M/s. Alpanil Industries, Ahmedabad v. The ACIT.,Circle-6,, Ahmedabad

ITA 1563/AHD/2007 | 2004-2005
Pronouncement Date: 09-04-2010 | Result: Partly Allowed

Appeal Details

RSA Number 156320514 RSA 2007
Assessee PAN AAEFA4803D
Bench Ahmedabad
Appeal Number ITA 1563/AHD/2007
Duration Of Justice 2 year(s) 11 month(s) 20 day(s)
Appellant M/s. Alpanil Industries, Ahmedabad
Respondent The ACIT.,Circle-6,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 09-04-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 09-04-2010
Date Of Final Hearing 31-03-2010
Next Hearing Date 31-03-2010
Assessment Year 2004-2005
Appeal Filed On 19-04-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' [BEFORE SHRI MAHAVIR SINGH JM AND SHRI A N PAHUJA A M] ITA NO.1563/AHD/2007 (ASSESSMENT YEAR: 2004-05) M/S ALPANIL INDUSTRIES PLOT NO.81-82 PHASE-II GIDC VATVA AHMEDABAD [PAN:AAEFA4803D] V/S ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-6 AHMEDABAD (APPELLANT) (RESPONDENT) ASSESSEE BY :- SHRI S N SOPARKAR AR REVENUE BY:- SMT. NEETA SHAH DR O R D E R A N PAHUJA : THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DAT ED 01-03-2007 OF THE LD. CIT(APPEALS)-XII AHMEDABAD RAISES THE FOLLOWING GROUNDS: 1 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN C ONFIRMING THE ACTION OF AO IN INCLUDING EXCISE DUTY AND SALES TAX IN THE TOTAL TURNOVER WHILE CALCULATING DEDUCTION U/S 80HHC OF T HE ACT. 2 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN R EDUCING PROFITS OF THE BUSINESS ON ACCOUNT OF SALE PROCEEDS OF DEPB LI CENSE SELF CONSUMED LICENSES AND THE CLOSING STOCK OF THE DEPB LICENSES WHILE CALCULATING DEDUCTION U/S 80HHC OF THE ACT WI THOUT APPRECIATING THE CLAIM OF THE APPELLANT UNDER THE A MENDED PROVISIONS OF SEC. 80HHC OF THE ACT. 3 ALTERNATIVELY AND WITHOUT PREJUDICE ONLY SALE PR OCEEDS OF DEPB LICENSE CAN BE CONSIDERED AND NOT THE LICENSES CONS UMED BY THE APPELLANT AND LICENSES LYING IN THE STOCK CAN BE EX CLUDED WHILE CALCULATING DEDUCTION U/S 80HHC OF THE ACT. 4 ALTERNATIVELY AND WITHOUT PREJUDICE ONLY 90% OF THE PROFITS AND NOT THE ENTIRE SALE PROCEEDS OF DEPB LICENSE COULD HAVE BEEN REDUCED FROM THE PROFITS OF THE BUSINESS. 5 ALTERNATIVELY AND WITHOUT PREJUDICE IF PROFIT ON SALE OF DEPB LICENSES IS NOT FALLING WITHIN THE PURVIEW OF SEC. 28(IIIA) / (IIIB) / (IIIC) ITA NO.1563/AHD/2007 2 OF THE ACT THE SAME IS NOT LIABLE TO TAX AT ALL AN D THEREFORE THE SAME HAS TO BE REDUCED FROM THE TAXABLE INCOME OF THE AP PELLANT. 6 ALTERNATIVELY AND WITHOUT PREJUDICE EVEN AS PER THE PROVISIONS OF TAXATION LAWS (SECOND AMENDMENT) ACT 2005 THE SAI D DEPB SALE PROCEED IS ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE ACT. 7 ALTERNATIVELY AND WITHOUT PREJUDICE LD. CIT(A) F AILED TO APPRECIATE THAT THE SAID SALE PROCEEDS OF THE DEPB LICENSE ARE COVERED BY 28(IV) OF THE ACT AND THEREFORE DEDUCTION U/S 80HHC OF THE ACT OUGHT TO HAVE BEEN ALLOWED FULLY ON THE SAME. 8 BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN NOT PROPERLY APPRECIATING AND CONSIDERING VARIOUS SUBMI SSIONS EVIDENCES AND SUPPORTING PLACED ON RECORD DURING TH E COURSE OF THE ASSESSMENT PROCEEDINGS AND NOT PROPERLY APPRECIATIN G VARIOUS FACTS AND LAW IN ITS PROPER PERSPECTIVE. 9 LEVY OF INTEREST U/S 234A / B / C OF THE ACT IS N OT JUSTIFIED. THE APPELLANT CRAVES LEAVE TO ADD AMEND ALTER ED IT DELETE MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEA L AT THE TIME OF OR BEFORE THE HEARING OF THE APPEAL. 2 ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL FAC TS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCO ME OF RS.1 76 18 160/- FILED ON 25.10.2004 BY THE ASSESSE E MANUFACTURING AND TRADING IN DYES AND CHEMICALS AF TER BEING PROCESSED U/S 143(1) OF THE INCOME-TAX ACT 1961[HER EINAFTER REFERRED TO AS THE ACT] WAS TAKEN UP FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 12.7.2005. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE DID NOT INCLUDE THE EXCISE DUTY AND SALES-TAX IN TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 80HHC OF THE ACT. TO A QUERY BY THE AO THE ASSESSEE WHILE RELYING UPON TH E DECISIONS IN THE CASE OF IFB AGRO 83 ITD (CAL)(SB) AND CIT VS.SU DARSHAN CHEMICALS INDIA LTD. 245 ITR 769(BOM.) CONTENDED T HAT EXCISE DUTY AND SALES-TAX WERE NOT INCLUDIBLE IN THE TOTAL TURN OVER FOR PURPOSE OF COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT. HOWE VER THE AO WHILE REFERRING TO PROVISIONS OF SEC. 145A OF THE A CT AND RELYING ON THE DECISION IN THE CASE OF IPCA LABORATORIES LTD. 266 ITR 521(SC) ITA NO.1563/AHD/2007 3 INCLUDED EXCISE DUTY AND SALES TAX IN TOTAL TURNOVE R WHILE COMPUTING DEDUCTION U/S 80HHC OF THE ACT. 3 ON APPEAL THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO IN THE FOLLOWING TERMS: 2.2 BEFORE ME THE ID. COUNSEL FOR THE APPELLANT S UBMITTED THAT THE I'D. AO ERRED IN INCLUDING TOTAL TURNOVER EVEN THE AMOUNT O F EXCISE DUTY ON EXPORT OF GOODS. IN FACT THE EXPORT OF GOODS DOES NOT ATTR ACT ANY EXCISE DUTY. HENCE IF AT ALL EXCISE DUTY IS TO BE ADDED IN TOTA L TURNOVER AN AMOUNT OF RS.508546/- BEING THE AMOUNT OF EXCISE DUTY ATTRIBU TABLE TO LOCAL SALES SHOULD HAVE BEEN ADDED. IN SUPPORT THE FOLLOWING C ASES HAVE BEEN RELIED UPON BY THE LD. COUNSEL. (1) CIT VS. SUDARSHAN CHEMICALS INDUSTRIES LTD. 245 1TR 769 (2) CIT VS. CHLORIDE INDIA LTD. 256 ITR 625 (CAL.) (3) IFB AGRO LIMITED 83 ITD 96 (SB) (CAL.) (4) ACIT CIR.4 A'BAD VS. M/S. LUBI ELECTRIC ALS LTD. ITA NO.922/AHD/2002 DATED 28-07-2006. 2.3 I HAVE CAREFULLY PERUSED THE FACTS OF THE CASE IN THE LIGHT OF THE SUBMISSION MADE BY THE APPELLANT. SO FAR AS THE TRE ATMENT OF EXCISE DUTY AND SALES TAX WHILE COMPUTING THE DEDUCTION U/S.80H HC IS CONCERNED WITH THE AMENDED PROVISIONS IN SECTION 145A THE PO SITION NOW IS VERY CLEAR. THE VERY SECTION WHICH READS AS UNDER IS R EVEALING THE TRUE PICTURE OF THE VALUE OF GOODS TO BE TAKEN. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 145 THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTO RY FOR THE PURPOSE OF DETERMINING THE INCOME CHARGEABLE UNDER THE HEAD 'P ROFITS AND GAINS OF BUSINESS OR PROFESSION' SHALL BE A) IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGU LARLY EMPLOYED BY THE ASSESSEE; AND B) FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TA X DUTY CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOC ATION AND CONDITION AS ON THE DATE OF VALUATION. EXPLANATION - FOR THE PURPOSE OF THIS SECTION ANY TAX DUTY CESS OR FEE (BY WHATEVER NAME CALLED) UNDER ANY LAW FOR THE TIME BEING IN FORCE SHALL INCLUDE ALL SUCH PAYMENT NOTWITHSTANDI NG ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT. FROM THE ABOVE CLEAR WORDING BROUGHT IN THIS SECTIO N THERE REMAINS NO DOUBT THAT THE VALUATION OF PURCHASE SALE AND INVE NTORY WOULD BE INCLUSIVE OF EXCISE DUTY AND SALES TAX. IT IS ALSO WORTH MENT IONING THAT IN THE CASE OF IPCA LABORATORY 266 ITR 121 (SC) IT HAS BEEN CLARI FIED BY THE APEX COURT THAT SECTION 80HHC IS NOT A COMPLETE CODE AND ALL O THER PROVISIONS OF THE ITA NO.1563/AHD/2007 4 IT. ACT WILL BE APPLICABLE WHILE MAKING COMPUTATION OF PROFIT FOR DEDUCTION U/S.80HHC ALSO. THE CASE OF IFB AGRO OF CALCUTTA IT AT (SB) WAS THE PRE AMENDMENT DECISION. THEREFORE NOW THE TOTAL TURNOV ER FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S.80HHC WILL ALSO INCLUD E SALES TAX AND EXCISE DUTY. NOW-COMING TO THE DEFINITION OF 'TOTAL TURNOV ER' GIVEN IN SECTION 80HHC WHICH IS AS UNDER:- 'EXPLANATION (BA):- TOTAL TURNOVER SHALL NOT INCLUD E FREIGHT OR INSURANCE ATTRIBUTABLE TO THE TRANSFER OF GOODS OR MERCHANDIZ E BEYOND THE CUSTOMS STATION AS DEFINED IN CUSTOMS ACT 1962.' THUS FROM THE ABOVE DEFINITION OF TOTAL TURNOVER I T IS CLEAR THAT ONLY FREIGHT AND INSURANCE ARE TO BE EXCLUDED AND NOT THE SALES TAX AND EXCISE DUTY WHICH ARE OTHERWISE REQUIRED TO BE INCLUDED AS PER SECTION 145A. IN VIEW OF AFORESAID DISCUSSION I UPHOLD THE STAND TAKEN BY THE A.O. AND THE CLAIM OF THE ASSESSEE IS HEREBY REJECTED. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AG AINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSESSE E RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS LAK SHMI MACHINE WORKS 290 ITR 667 (SC) WHILE THE LD. DR SUPPORTED THE ORDER O F THE LD. CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THR OUGH THE FACTS OF THE CASE. WE ARE NOT INCLINED TO ACCEPT THE FINDING S OF THE LOWER AUTHORITIES THAT THE PROVISIONS OF SEC. 145A WERE APPLICABLE TO THE CONCEPT OF TOTAL TURNOVER EVEN WHILE DETERMINING T HE DEDUCTION U/S 80HHC OF THE ACT IN VIEW OF THE FOLLOWING OBSERV ATIONS OF THE HONBLE APEX COURT IN THE CASE OF LAXMI MACHINE WO RKS(SUPRA) WHEREIN IT WAS HELD AS UNDER: WE HAVE TO READ THE WORDS 'TOTAL TURNOVER' IN SECTION 80HHC AS PART OF THE FORMULA WHICH SOUGHT T O SEGREGATE THE 'EXPORT PROFITS' FROM THE 'BUSINESS P ROFITS'. THEREFORE WE HAVE TO READ THE FORMULA IN ENTIRETY. IN THAT FORMULA THE ENTIRE BUSINESS PROFITS IS NOT GIVEN DE DUCTION. IT IS THE BUSINESS PROFIT WHICH IS PROPORTIONATELY REDUCE D BY THE ABOVE FRACTION/RATIO OF EXPORT TURNOVER + TOTAL TUR NOVER WHICH CONSTITUTES SECTION 80HHC CONCESSION (DEDUCTION). I NCOME IN THE NATURE OF 'BUSINESS PROFITS' WAS THEREFORE AP PORTIONED. THE ABOVE FORMULA FIXED A RATIO IN WHICH 'BUSINESS PROFITS' UNDER SECTION 28 OF THE ACT HAD TO BE APPORTIONED. THEREFORE ONE HAS TO GIVE WEIGHTAGE NOT ONLY TO THE WORDS 'TO TAL TURNOVER' BUT ALSO TO THE WORDS 'EXPORT TURNOVER' 'TOTAL EXPORT TURNOVER' AND 'BUSINESS PROFITS'. THAT IS THE REASO N WHY WE HAVE QUOTED HEREINABOVE EXTENSIVELY THE ILLUSTRATIO N FROM THE ITA NO.1563/AHD/2007 5 DIRECT TAXES (INCOME-TAX) READY RECKONER OF THE REL EVANT WORD. IN THE CIRCUMSTANCES WE CANNOT INTERPRET THE WORDS 'TOTAL TURNOVER' IN THE ABOVE FORMULA WITH REFERENC E TO THE DEFINITION OF THE WORD 'TURNOVER' IN OTHER LAWS LIK E CENTRAL SALES TAX OR AS DEFINED IN ACCOUNTING PRINCIPLES. G OODS FOR EXPORT DO NOT INCUR EXCISE DUTY LIABILITY. AS STATE D ABOVE EVEN COMMISSION AND INTEREST FORMED A PART OF THE PROFIT AND LOSS ACCOUNT HOWEVER THEY WERE NOT ELIGIBLE FOR DEDUCT ION UNDER SECTION 80HHC. THEY WERE NOT ELIGIBLE EVEN WITHOUT THE CLARIFICATION INTRODUCED BY THE LEGISLATURE BY VARI OUS AMENDMENTS BECAUSE THEY DID NOT INVOLVE ANY ELEMENT OF TURNOVER. FURTHER IN ALL OTHER PROVISIONS OF THE I NCOME-TAX ACT PROFITS AND GAINS WERE REQUIRED TO BE COMPUTED WITH REFERENCE TO THE BOOKS OF ACCOUNT OF THE ASSESSEE. HOWEVER A S CAN BE SEEN FROM THE INCOME-TAX RULES AND FROM THE ABOVE F ORM NO. 10CCAC IN THE CASE OF DEDUCTION UNDER SECTION 80HHC A REPORT OF THE AUDITOR CERTIFYING DEDUCTION BASED ON EXPORT TURNOVER WAS SUFFICIENT. THIS IS BECAUSE THE VERY B ASIS FOR COMPUTING SECTION 80HHC DEDUCTION WAS 'BUSINESS PRO FITS' AS COMPUTED UNDER SECTION 28 A PORTION OF WHICH HAD T O BE APPORTIONED IN TERMS OF THE ABOVE RATIO OF EXPORT T URNOVER TO TOTAL TURNOVER. SECTION 80HHC(3) WAS A BENEFICIAL S ECTION. IT WAS INTENDED TO PROVIDE INCENTIVES TO PROMOTE EXPOR TS. THE INCENTIVE WAS TO EXEMPT PROFITS RELATABLE TO EXPORT S. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE HAVING EXP ORT BUSINESS AND DOMESTIC BUSINESS THE LEGISLATURE INTE NDED TO HAVE A FORMULA TO ASCERTAIN EXPORT PROFITS BY APPOR TIONING THE TOTAL BUSINESS PROFITS ON THE BASIS OF TURNOVERS. A PPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER WAS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROFITS. THIS METHOD EARLIER EXISTED UNDER THE EXCESS PROFITS TAX ACT IT EXISTED IN THE BUSIN ESS PROFITS TAX ACT. THEREFORE JUST AS COMMISSION RECEIVED BY AN ASSESSEE IS RELATABLE TO EXPORTS AND YET IT CANNOT FORM PART OF 'TURNOVER' EXCISE DUTY AND SALES TAX ALSO CANNOT F ORM PART OF THE 'TURNOVER'. SIMILARLY 'INTEREST' EMANATES FROM EXPORTS AND YET 'INTEREST' DOES NOT INVOLVE AN ELEMENT OF TURNO VER. THE OBJECT OF THE LEGISLATURE IN ENACTING SECTION 80HHC OF THE ACT WAS TO CONFER A BENEFIT ON PROFITS ACCRUING WITH RE FERENCE TO EXPORT TURNOVER. THEREFORE 'TURNOVER' WAS THE REQU IREMENT. COMMISSION RENT INTEREST ETC. DID NOT INVOLVE AN Y TURNOVER. THEREFORE 90 PER CENT. OF SUCH COMMISSION INTERES T ETC. WAS EXCLUDED FROM THE PROFITS DERIVED FROM THE EXPORT. THEREFORE EVEN WITHOUT THE CLARIFICATION SUCH ITEMS DID NOT F ORM PART OF THE FORMULA IN SECTION 80HHC(3) FOR THE SIMPLE REAS ON THAT THEY DID NOT EMANATE FROM THE' EXPORT TURNOVER' MU CH LESS ANY TURNOVER. EVEN IF THE ASSESSEE WAS AN EXCLUSIVE DEALER IN EXPORTS THE SAID COMMISSION WAS NOT INCLUDIBLE AS IT DID NOT SPRING FROM THE' TURNOVER'. JUST AS INTEREST COMMI SSION ETC. DID NOT EMANATE FROM THE 'TURNOVER' SO ALSO EXCISE DUTY AND SALES TAX DID NOT EMANATE FROM SUCH TURNOVER. SINCE EXCISE DUTY AND SALES TAX DID NOT INVOLVE ANY SUCH TURNOVE R SUCH TAXES HAD TO BE EXCLUDED. COMMISSION INTEREST REN T ETC. DO ITA NO.1563/AHD/2007 6 YIELD PROFITS BUT THEY DO NOT PARTAKE OF THE CHARA CTER OF TURNOVER AND' THEREFORE THEY WERE NOT INCLUDIBLE I N THE 'TOTAL TURNOVER'. THE ABOVE DISCUSSION SHOWS THAT INCOME F ROM RENT COMMISSION ETC. CANNOT BE CONSIDERED AS PART OF BU SINESS PROFITS AND THEREFORE THEY CANNOT BE HELD AS PART OF THE TURNOVER ALSO. IN FACT IN CIVIL APPEAL NO. 4409 OF 2005 THE ABOVE PROPOSITION HAS BEEN ACCEPTED BY THE ASSESSIN G OFFICER IF SO THEN EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE 'TOTAL TURNOVER' UNDER SECTION 80HHC(3) OTHERWISE THE FORMULA BECOMES UNWORKABLE. IN OUR VIEW SALES TAX AND EXCISE DUTY ALSO DO NOT HAVE ANY ELEMENT OF 'TURNOV ER' WHICH IS THE POSITION EVEN IN THE CASE OF RENT COMMISSIO N INTEREST ETC. IT IS IMPORTANT TO BEAR IN MIND THAT EXCISE DU TY AND SALES TAX ARE INDIRECT TAXES. THEY ARE RECOVERED BY THE A SSESSEE ON BEHALF OF THE GOVERNMENT. THEREFORE IF THEY ARE MA DE RELATABLE TO EXPORTS THE FORMULA UNDER SECTION 80H HC WOULD BECOME UNWORKABLE. THE VIEW WHICH WE HAVE TAKEN IS IN THE LIGHT OF THE AMENDMENTS MADE TO SECTION 80HHC FROM TIME TO TIME. 5.1 SECTION 80HHC OF THE INCOME-TAX ACT 1961 IS A BENE FICIAL SECTION AND WAS INTENDED TO PROVIDE INCENTIVE TO P ROMOTE EXPORTS. THE INTENTION WAS TO EXEMPT PROFITS RELATABLE TO EX PORTS. AS OBSERVED BY THE HONBLE APEX COURT ONE CANNOT INTE RPRET THE WORDS TOTAL TURNOVER WITH REFERENCE TO THE DEFINITION O F THE WORD TURNOVER IN OTHER LAWS LIKE THE CENTRAL SALES TAX OR AS DEFI NED IN ACCOUNTING PRINCIPLES. THE WORDS 'TOTAL TURNOVER' IN SECTION 8 0HHC HAVE TO BE READ AS PART OF THE FORMULA WHICH SOUGHT TO SEGREGA TE THE 'EXPORT PROFITS' FROM THE 'BUSINESS PROFITS . THEREFORE W E ARE OF THE OPINION THAT EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PA RT OF THE TOTAL TURNOVER UNDER SECTION 80HHC(3) OF THE ACT. 5.2 RECENTLY IN THE CASE OF SONY INDIA PVT. LTD. VS. DCIT IN ITA NO. 1181/DEL/2005 DATED 23/9/2008 FOR THE AY 20 01-02 ITAT DELHI BENCH FOLLOWING THE AFORESAID DECISION OF TH E HONBLE SUPREME COURT DIRECTED TO EXCLUDE EXCISE DUTY WHIL E WORKING OUT TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION U/S 80H HC OF THE ACT. 5.3. IN VIEW OF AFORESAID DECISION OF THE HONB LE SUPREME COURT THE LD. CIT(A) WAS NOT JUSTIFIED IN DIRECTING THE AO TO INCLUDE E XCISE DUTY AND SALES TAX WHILE WORKING OUT TOTAL TURNOVER FOR THE PURPOSE OF DEDUC TION U/S 80HHC OF THE ACT. THUS GROUND NO.1 IN THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.1563/AHD/2007 7 6 GROUND NOS.2 TO 7 RELATES TO REDUCTION OF PROFIT S OF THE BUSINESS ON ACCOUNT OF SALE PROCEEDS OF DEPB LICENS E WHILE COMPUTING DEDUCTION U/S 80HHC OF THE ACT. THE AO NO TICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSES SEE CLAIMED DEDUCTION U/S 80HHC OF THE ACT ON THE PROFITS ON SA LE OF DEPB LICENSE.TO A QUERY BY THE AO SEEKING EVIDENCE AS T O HOW THE ASSESSEE FULFILLED THE CONDITIONS STIPULATED IN T HE THIRD PROVISO TO SECTION 80HHC(3) OF THE ACT SINCE THEIR EXPORT TURN OVER EXCEEDED RS.10 CRORES THE ASSESSEE DID NOT FURNISH ANY SUCH EVIDENCE. ACCORDINGLY THE AO DENIED DEDUCTION U/S 80HHC OF T HE ACT ON THE PROFITS ON SALE OF DEPB LICENSE. 7 ON APPEAL THE ASSESSEE SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION THEY HAD UTILIZED THE DEPB LICENSE FO R IMPORT OF RAW MATERIALS WORTH RS.51 63 232/- BESIDES SELLING DEPB LICENSES FOR A CONSIDERATION OF RS.36 81 195/- AND THE REMAINING LICENSES AMOUNTING TO RS.48 74 097/- WERE IN STOCK. WHILE LY ING UPON THE DECISIONS IN THE CASE OF CIT VS. SATELLITE ENGINEE RING LTD 113 ITR 208 (GUJ.) BAJAJ TEMPO VS. CIT. 196 ITR 188 (SC) A ND CIT VS. HINDUSTAN BULK CARRIERS 259 ITR 449 (SC) IT WAS C ONTENDED THAT THE AFORESAID ENTIRE AMOUNT COULD NOT BE TAKEN INTO CONSIDERATION WHILE COMPUTING DEDUCTION U/S 80HHC OF THE ACT IN T ERMS OF THE PROVISIONS OF SECTION 28(IIID) OF THE ACT. HOWEVER THE LD. CIT(A) REJECTED THE CLAIM OF THE ASSESSEE IN THE FOLLOWING TERMS: 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSION PUT FORTH BY THE APPELLANT. THE ID. COUNSEL OF THE APPELLANT DUR ING THE COURSE OF APPELLATE PROCEEDINGS WAS ASKED TO SATISFY AS TO HO W THE CONDITIONS LAID DOWN IN THE AMENDED PROVISIONS FOR DEDUCTION U/S.80 HHC ARE FULFILLED IN THE CASE. BUT NO ANY SATISFACTORY EXPLANATION COULD BE OFFERED BY THE APPELLANT. IN THE LIGHT OF PROVISIONS CONDITIONS H AVE TO BE FULFILLED WITH SPECIFIC CLARIFICATION ON FACTS OF THE CASE WHICH HAS NOT BEEN DONE IN THIS CASE. SINCE IN THE CASE OF THE APPELLANT THE TOTAL TURNOVER DURING THE YEAR UNDER CONSIDERATION IS MORE THAN TEN CRORES AND SIN CE THE CONDITIONS LAID DOWN IN SPECIFIC TERMS IN THE AMENDED PROVISION OF THE I.T. ACT ARE NOT FULLFILLED THE APPELLANT IS NOT ENTITLED TO DEDUCT ION U/S.80HHC'ON DEPB AMOUNT. IN VIEW OF THE AFORESAID DISCUSSION THE CLA IM OF THE APPELLANT FOR DEDUCTION U/S.80HHC IS REJECTED. THIS GROUND OF APP EAL IS DISMISSED. ITA NO.1563/AHD/2007 8 4. IN THE 3RD GROUND OF APPEAL IT IS STATED THAT A LTERNATIVELY IN VIEW OF LANGUAGE OF SEC. 28(III)(D) ONLY THE PROFIT ON SALE OF DEPB LICENSES SHOULD BE EXCLUDED FROM 'PROFIT OF THE BUSINESS' FO R CALCULATION OF DEDUCTION U/S.80HHC OF ACT. IN THIS CASE THOUGH TH E APPELLANT WAS SPECIFICALLY ASKED TO SATISFY AS TO HOW THE CONDITI ONS LAID DOWN IN THE AMENDED PROVISIONS FOR DEDUCTION U/S.80HHC ARE FULF ILLED HE COULD NOT OFFER ANY SATISFACTORY EXPLANATION BEFORE THE A.O. HENCE THE APPELLANT IS NOT ENTITLED TO DEDUCTION U/S 80HHC ON ANY DEPB AMO UNT. THIS GROUND OF APPEAL IS THEREFORE REJECTED. 8. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGA INST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LEARNED AR ON BEHAL F OF THE ASSESSEE WHILE REITERATING THEIR SUBMISSIONS BEFORE THE LD. CIT(A) CONTENDED THAT WITHOUT RECORDING ANY FINDINGS AS TO HOW THE DEPB LICENSES UTILIZED FOR IMPORT OF RAW MATERIAL OR THOSE IN STO CK FALL WITHIN CLAUSE (IIID) OF THE SEC. 28 OF THE ACT PROVISIONS OF TH IRD PROVISO TO SEC. 80HHC(3) HAD BEEN INVOKED IN RESPECT OF THE ENTIRE AMOUNT OF RS. 1 37 18 524/- EVEN WHEN ONLY AN AMOUNT OF RS.36 81 195/- HAD BEEN RECEIVED ON SALE OF DEPB LICENSES. HE ADDED THAT DEDUCTION U/S 80HHC NEEDS TO BE RECOMPUTED IN THE LIGHT OF DECISI ON DATED 11.8.2009 IN THE CASE OF M/S TOPMAN EXPORTS 318 ITR (AT) 87(MUMBAI) (SB). ON THE OTHER HAND THE LEARNED DR DID NOT OPPOSE THESE SUBMISSIONS ON BEHALF OF THE ASSESSEE. 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THRO UGH THE FACTS OF THE CASE AS ALSO THE DECISION RELIED ON . THE RE LEVANT PROVISIONS OF SEC. 28(IIID) APPLICABLE W.E.F 1.4.1998 READ AS UND ER : (IIID) ANY PROFIT ON THE TRANSFER OF THE DUTY ENTI TLEMENT PASS BOOK SCHEME BEING THE DUTY REMISSION SCHEME UNDER THE EXPORT AND IMPORT POLICY FORMULATED AND ANNOUNCED UNDER SECTION 5 OF THE FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT 1992 (22 OF 1992) 9.1 THE THIRD PROVISO TO SEC.80HHC(3) OF THE ACT A S INTRODUCED BY THE TAXATION LAWS (SECOND AMENDMENT) ACT 2005 W.E .F 1.4.1998 READS AS UNDER: ITA NO.1563/AHD/2007 9 PROVIDED ALSO THAT IN THE CASE OF AN ASSESSEE HAVI NG EXPORT TURNOVER EXCEEDING RUPEES TEN CRORES DURING THE PREVIOUS YEAR THE PRO FITS COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THIS SUB-SECTION OR AFTER GIVING EFFECT TO THE FIRST PROVISO AS THE CASE MAY BE SHALL BE FURTHER INCRE ASED BY THE AMOUNT WHICH BEARS TO NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSE (IIID) OF SECTION 28 THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE IF THE ASSESSEE HAS NEC ESSARY AND SUFFICIENT EVIDENCE TO PROVE THAT - (A) HE HAD AN OPTION TO CHOOSE EITHER THE DUTY DRAW BACK OR THE DUTY ENTITLEMENT PASS BOOK SCHEME BEING DUTY REMISSION SCHEME; AND (B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO THE CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY ENTITLE MENT PASS BOOK SCHEME BEING DUTY REMISSION SCHEME : 9.2 AS IS APPARENT FROM THE AFORESAID PROVISIONS ONLY NINETY PERCENT OF PROFIT ON TRANSFER OF DEPB LICENSE FALLI NG WITHIN THE PROVISIONS OF SEC. 28(IIID) HAS TO BE INCREASED IN TERMS OF THE AFORESAID THIRD PROVISO WHILE DETERMINING DEDUCTION U/S 80HHC OF THE ACT. IN THIS CONNECTION IN THE AFORESAID DECIS ION DATED 11.8.2009 IN THE CASE OF M/S TOPMAN EXPORTS 318 ITR(AT) 87(MUMBAI) ( SB). THE FOLLOWING QUESTION WAS REFERRED TO THE SPECIAL BENCH: WHETHER THE ENTIRE AMOUNT RECEIVED ON SALE OF DEPB ENTITLEMENTS REPRESENTS PROFIT CHARGEABLE UNDER SECTION 28(IIID) OF THE INCOME TAX ACT OR THE PROFIT REFERRED TO THEREIN REQUIRES ANY ARTI FICIAL COST TO BE INTERPOLATED? 9.21 THE SPECIAL BENCH ADJUDICATED THE AFORESA ID QUESTION IN FOLLOWING TERMS: I) THE ARGUMENT OF THE REVENUE THAT DEPB IS A POST EXPORT EVENT AND HAS NO RELATION WITH THE PURCHASE OF GOODS CANNOT BE ACCEP TED. THERE IS A DIRECT RELATION BETWEEN DEPB AND THE CUSTOMS DUTY PAID ON THE PURCHASES . FOR PRACTICAL PURPOSES DEPB IS A REIMBURSEMENT OF THE COST OF PURCHASE TO THE EXTENT OF CUSTOMS DUTY; (II) THE DEPB BENEFIT (FACE VALUE) ACCRUES AND BECOMES A SSESSABLE TO TAX WHEN THE APPLICATION FOR DEPB IS FILED WITH THE CON CERNED AUTHORITY . SUBSEQUENT EVENTS SUCH AS SALE OF DEPB OR MAKING IM PORTS FOR SELF CONSUMPTION ETC ARE IRRELEVANT FOR DETERMINING THE ACCRUAL OF T HE INCOME ON ACCOUNT OF DEPB; ITA NO.1563/AHD/2007 10 (III) THOUGH S. 28 (IIIB) REFERS TO A CASH ASSISTA NCE AGAINST EXPORTS IT IS WIDE ENOUGH TO COVER THE FACE VALUE OF THE DEPB BENEFIT; (IV) S. 28 (IIID) WHICH REFERS TO THE PROFITS ON TRANSFER OF THE DEPB OBVIOUSLY REFERS ONLY TO THE PROFIT ELEMENT AND NOT THE GROSS SALE PROCEEDS OF THE DE PB. IF THE REVENUES ARGUMENT THAT THE SALE PROCEEDS SH OULD BE CONSIDERED IS ACCEPTED THERE WOULD BE ABSURDITY BECAUSE THE FACE VALUE OF THE DEPB WILL THEN GET ASSESSED IN THE YEAR OF RECEIPT OF THE DEPB AND ALSO IN THE YEAR OF ITS TRANSFER; (V) CONSEQUENTLY ONLY THE PROFIT (I.E. THE SALE VALUE LESS THE FAC E VALUE) IS REQUIRED TO BE CONSIDERED FOR PURPOSES OF S. 80HHC . 9.3 SINCE THE LD. CIT(A) HAVE NOT RECORDING A NY FINDINGS AS TO HOW THE DEPB LICENSES UTILIZED FOR IMPORT OF RAW MATERIAL OR THO SE IN STOCK FALL WITHIN CLAUSE (IIID) OF THE SEC. 28 OF THE ACT AND THE PROVISIONS OF T HIRD PROVISO TO SEC. 80HHC(3) HAVE BEEN INVOKED IN RESPECT OF THE ENTIRE AMOUNT O F RS. 1 37 18 524/- NOR THE LD. CIT(A) HAD THE BENEFIT OF THE AFORESAID DECISION IN THE CASE OF TOPMAN EXPORTS(SUPRA) WE CONSIDER IT FAIR AND APPROPRIAT E TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE ISSUE RELATING TO CLAIM FOR DEDUCTION U/S 80HHC OF THE ACT IN RELATION TO T HE AMOUNT OF DEPB AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPO RTUNITY TO BOTH THE PARTIES AND KEEPING IN VIEW THE AFORESAID DECISION OF THE SPECI AL BENCH. INTER ALIA THE ASSESSEE SHALL PLACE ALL THE NECESSARY EVIDENCE BEF ORE THE LD. CIT(A) AS TO HOW IT FULFILLS THE CONDITIONS STIPULATED IN THE THIRD PRO VISO TO SUB-SECTION (3) OF SEC. 80HHC OF THE ACT. NEEDLESS TO SAY THAT WHILE REDECIDING THE APPEAL THE LEARNED CIT(A) SHALL PASS A SPEAKING OR DER KEEPING IN MIND INTER ALIA THE MANDATE OF PROVISIONS OF SEC. 250(6) OF T HE ACT WITH THESE DIRECTIONS GROUND NOS.2 TO 7 IN THE APPEAL ARE DIS POSED OF. 10 AS REGARDS GROUND NO. 9 RELATING TO LEVY OF IN TEREST U/S 234A 234B AND 234C THE LD. AR ON BEHALF OF THE ASSESSEE ADMITTED THAT THESE ARE CONSEQUENTIAL IN NATURE. THE LEVY OF INTEREST U/S 234A 234B & 2 34C OF THE ACT BEING MANDATORY [COMMISSIONER OF INCOME TAX. VS ANJUM M. H. GHASWALA AND OTHERS 252 ITR 1(SC) AFFIRMED BY HON'BLE APEX COUR T IN THE CASE OF CIT V. HINDUSTAN BULK CARRIERS [2003] 259 ITR 449 (SC) AND IN THE CASE OF CIT V. SANT RAM MANGAT RAM JEWELLERS [2003] 264 ITR 564 (SC) ] THIS GROUND IS DISMISSED. HOWEVER THE AO MAY ALLOW CONSEQUENTIAL RELIEF IF ANY WHILE GIVING EFFECT TO THIS ORDER. ITA NO.1563/AHD/2007 11 11 GROUND NO.8 BEING GENERAL IN NATURE DOES NOT RE QUIRE ANY SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HA VING BEEN RAISED IN TERMS OF THE RESIDUARY GROUND THESE GROUNDS ARE DISMISSED. 12 IN THE RESULT THE APPEAL IS ALLOWED BUT FOR PAR TLY FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 9- 04-2010 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 9-04-2010 COPY OF THE ORDER FORWARDED TO : 1. M/S ALPANIL INDUSTRIES PLOT NO.81-82 PHASE-II GIDC VATVA AHMEDABAD 2. THE ACIT CIRCLE-6 AHMEDABAD 3. THE CIT CONCERNED 4. THE CIT(A)-XII AHMEDABAD 5. THE DR ITAT D BENCH AHMEDABAD 6. GUARD FILE BY ORDER DY.R/AR ITAT AHMEDABAD