TEXPORT (INDIA), MUMBAI v. ACIT CIR 21(3), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH BEFORE SHRI D.K.AGARWAL JUDICIAL MEMBER & SHRI T.R.SOOD ACCOUNTANT MEMBER I.T.A.NOS.5515 & 5516/MUM/2009 A.YRS. 2002-03 & 2003-04 TEXPORT (INDIA) 49/50 ANIL CHAMBERS 9-A SAMHITA COMPLEX ANDHERI KURLA ROAD SAKI NAKA MUMBAI 400 072. PAN: AABFT 6330 M VS. ASST. COMMISSIONER OF I.T. CIRCLE 21 (3) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TARUN GHIA. RESPONDENT BY : SHRI S.K.SINGH. O R D E R PER T.R.SOOD AM: THE APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST CI T(A)S ORDERS FOR THE A.YRS. 2002-03 AND 2003-04. 2. I.T.A.NO.5515/M/09 HAS BEEN FILED LATE BY 1243 D AYS AND I.T.A.NO.5516/M/09 IS LATE BY 894 DAYS. BEFORE US LD.COUNSEL OF THE ASSESSEE SUBMITTED THAT THE CIT HAD CONFIRMED THE A CTION OF THE AO IN THE LIGHT OF THE RETROSPECTIVE AMENDMENT MADE BY TA XATION LAWS (AMENDMENT) ACT 2005 TO SEC.80HHC. IT WAS STATED T HAT ASSESSEE CAME TO KNOW THAT INDIAN EXPORTERS FEDERATION WAS G OING TO CHALLENGE THE CONSTITUTIONAL VALIDITY OF THE ASSESSMENT AND A SSESSEE WAS ADVISED TO FILE APPEAL ONLY AFTER KNOWING THE RESULT OF THE OUTCOME OF THAT DECISION. IT WAS FURTHER SUBMITTED THAT WHEN SPECIA L BENCH OF THE TRIBUNAL DELIVERED THE DECISION IN THE CASE OF TOPM AN EXPORTS 318 ITR 2 [AT] 87 THE ASSESSEE DECIDED TO FILE THE APPEAL. T HEREFORE A LENIENT VIEW MAY BE TAKEN IN CONDONATION OF THE DELAY. 3. ON THE OTHER HAND LD. DR SUBMITTED THAT ASSESSE E HAS NEVER FILED ANY WRIT PETITION OR TAKEN ANY OTHER REMEDY W HICH COULD BE CONSTRUED AS WRONG REMEDY. FURTHER ASSESSEE HAS AL SO NOT FILED ANY COPY OF ADVICE FROM ANYBODY TO SHOW THAT ASSESSEE W AS ADVISED WRONGLY. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. THOUGH IN MATTER OF CONDONATION OF DELAY NORMALLY WE ARE TA KING A QUITE LIBERAL APPROACH FOR CONDONATION OF DELAY BUT AT THE SAME TIME THERE HAS TO BE A SUFFICIENT CAUSE. IN FACT THE HON'BLE SUPREME COURT IN THE CASE OF LACHMAN DAS ARORA V. GANESHI LAL [1999] 8 SCC 532 HAS OBSERVED AS UNDER: THERE IS NO GAIN SAYING THAT THE LAW OF LIMITATION MAY HARSHLY EFFECT A PARTICULAR PARTY BUT IT HAS TO BE APPLIED WITH ALL ITS VIGOUR WHEN THE STATUTE SO PRESCRIBES. THE COURTS CANNOT EXTEND THE PERIOD OF LIMITATION ON EQUITABLE GROUNDS. THE ASSESSEE HAD MORE OR LESS ACCEPTED THE DECISIO N OF THE CIT IN VIEW OF THE RETROSPECTIVE AMENDMENT AND DECIDED TO FILE THE APPEAL ONLY WHEN THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF TOPMAN EXPORTS [SUPRA] CAME WHEREIN IT WAS HELD THAT ONLY PROFIT ON DEPB SALES SHOULD BE CONSIDERED AS PROFIT. THE A SSESSEE HAS NOT SHOWN ANY OTHER SUFFICIENT REASON FOR FILING THE AP PEALS LATE. THERE IS NO FORCE IN THE SUBMISSION THAT ASSESSEE WAS ADVISE D TO WAIT FOR THE OUTCOME OF THE PETITION OF ALL INDIA EXPORTERS FEDE RATION. NO COPY OF SUCH A PETITION FILED BY THE INDIAN EXPORTERS FEDER ATION HAS BEEN FILED. 3 NEITHER A COPY OF ANY ADVICE FROM ANY CHARTERED ACC OUNTANT OR AN ADVOCATE NOR EVEN A NAME OF SUCH AN ADVOCATE HAS BE EN MENTIONED IN THE AFFIDAVIT. NORMALLY A LARGE COMPANY HAVING EXPO RT TURNOVER OF CRORES OF RUPEES WOULD NOT WAIT FOR THE OUTCOME OF WRIT PETITIONS FILED BY THE OTHER ASSESSEES BEFORE TAKING A DECISION WHE THER TO FILE A WRIT PETITION OR NOT. THEREFORE IT IS CLEAR THAT IT IS A CASE OF MERE NEGLIGENCE AND ACCORDINGLY WE REFUSE TO CONDONE THE DELAY. 5. IN BOTH THESE APPEALS VARIOUS GROUNDS HAVE BEEN RAISED BUT AT THE TIME OF HEARING THE LD.COUNSEL OF THE ASSESSEE SUBMITTED THAT THE DISPUTE REGARDING DEEMED CREDIT OF EXPORT INCENTIVE S IN A.Y 2002-03 IS NOT PRESSED. THE ONLY DISPUTE PRESSED FOR ADJUDICAT ION WAS REGARDING DENIAL OF DEDUCTION U/S.80HHC ON ACCOUNT OF DEPB U/ S.28[IIID]. HE FURTHER FAIRLY ADMITTED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. KALPATARU COLOUR & CHEMICAL 328 ITR 461. 5. ON THE OTHER HAND LD.DR RELIED ON THE ORDER OF THE CIT(A). 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THIS ISSUE HAS BEEN CONSIDERED BY THE HONBLE BOMBAY HIGH COUR T IN THE CASE OF KALPATARU WHEREIN IT WAS HELD AS UNDER: UNDER SUB SECTION (1) OF SECTION 80HHC A DEDUCTIO N IS ALLOWED TO THE EXTENT OF PROFITS DERIVED BY THE AS SESSEE FROM THE EXPORT OF GOODS TO WHICH THE SECTION APPLIES. SINCE THE DEDUCTION IS IN RESPECT OF PROFITS DERIVED FROM EXPORT SUB SECTION (3) LAID DOWN A FORMULA ON THE BASIS OF WHICH EXPORT PROFITS HAVE T O BE COMPUTED. UNDER CLAUSE (A) OF SUB SECTION (3) THE EXPRESSION PROFITS DERIVED FROM EXPORT ARE DEFINED TO BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS THE SAME PROPORTION AS THE EXPORT TURNOVE R IN RESPECT OF SUCH GOODS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS C ARRIED ON BY THE ASSESSEE. HOWEVER WHERE AN ASSESSEE CARRIES ON THE BUSINESS OF EXPORT OF TRADING GOODS CLAUSE (B) DEFINES EXPORT PROFITS TO BE THE EXPORT TURNOVER IN RESPECT OF SUCH TRADING GOODS WHICH IS TO BE REDUCED BY THE 4 DIRECT AND INDIRECT COSTS ATTRIBUTABLE TO THE EXPOR T. IN THE APPLICATION OF THE FORMULA TO A MANUFACTURER EXPORTER CLAUSE (A) REFERS TO THE PROFITS OF THE BUSINESS. THE EXPRESSION PROFITS OF THE BUSI NESS. THE EXPRESSION PROFITS OF THE BUSINESS MEANS PROF ITS AS COMPUTED UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SECTIONS 28 TO 44D AND THEY ARE THEREUPON TO BE RED UCED TO THE EXTENT PROVIDED BY CLAUSES (1) AND (2). SECTION 28 ELUCIDA TES INCOMES WHICH SHALL BE CHARGEABLE TO INCOME TAX UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. CLAUSES (IIIA) (IIIB) AND (IIIC) WERE INSERTED INTO THE SECTION BY THE FINANCE ACT OF 1990. BY THE FINANCE ACT 2005 PARLIAMENT INSERTED A SPECIFIC CLAUSE NAMELY CLAU SE (IIID) IN SECTION 28 TO THE EFFECT THAT PROFITS ON TRANSFER OF DEPB I.E . THE AMOUNT RECEIVED ON TRANSFER OF DEPB IS INCOME CHARGEABLE TO TAX UND ER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. AS REGARDS THE DEDUCTION UNDER SECTION 80 HHC THE LEGISLATURE SUBSTITUTED EXPLANATION (BAA) IN SECTION 80HHC SO A S TO EXCLUDE 90% OF THE PROFITS RECEIVED ON TRANSFER OF DEPB FROM TH E PROFITS OF BUSINESS FOR THE PURPOSES OF SECTION 80HHC AND INSERTED THE SECOND AND THIRD PROVISOS TO SECTION 80HHC(3). THE SECOND PROVISO IT WAS PROVIDED THAT IN THE CASE OF AN ASSESSEE HAVING AN EXPORT TU RNOVER NOT EXCEEDING RS.10 CRORES THE PROFITS COMPUTED UNDER SECTION 80 HHC(3) SHALL BE INCREASED BY 90% OF THE SUM REFERRED TO IN SECTION 28(IIID). THE 3RD PROVISO IT WAS PROVIDED THAT IN THE CASE OF AN ASSE SSEE HAVING AN EXPORT TURNOVER EXCEEDING RS.10 CRORES THE PROFITS COMPUT ED UNDER SECTION 80HHC(3) SHALL BE INCREASED BY 90% OF THE SUM REFER RED TO IN SECTION 28(IIID) SUBJECT TO THE TWO CONDITIONS SET OUT THER EIN. WHAT CONSTITUTES APPLICATION SEEKING DEPB CREDIT WOULD MAKE NO DIFFE RENCE TO THE TAXABILITY OF THE ENTIRE AMOUNT RECEIVED ON TRANSFE R OF THE DEPB CREDIT UNDER SECTION 28(IIID). PROFITS UNDER SECTION 28(II ID) IS THE AMOUNT RECEIVED ON TRANSFER OF THE DEPB CREDIT AND NOT THE AMOUNT OF CREDIT WHICH THE ASSESSEE WAS ENTITLED TO UNDER THE DEPB S CHEME. IN OTHER WORDS THE AMOUNT EQUIVALENT TO THE FACE VALUE OF D EPB AS WELL AS THE AMOUNT RECEIVED IN EXCESS OF THE DEPB WOULD CONSTIT UTE PROFITS OF BUSINESS UNDER SECTION 28(IIID) AND MERELY BECAUSE A PART OF SUCH PROFITS OF BUSINESS (FACE VALUE) WAS OFFERED TO TAX IN THE YEAR IN WHICH THE CREDIT ACCRUED TO THE ASSESSEE WOULD NOT BE A G ROUND TO HOLD THAT SUCH PROFIT WAS NOT COVERED UNDER SECTION 28(IIID). WHERE THE FACE VALUE OF THE DEPB CREDIT IS OFFERED TO TAX AS BUSIN ESS PROFITS UNDER SECTION 28(IIID) IN THE YEAR IN WHICH THE CREDIT AC CRUED TO THE ASSESSEE THEN ANY FURTHER PROFIT ARISING ON TRANSFER OF DEPB CREDIT WOULD BE TAXED AS PROFITS OF BUSINESS UNDER SECTION 28(IIID) IN THE YEAR IN WHICH THE TRANSFER OF DEPB CREDIT TOOK PLACE THERE IS ANOTHER PERSPECTIVE FROM WHICH THE ISSUE C AN BE LOOKED AT. THE DEPB CREDIT TO WHICH AN EXPORTER IS ENTITLED IS A FORM OF AN EXPORT INCENTIVE. NO PART OF THE CREDIT THAT IS AVAILABLE UNDER THE DEPB SCHEME CAN FALL FOR CLASSIFICATION UNDER CLAUSE (II IB) OF SECTION 28 WHICH DEALS WITH CASH ASSISTANCE RECEIVED OR RECEI VABLE AGAINST ANY SCHEME OF THE GOVERNMENT OF INDIA. AS THE LEGISLATI VE HISTORY OF THE 5 PROVISION WOULD SHOW CLAUSE (IIIB) WAS ENACTED BY P ARLIAMENT AT A TIME WHEN THE EXPORT INCENTIVES THAT WERE AVAILABLE WERE (I) IMPORT ENTITLEMENT LICENCES; (II) CASH COMPENSATORY SUPPOR T; AND (III) DUTY DRAWBACK. THE DEPB SCHEME WAS NOT EVEN IN EXISTENCE WHEN CLAUSE (IIIB) CAME TO BE ENACTED INTO SECTION 28 BY THE FI NANCE ACT OF 1990. THE DEPB SCHEME WAS BROUGHT INTO EXISTENCE WITH EFF ECT FROM 1 APRIL 1997. CLAUSE (IIID) OF SECTION 28 WAS INSERTED BY T HE AMENDING ACT OF 2005 WITH EFFECT FROM 1 APRIL 1998. THE VALUE OF TH E DEPB CREDIT CAN BY NO MEANS BE REGARDED AS A CASH ASSISTANCE WHICH IS RECEIVED OR RECEIVABLE BY A PERSON AGAINST EXPORTS UNDER ANY SC HEME OF THE GOVERNMENT OF INDIA. IT CANNOT BE INFERRED FROM THE SPEECH OF THE FINANC E MINISTER THAT THE INSERTION OF CLAUSE (IIID) IN SECTION 28 WAS MADE W ITH A VIEW TO TAX ONLY THE AMOUNT WHICH HAS BEEN RECEIVED IN EXCESS O F THE FACE VALUE OF THE DEPB CREDIT. DEPB CREDIT WAS INTRODUCED WITH EF FECT FROM 1 APRIL 1997 WHICH WAS AFTER THE INSERTION OF CLAUSE (IIIB) IN SECTION 28; (B) SECTION 28(IIIB) REFERS TO CASH ASSISTANCE (BY WHAT EVER NAME CALLED) RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT PURSUA NT TO A SCHEME OF THE GOVERNMENT. THE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB CREDIT IS NOT RECEIVED BY THE ASSESSEE FROM THE GOV ERNMENT PURSUANT TO A SCHEME OF THE GOVERNMENT WITHIN THE MEANING OF CL AUSE (IIIC) AND (C) WHEN SECTION 28(IIID) SPECIFICALLY DEALS WITH PROFI TS REALIZED ON THE TRANSFER OF THE DEPB CREDIT IT WOULD BE IMPERMISSI BLE AS A MATTER OF FIRST PRINCIPLE TO BIFURCATE THE FACE VALUE OF THE DEPB AND THE AMOUNT RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB. T HE ENTIRETY OF THE SALE CONSIDERATION WOULD FALL WITHIN THE PURVIEW OF SECTION 28(IIID). RESPECTFULLY FOLLOWING THE ABOVE DECISION WE HOLD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S.80HHC. 7. IN THE RESULT ASSESSEES APPEALS ARE DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF FEBRUARY 2011. SD/- SD/- (D.K.AGARWAL) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI:4 TH FEBRUARY 2011. P/-* 6