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TMI Blog2021 (10) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... i Shamim Yahya (AM) And Shri Pavankumar Gadale (JM) For the Assessee : Shri H.P. Mahajani For the Department : Shri Vijay Kumar Menon ORDER PER SHAMIM YAHYA (AM) :- This appeal by the assessee is directed against the order of learned CIT(A) dated 1.10.2019 pertaining to assessment year (A.Y.) 2003-04. 2. The ground of appeal reads as under :- On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the stand of the Assessing Officer by considering the income from sale of DEPB at ₹ 1,19,67,203/- instead of ₹ 91,43,752/-. 3. Brief facts of the case are that the assessee is an exporter of bulk drugs, dyes and pigments. Return of income was filed by the assessee on 28.11.2003 declaring total income at ₹ 1,30,17,018/-. Assessment was completed u/s.143(3) on 27.03.2006 determining the total income at ₹ 2,04,33,742/-. In the assessment order, profit of ₹ 1,19,67,955/- on transfer of DEPB u/s 28(iiid) was taxed instead of DEPB credit of ₹ 91.43J52/- credited by the assessee in his P L account. The issue was discussed elaborately in the assessment order along wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing effect to the order of Hon. Bombay High Court vide his order dated 25.04.2011 determined total income at ₹ 2,04,33,740/- and treated the income from sale of DEPB at ₹ 1,19,67,955/- rejecting the claim of the appellant for taking it at ₹ 91,43,752/- 6. Upon assessee s appeal learned CIT(A) confirmed the Assessing Officer s order by observing as under :- 17.5 The Bombay High Court in case of Kalpataru Colours and chemicals [2010] 192 Taxman 435 (Bombay) held that entirety of sale consideration of DEPB would fall within the purview of section 28(iiid). 17.6 The AO in his order dated 25.11.2011 [order giving effect to the order of Hon'ble High Court] has mentioned clearly that the AO's action of taxing the entire sales proceeds of ₹ 1,19,67,955/- u/s 28 (iiid) has been confirmed by the CIT(A) vide his order dated 17.11.2006 and hence no interference can be made. 17.7 On perusal of order of the Hon'ble Bombay High Court and ITAT, Mumbai; it is found that the issue of quantification of DEPB income u/s 28 (iiid) was not adjudicated in any of the aforesaid two orders and hence the same was not restored to me file of the AO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue has now been dealt with by Hon'ble Supreme Court. 10. Upon careful consideration we note that Hon'ble Supreme Court in the case of Topman Exports (supra) has held as under :- (Head note only) 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 (nib) or under clause (liid) of section 28. [Para 11] It will be clear from the provisions of section 28 that under clause (iiib) cash assistance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 percentage of the FOB value of the exports so as to neutralize the incidence of customs duty on the import content of the export products, but the exporter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fulfill 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 of the DEPB. This finding of the High Court is not based on an accurate understanding scheme of section 80HHC. [Para 17] Sub-section (1) of section 80HHC ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 SOHHC for arriving at the figure of profits derived from exports. [Para 20] To the figure of profits derived from exports worked out as per the aforesaid formula under sub-section (3)(a) of section 80HHC, the additions as mentioned in first, second, third and fourth proviso un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (Hi), the assessee was not entitled to a deduction under section 80HHC on the amount received on transfer of DEPB and with a view to get over this difficulty the assessee was contending that the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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