, Û
IN THE INCOME TAX APPELLATE TRIBUNAL " A " BENCH,
MUMBAI
[^ .. [ , ^ [ Û ¢
BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER &
SHRI SANJAY GARG ,JUDICIAL MEMBER
ITA NO.2329/MUM/2011(A.Y. 2004-05)
ACE IMPEX, / The Asst.Comm.of Income
105, New Tejpal Indl. Tax, Range 12(1),
Vs.
Premises, Andheri Kurla Aaykar Bhavan,
Road, Sakinaka, MK Road, Mumbai 400020
Andheri (E),
Mumbai 400 072
. / . / PAN/GIR No. : AAGFA0317A
(Applicant) .. Respondent)
Appellant by Shri Iswar Rathi
Respondent by Shri S. Padmaja
/ Date of Hearing : 01/12/2014
/Date of Pronouncement : 23/01/2015
/ O R D E R
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against order of Ld.
CIT(A)-23 Mumbai dated 31/1/2011 for assessment year 2004-05. The assessee has
taken the following grounds of appeal:
1. That the learned Commissioner of Income Tax Appeals has erred in confirming the
reopening of assessment, whereas against the original assessment order u/s 143 (3) the
2 ITA NO.2329/MUM/2011(A.Y. 2004-05)
appellant has filed an appeal before the CIT (A) and hence the original assessment order
u/s 143(3) has been merged with the order of the CIT (A).
2. Further without prejudice to the above, the learned Commissioner of Income Tax
Appeals has erred in confirming the reopening of assessment for change of opinion on the
facts which were on records and the same has been considered by the assessing officer
while passing the original assessment u/s 143 (3) of the IT Act.
3. Without prejudice to the above, the learned Commissioner of Income Tax Appeals has
erred in confirming the reduction of claim u/s 80 IB on export incentives in the form of
DEPB.
4. Without prejudice to the above, the learned Commissioner of Income Tax Appeals has
erred in confirming the reduction of claim u/s 80 HHC on total export incentives received in
the form of DEPB.
5. That the learned Commissioner of Income Tax (Appeals) has erred in confirming the
chargeability of Income Tax on profit on transfer of Duty Entitlement Pass Book scheme
defined u/s 28 (Hid), whereas the same is not forming part of Income as definition u/s 2
(24).
6. That the learned Commissioner of Income Tax (Appeals) has erred in not adjudicating
the issue on chargeability of interest u/s 234 B, 234 C and 220 (2) though as per CBDT's
circular No. 2/2006 dt. 17/01/2006 no interest should have been charged.
7. Your appellant craves leave to consider each of the above grounds of appeal without
prejudice to each other and to add, alter, amend or furnish fresh and detailed grounds of
appeals.
2. The brief facts are that the assessee had filed its return of income on
30/10/2004 declaring total income at Rs.4,80,13,460/- in which deduction under
section 80 HHC and 80 IB of the Income Tax Act, 1961 (the Act) was claimed.
The assessment was completed under section 143(3) of the Act on 18/9/2006
assessing total income at Rs.5,95,91,520/-. The AO in the said assessment order had
allowed deduction under section 80HHC at Rs.86,78,486/- and deduction under
section 80 IB at Rs.2,11,10,855/-. The AO thereafter observed that while calculating
deduction allowable under section 80HHC the total adjusted turnover was taken at
Rs.31,54,41,033/-. However, while doing so, turnover of 80IB unit was not included
3 ITA NO.2329/MUM/2011(A.Y. 2004-05)
in the total turnover over. Thus, the assessment had resulted into under assessment to
the extent of Rs.18,53,039/-. The AO also observed that while calculating profits
eligible for claim of deduction under section 80IB, the assessee had included DEPB
of Rs.92,62,828/-. Since DEPB was not a profit derived from industrial undertaking,
therefore, the same was not eligible for deduction under section 80IB of the Act.
He, therefore, relying upon the decision of Hon'ble Supreme Court in the case of
Sterling Foods, 237 ITR 579(SC) reopened the assessment under section 147 of the
Act. The assessee objected to the reopening of the assessment and also contested the
proposed additions on merit. It was submitted that the reopening was based only on
change of opinion whereas the issue was properly dealt with during the assessment
proceedings under section 143(3) of the Act. It was also submitted that the assessee
was maintaining separate books of account for both the units and as such while
calculating deduction under section 80HHC only relevant figure of non 80IB units
was required to be considered and not the total turnover to the entire unit. It was
also submitted that so far the deduction under section 80IB relating to DEPB was
concerned, the decision of the Hon'ble Supreme Court in the case of Sterling Foods
(supra) was not applicable which was given in relation to deduction under section
80HH and not under section 80IB of the Act. The AO however, was not satisfied
with the submissions of the assessee. He, therefore, included the turnover of 80IB
unit and thus, took the total turnover of both the units at Rs.43,57,35,269/-. He
observed that as per the the third proviso to section 80HHC which has been inserted
by the Taxation Law Amendment Act, 2005 with retrospective effect from 1/4/1998,
4 ITA NO.2329/MUM/2011(A.Y. 2004-05)
the deduction under section 80HHC could be allowed to the assessee with respect to
DEPB, only if ,the assessee fulfils certain conditions as laid down in the said proviso.
The burden to prove that the assessee fulfilled those conditions was on the assessee,
which , the assessee failed to discharge. The AO,therefore, took the value of DEPB
for calculating deduction under section 80 HHC at Rs.nil. He further observed that
as per the provisions of section 80IA(9) r.w. provisions of section 80 IB(13), if an
assessee had claimed the deduction under section 80 IB, then the deduction under
any provision of Chapter VIA-C cannot be allowed. He, therefore, held that no
deduction could be allowed to the assessee as per provisions of section 80HHC with
respect to the profits that were claimed and allowed as per provisions of section
80IB. He also held that the DEPB receipts did not constitute the profits derived from
industrial undertaking, hence, was not eligible for deduction under section 80IB.
Aggrieved by the order of the AO the assessee preferred an appeal before Ld.
CIT(A).
3. Ld. CIT(A) upheld the findings of the AO in reopening of the assessment
under section 147 of the Act holding that the AO had sufficient reasons to believe
that the income of the assessee had escaped assessment. He also upheld the
findings/computation made by the AO with regard to section 80HHC and 80IB of the
Act. He however, noticed that there were certain calculation mistake while
computing the income which he directed the AO to rectify. Aggrieved by the order
of Ld. CIT(A) the assessee has come in appeal before us.
5 ITA NO.2329/MUM/2011(A.Y. 2004-05)
Ground No.1 &2.
4. Vide ground No.1 & 2 the assessee has agitated the reopening of the
assessment under section 147 of the Act. Ld. AR of the assessee drew our attention
to paper book page -37, which is the copy of reasons recorded by the AO on the basis
of which the AO formed the belief that the income of the assessee had escaped
assessment during the assessment proceedings under section 143(3) of the Act. The
first reason mentioned by the AO is that while calculating deduction allowable under
section 80HHC the turnover of 80IB unit was not included which resulted into under
assessment of income. The assessee has contended that it was maintaining separate
accounts of both the units and the turnover of 80IB unit was not to be included in the
total turnover. We find that as per the provisions of section 80HHC the turnover of
80IB and non 80IB units is to be taken together, hence, there was escapement of
income as the AO had failed to include the total turnover of 80IB unit into total
turnover of the business of the assessee. Hence, the reopening of the assessment on
this ground was valid as the AO had reasons to believe that the income of the
assessee had escaped assessment. The second issue on which the assessment was
reopened was in relation to receipts of DEPB, wheth, eligible for 80 IB deduction.
This issue at the time of reopening of the assessment was a debatable issue. The
view taken by the AO the assessment proceedings was that DEPB receipts had to be
included in respect of in the deductions claimed under section 80IB of the Act. The
6 ITA NO.2329/MUM/2011(A.Y. 2004-05)
other view that the DEPB receipts were not the income derived from industrial
undertaking hence, not eligible for deduction under section 80IB was also a possible
view which was later on upheld by the Hon'ble Supreme Court in the case of Liberty
India vs. CIT, 317 ITR 218 (SC). However, at the time of reopening of the
assessment, the view taken by the AO during the assessment proceedings under
section 143(3), was one of the possible view, hence, the reopening on this ground
was not justified.
4.1 However, since we haveupheld that the first contention that the total turnover
would include turnover of 80IB unit, hence, the AO had reasons to believe that the
income of the assessee had escaped assessment, hence, reopening of the assessment
is held to be valid. This issue is accordingly decided against the assessee.
Ground No.3,4,&5:
5. Grounds No.3,4 & 5 are inter connected and hence the same are taken
together for adjudication. Vide ground No.3 the assessee has agitated the action of
Ld. CIT(A) in reducing the receipts of DEPB from deduction claimed under section
80IB of the Act. Ground No.4 & 5 relate to the computation of deduction under
section 80HHC of the Act and chargeability of income in relation to export
incentives received by the assessee in the form of DEPB.
7 ITA NO.2329/MUM/2011(A.Y. 2004-05)
5.1 The AO held that DEPB profit was not eligible for deduction u/s 80IB as the
same was not the income derived from eligible industrial undertaking. It may be
observed that the Hon'ble Supreme Court in the case of Liberty India v. CIT[(2009)
317 ITR 218 (SC)] has held that duty drawback / DEPB are not derived from
industrial undertaking and hence no deduction is available u/ss 80-I, 80-IA and 80-
IB. This issue is accordingly decided against the assessee. So far the deduction u/s
80HHC in relation to receipts of DEPB is concerned , We may note here that certain
amendments have been made in section 28 & 80HHC of the Income Tax Act vide
Taxation Laws Amendment Act, 2005, according to which, the assessee whose total
export turnover exceeds Rs. 10 crores, is not entitled for the deduction u/s.80-HHC
on the receipt of DEPB licence premium unless he fulfills the following
two conditions :-
"(a) he had an option to choose either the duty drawback or the duty
entitlement pass book scheme, being the 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 entitlement pass book scheme being
the duty remission scheme."
5.2 The said amended provisions have been made operative retrospectively w.e.f.
1.4.1998. The Assessing Officer observed that in view of the amended provisions,
the assessee was not entitled for deduction u/s. 80HHC on the receipt of DEPB
incentives as the assessee did not furnish the relevant details in respect of those
credits/receipts and thus failed to justify the claim u/s. 80HHC. However, we find
8 ITA NO.2329/MUM/2011(A.Y. 2004-05)
that the Hon'ble Bombay High Court in the case of Vijaya Silk House (Bangalore)
Ltd. (WP No. 2446 of 2010 aongwith other WPs), wherein the Taxation Laws
Amendment Act, 2005 was challenged in respect of insertion of clause (iiid) & (iiie)
to section 28 and insertion of the third and fourth provisos to section 80HHC of the
Income Tax Act, 1961, has disposed off the said petition in view and in terms of the
law laid down by Hon'ble Gujarat High Court passed in other similar Writ Petitions.
Operative part of the order is reproduced as under :-
"26. On consideration of the entire materials on record, we, therefore, find substance in the
contention of the learned counsel for the petitioners that the impugned amendment is
violative for its retrospective operation in order to overcome the decision of the Tribunal,
and at the same time, for depriving the benefit earlier granted to a class of the assessees
whose assessments were still pending although such benefit will be available to the
assessees whose assessments have already been concluded. In other words, in this type of
substantive amendment, retrospective operation can be given only if it is for the benefit of
the assessee but not in a case where it affects even a fewer section of the assessee.
27. We, accordingly, quash the impugned amendment only to this extent that the operation
of the said section could be given effect from the date of the amendment and not in respect
of earlier assessment years of the assessees whose export turnover is above Rs. 10 Crore. In
other words, the retrospectiveamendment should not be detrimental to any of the assessee."
5.3 Learned AR has further brought our attention to the law laid down by
Hon'ble Supreme Court in the case of Topman Exports Vs. CIT, 342 ITR 49, where
in the hon'ble Supreme court has observed that the objective of DEPB is to neutralise
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 cost of customs duty is neutralized under the DEPB scheme,
by granting a duty credit against the export product and this credit can be utilised for
paying customs duty on any item which is freely importable. DEPB is `cash
9 ITA NO.2329/MUM/2011(A.Y. 2004-05)
assistance' receivable by a person against exports under the scheme of the
Government of India and falls under Section 28(iiib) of the Act. Accordingly, DEPB
is chargeable to income tax under the head `Profits and Gains of Business or
Profession' even before it is transferred by the taxpayer. Under Section 28(iiid) of the
Act, any profit on transfer of DEPB is chargeable to income tax under the head
`Profits and Gains of Business or Profession' as an item separate from cash
assistance under Section 28(iiib) of the Act. The face value of the DEPB will fall
under Section 28(iiib) of the Act, the difference between the sale value and the face
value of the DEPB will fall under Section 28(iiid) of the Act. The cost of acquiring
DEPB 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, we direct the Assessing Officer to
make assessment a fresh on this issue in view of the law laid down by Hon'ble
Bombay High Court in the case of Vijaya Silk House (Bangalore) (supra) and
further, if need be, as per the law laid down by Hon'ble Supreme Court in the case of
Topman Exports (supra).
Ground No.6:
6. Vide ground No.6 the assessee has agitated the levy of interest under section
234B, 234C and 220(2) of the Act. The assessee has pleaded that as per CBDT
Circular No. 2/2006 dated 17/1/2006 no interest should have been charged from the
assessee. This ground being consequential does not require any specific
10 ITA NO.2329/MUM/2011(A.Y. 2004-05)
adjudication. However, we direct that the AO will take into consideration the said
Circular No.2/2006 dated 17/1/2006, if any, interest is found chargeable from the
assessee under section 234B, 234C and 220(2) of the Act.
Ground No.7:
Ground NO.7 is general in nature, therefore, does not require any adjudication.
In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 23 /01/2015 .
Û 23 /01/2015
Sd/- Sd/-
(R.C.SHARMA) (SANJAY GARG)
/ACCOUNTANT MEMBER Û /JUDICIAL MEMBER
Mumbai; Dated 23/01/2015
/Copy of the Order forwarded to :
1. / The Appellant
2. × / The Respondent.
3. () / The CIT(A)-
4. / CIT
5. , ,
/ DR, ITAT, Mumbai
6. [ / Guard file.
/ BY ORDER,
× //True Copy//
/
(Dy./Asstt. Registrar)
, / ITAT, Mumbai
.. Sr. PS-VM
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