPB. The amount of profits derived from exports shall come at ₹ 300 as per clause (baa) of Explanation below 80HHC(4C) read with sub-section (3) including the first proviso. Further suppose that the said DEPB is held as such at the close of the year and is then sold in the succeeding year for ₹ 110. If we agree with the view point of the Department that at the time of sale of DEPB, the entire amount of Rs . 110/- is includible in section 28 (iiid) then it would mean that in order to give effect to sub-section (3), firstly the sum of ₹ 100/- will require inclusion in the profits and gains of business or profession in the year of sale, because the question of 90% exclusion shall arise only if 100% is included in the profits of the business as computed under the head Profits and gains of business or profession'. That obviously cannot be the done because the sum of ₹ 100/- had already been included in the Profits and gains of business or profession' for the last year when such income accrued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by profit at transfer of DEPB/DFRS which is otherwise available to small exporters, unless the two conditions as set out in these provisos are fulfilled. In the cases under consideration it is an admitted position that the two conditions as so specified in third and, fourth provisos are not capable of compliance and hence the further increase as suggested in these two provisos cannot be made to the computation of deduction u/s.80HHC. Thus, it is apparent that the statutory discrimination is between the exporters having export turnover not exceeding ₹ 10 crores and those having exceeding ₹ 10 crores. Whereas the benefit of deduction in respect of the profit of sale of DEPB realized from the Indian market is also available to small exporters having export turnover, it is not so in the case of the large exporters having export turnover exceeding ₹ 10 crores. This appears to be the only reason for inserting clauses (iiid) and (iiie) to section 28 by the Taxation, Laws (Amendment Act, 2005), simultaneous with the insertion of section 3rd and 4th provisos. .. .. 89. The question raised before the special bench has two parts. In so far as the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961 and, therefore, 90% thereof would be added to the export profits as per first proviso to section 80HHC(3) of the I.T. Act, 1961. 13. In order to compute deduction u/s.80HHC of the I.T. Act, 1961 in accordance with the decision of ITAT Special Bench in the case of M/s.Topman Exports(supra), we restore the matter to the file of Assessing Officer. 3. Respectfully following above decision, we restore the issue of claim of deduction under Section 80HHC in respect of DPB Entitlements to the file of the Assessing Officer for calculating deduction under that section in accordance with the judgment in Topman Export s case(supra). This ground is according allowed, but for statistical purposes. 4. In Revenue s appeal, grounds are as under: 1. The Ld.CIT(A) erred in law and on the facts of the case in directing the A.O. to exclude Sales tax and 2. Excise duty elements from the total turn over in computing the deduction u/s. 80HHC of the I.T. Act, ignoring the decision of the Hon'ble I.T.A.T., Ahmedabad in the case of ACIT Vs. Harsha Engineers Ltd. for A.Y. 2002-03 in ITA No. 2042/Ahd/2005 dated 21.07.2006 and further ignoring the fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcessive nor could be treated as not genuine. 9. On the facts and in the circumstances of the case, the ld CIT(A) ought to have upheld the order of the Assessing Officer. 5. Ground No. 1 and 2 relate to exclusion of sales tax from total turnover for calculating deduction under Section 80HHC. This issue is not covered in favour of the assessee by the decision of Hon'ble Supreme Court in CIT Vs. Catapharma India Private Ltd. (2007) 292 ITR 641 (SC), CIT Vs. Laxmi Machine Works (2007) 290 ITR 667 (SC) and of the Hon'ble Punjab and Haryana High Court in CIT Vs. Mahavir Spring Mills Limited (2009) 308 ITR 445 (P H). Accordingly excise duty and sales tax are not included in total turnover. Accordingly, this ground of Revenue is rejected. 6. Ground No. 3 relates to excise duty and sales tax refund and decision of learned Ld. Commissioner of Income Tax(Appeals) in directing the Assessing Officer not to exclude 90% of the refund for computation to profits of the business. 7. We have heard the learned AR and learned DR. Similar issue has arisen before the Tribunal in the assessment year 2001-2002 in the case of the assessee in ITA No. 513/Ahmedabad/2005 deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received from the customers/parties, for late payment of dues/outstanding, are part of business receipts and therefore would be included as business profit. However, we do not uphold the argument of the learned AR that netting should be allowed. There is no evidence that any interest expenditure was incurred for earning such interest income from the customers/clients. Accordingly, following the decision of Special Bench of Ahmedabad- ITAT, in ACIT Vs. Ashima Syntex Ltd. 100 TTJ 557, we upheld the inclusion of interest receipts from customers as business receipts but do not allow the claim of netting. Accordingly, this ground of the Revenue is also rejected. 11. The 5th ground relates to including commission and clearing charges in the computation of business profit for the purposes of deduction under Section 80HHC. We have heard the learned DR and learned AR. These receipts are part of trading activity and directly relates to the business of the assessee. Hon'ble Supreme Court in CIT Vs. Cata Pharma India Limited (2007) 292 ITR 641 (SC) has held that interest commission etc. do not emanate from the turnover like excise duty and sales tax, hence they are not part of the tur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord by the appellant and as already explained to the Assessing Officer, the goods lying at the factory were just finished but no excise duty having been incurred and no provision for such liability having been debited to the profit and loss account, the reasoning given by the Assessing Officer relying on the Hon'ble Apex Court decision is out of place. First of all, no cost by way of excise duty liability has been either incurred or debited to the profit and loss account. Further, excise duty liability is incident only at the time of removal of goods and not prior to that. Section 145A provides for inclusion of elements of cost in the valuation of closing stock with reference to liability already incurred and not with reference to a future liability. Any adjustments otherwise would be unjustified either on the regular method of accounting on a matching principle or within the meaning of section 145A. In this case, the assessee having neither incurred any liability on the finished goods before clearance nor debited any item of expenditure in connection with the future liability, the action of the Assessing Officer is not tenable and the addition in this regard is directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout proper appreciation of entirety of services, including the main aspect of office accommodation worked out a meager sum as reasonable and disallowed the balance of ₹ 45,89,729/- as excessive. In view of the appellant order cited above, it was contended that the action of the Assessing Officer be reversed. 4.2 I have perused the relevant portion of the assessment order with the reasoning there of and also the arguments of the appellant carefully. In the appellate order in the case of Jay Infra Trade Pvt. Ltd., the service provider. I have clearly held that the amount paid as service charges were for composite business support services and assessable under business receipts only. The action of the Assessing Officer in treating excess, according to him, as receipts under other sources in the hands of service provider was not upheld for the reason that the Assessing Officer did not take into account the accommodation cost for the floor space occupied by the appellant and the action of the Assessing Officer in the case of Jay Infra Trade Pvt. Ltd. having been rejected. The disallowance in the case of the appellant cannot be sustained. Merely, that the payments were ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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