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TMI Blog2012 (2) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... nal return of income on 28.11.2003 returning total income at Rs.35,11,659/-. After processing, the return was selected for scrutiny as a result of which original assessment was completed u/s 143(3) assessing the total income at Rs.1,84,61,300/-. Notice u/s 147/148 was subsequently issued by the AO on 18.3.10 and served upon the assessee on 19.3.10 calling upon the assessee to furnish its return of income. In response, the assessee submitted before the AO that the original return filed earlier may be considered as a return filed in response to notice u/s 147/148. It is stated in the assessment order that the assessee had challenged the initiation of proceedings u/s 147/148 before the Hon'ble High Court. However, the Writ Petition filed by the assessee in this behalf was dismissed by the Hon'ble High Court on 31.12.10. 4. The only issue in the present appeal is whether the value of scrap sale shown by the assessee should be included in the total turnover and profits of the business for computation of relief u/s 80HHC. 5. The assessee is a manufacturer of steel forgings, rigs and accessories. It is also engaged in the business of export. Following the order of this Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C, the entire value of scrap sales cannot be included in the profits of the business. What can be included in the profits of the business for working out the relief u/s 80HHC is the profit element in respect of sales of scrap and not the total sales of scrap. On the facts of the case, the profit element on sale of scrap is estimated at 7.5%. The AO is directed to include 7.5% of sales of scrap in the profits of the business for working out the relief u/s 80HHC. In this view of the matter, the order of the ld. CIT(A) directing the AO to include the total sales of scrap in the profits of the business is vacated. The AO is directed to include only 7.5% being estimated element of profit in the sale of scrap in the profits of the business for working out the relief u/s 80HHC. 10. Appeal filed by the Department is partly allowed. 11. In ITA No. 957/Chd/2011, the Department has taken the following grounds of appeal:- "1 That the ld. CIT(A) has erred in law and on facts in directing the AO for not reducing scrap sales from profit of the assessee-company for the purpose of calculating deduction u/s 80HHC of Income-tax Act, 1961. 2. That the ld. CIT(A) has err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s without any merit. 9. The A.R has also claimed in his submissions that Hon'ble Punjab & Haryana High Court had allowed deduction u/s 80HHC on DEPB in CIT v. F.C. Sondhi. I have perused the order of the Hon'ble High Court which in facts has been quoted by the AO in the assessment order. A plain reading of eh order shows that the Hon'ble Bench was in agreement with the Hon'ble Bombay High Court decision in the case of CIT v. Kalpataru Colours and Chemicals and had accordingly directed the ITAT to pass the order in accordance with law. As such the AO has correctly appreciated the judgment of Hon'ble jurisdictional High Court and computed the deduction u/s 80HHC correctly." 13. Perusal of the appellate order passed by the CIT(A) further shows that the assessee had taken following grounds of appeal before him:- "iii) That the AO has erred in reducing 90% brokerage from the profits of the business while calculating deduction u/s 80HHC of the Income-tax Act. iv) That the AO has erred in not allowing deduction u/s 80HHC by excluding the value of scrap sale from the total turnover as well as profits of the business." 14. Aggrieved by the order passed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of taxability of the face value of DEPB and the profit on its sale. On this issue we hold that the face value of DEPB is chargeable to tax u/s 28(iiib) at the time of accrual of income, that is, when the application for DEPB is filed with the competent authority pursuant to exports and profit on sale of DEPB representing the excess of sale proceeds of DEPB over its face value is liable to be considered u/s 28(iiid) at the time of its sale. Whatever is said about DEPB shall also hold good for DFRC, on both its components viz. the face value of DFRC and profit on its transfer, except for the fact that the profit on sale of DFRC shall be charged to tax u/s 28(iiie). There is no dispute about the duty drawback, which shall be chargeable to tax at the time of accrual of income u/s 28(iiic) when application is filed with the competent authority after making exports. Since the necessary facts for the determination of the quantum of deduction u/s 80HHC as discussed above, are not available on record. We, therefore set aside the impugned orders and direct the AO to compute the amount of relief in accordance with the view expressed by us herein above." In view of the aforesaid, in s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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