TMI Blog2012 (6) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... d:- 1-6-2012 - MR. JUSTICE SANJIV KHANNA, MR. JUSTICE R.V. EASWAR, JJ. For Appellant: Ms. Rashmi Chopra, Sr. Standing Counsel. For Respondent: Mr. Salil Aggarwal Mr. Prakash Kumar, Advocates. , SANJIV KHANNA, J.: Revenue has preferred these appeals under Section 260A of the Income Tax Act, 1961 (Act, for short) in which the issue and contention which requires examination is whether the premium received on sale of export quota is covered by Section 28(iiia) to 28(iiic) and accordingly, has to be included while computing the deduction as per the provisos to sub-Section (3) of Section 80HHC of the Act. 2. The assessees and the assessment year involved are different and we only record that the assessees have succeeded in all cases before the tribunal. As an identical or similar legal issues and question of law arise for our consideration, the appeals are being disposed of by this common order. Before we examine facts of each individual cases, we deem it appropriate to refer to and examine the legal position. 3. Section 28(iiia) to 28(iiie) read as under: 28. Profits and gains of business or profession. The following income shall be chargeable to income tax u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods : Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiia) (not being profits on sale of a licence acquired from any other person), and clauses (iiib) and (iiic) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. 6. Provided further that in the case of an assessee having export turnover not exceeding rupees ten crores during the previous year, the profits 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 increased by the amount which bears to ninety per cent. of any sum referred to in clause (iiid) or clause (iiie), as the case may be, of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee : Provided also that in the case of an assessee having export turnove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation. For the purposes of this clause, rate of credit allowable means the rate of credit allowable under the Duty Free Replenishment Certificate, being the Duty Remission Scheme calculated in the manner as may be notified by the Central Government ; ‟ ; Explanation.--For the purposes of this sub-section,-- (a) "adjusted export turnover" means the export turnover as reduced by the export turnover in respect of trading goods ; (b) "adjusted profits of the business" means the profits of the business as reduced by the profits derived from the business of export out of India of trading goods as computed in the manner provided in clause (b) of sub-section (3) ; (c) "adjusted total turnover" means the total turnover of the business as reduced by the export turnover in respect of trading goods ; (d) "direct costs" means costs directly attributable to the trading goods exported out of India including the purchase price of such goods ; (e) "indirect costs" means costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover ; (f) "trading goods" means goods which are not manufactured or processed by the assessee. xxx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort quota is not covered under Clause 28(iiia), as it applies to sale, profit on sale of a licence granted under the Import (Control) Order, 1955. Export quota permits were not issued under the said Order. Export quota sale earnings are not cash assistance or duty on customs or excise repaid or repayable as drawback. It has no concern with excise or customs duty paid on exports. Export quota permits were not issued on the said basis/criteria. Thus the earnings from sale of export quota would not fall under 28(iiib) and (iiic). Section 28(iiid) and 28(iiie) were introduced by Taxation Laws (Amendment) Act, 2005, with retrospective effect from 1st April, 1998 and 1st April, 2001 respectively. These clauses have to be accordingly considered only in cases where assessment years 1998-99 and 2001-02 onwards are involved. Duty Entitlement Passbook Scheme entitles the importers to set off customs duty payable on the import from the credit available under the said Scheme. It is only the profit earned on the transfer which is exigible and covered by Section 28(iiid) and not the original amount mentioned and recorded in the Duty Entitlement Passbook Scheme. The original/principal amount is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) for the purpose of Section 80HHC(3) of the Act. 11. The Office Memorandum, in question dated 23rd February, 1998 reads as under: The undersigned is directed to refer to PMO‟s DO No. 247/JS(5)/98 dated Feb 2, 1998 on the subject cited above. In the representation enclosed therein, a clarification has been sought by AEPC as to whether the premium received for the transfer of export quota would be treated as a part of export profit eligible for deduction u/s 80HHC of the Income Tax Act or not. (ii) deduction u/s 80HHC is allowed on export profits with a view to encourage earnings in convertible foreign exchange. Since the premium payment on export quotas under electronic transfer system does not involve any earnings in foreign exchange, this amount does not qualify for deduction u/s 80HHC. (iii) Technically, export premium can be equated with the items mentioned in section 28(iiia) (profit on sale of import licenses) section 28(iiic) (duty drawback). (iv) Therefore, the present item viz the premium on sale of export quota statutorily receive the same treatment as profit on sale of import license, cash assistance and duty drawback. 12. It is not possible to agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption notification had already been granted, the Revenue would remain bound. The purpose was to see that such cases were not reopened. However, this did not mean that even in cases where the Revenue/Department had already contended that the benefit of an exemption notification was not available, and the matter was sub judice before a court or a tribunal, the court or tribunal would also give effect to circulars of the Board in preference to a decision of the Constitution Bench of this Court. Where as a result of dispute the matter is sub judice, a court/tribunal is, after Dhiren Chemical case [(2002) 2 SCC 127 : (2002) 139 ELT 3] , bound to interpret as set out in that judgment. To hold otherwise and to interpret in the manner suggested would mean that courts/tribunals have to ignore a judgment of this Court and follow circulars of the Board. That was not what was meant by para 9 of Dhiren Chemical case [(2002) 2 SCC 127 : (2002) 139 ELT 3] . 14. Thereafter, in Ratan Melting Wire Industries (supra) it has been held: 7. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Court or the tribunal and effect will be given to the law as elucidated regardless of what has been stated in the circular. 16. Recently again in State of Tamil Nadu vs. India Cements Ltd. (2011) 13 SCC 247, the Supreme Court quoted from Ratan Melting and Wire Industries (Supra), but ultimately dismissed the appeal of the Revenue observing that in the said case the Revenue had not claimed or stated that the circular was contrary to the statute. 17. The circular quoted above states that export premium can be equated with the items mentioned in Section 28(iiia) to (iiic) and, therefore, it will statutorily receive the same treatment as profit on sale of import license, cash assistance and duty drawback. The question which arises is whether the same treatment referred to is only with reference to Explanation (baa) but also with reference to provisos to Section 80HHC (3). This has not been clarified or stated in the circular. Also which specific sub-clause i.e. (iiia) or (iiib) or (iiic) to Section 28 will apply is not stated. Explanation (baa) to Section 80HHC specifically refers to receipts under clauses (iiia) to (iiie) of Section 28 or receipts in nature of brokerage, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aru Colours and Chemicals [ (2010) 328 ITR 451 (Bom)] , that the entire amount received by an assessee on sale of the Duty Entitlement Pass Book (for short the DEPB ) represents profit on transfer of DEPB under Section 28(iii-d) of the Income Tax Act, 1961 (for short the Act ). We have already decided this issue in favour of the assessee in a separate judgment in Topman Exports v. CIT [(2012) 3 SCC 593] and other connected matters and we have held that not the entire amount received by the assessee on sale of DEPB, but the sale value less the face value of the DEPB will represent profit on transfer of DEPB by the assessee. The first issue is, therefore, decided accordingly. 18. This brings us to the facts of the individual cases. ITA No. 591/2008 19. This appeal relates to Nagesh Knitwears Pvt. Ltd. and pertains to the assessment years 2003-04. By order dated 28th October, 2009, the following substantial question of law was framed:- Whether the amount received by the assessee from the sale of quota for export of goods could be equated with income mentioned in Sections 28(iiia) or Section 28 (iv) of the Income Tax Act, 1961 so as to be eligible for deduction under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 28 (iiia) because he has already deducted 90% of the premium on sale of export quota from the profit of business as per Explanation (baa). Under the provisions of Explanation (baa) only 90% of the sums referred in clauses (iiia) (iiib) (iiic) of section 28 etc. or any receipts of similar nature are required to be excluded. As the A.O. had deducted 90% of premium on sale of export quota as per Explanation (baa), he has already treated the nature of premium on sale of export quota as that of the sum referred in section 28 (iiia), which relates to receipts from sale of import licenses. Once, the A.O. has treated the nature of premium on sale of export quota as being the same as receipts from sale of import licenses mentioned in section 28 (iiia), he cannot deny the benefit of increase as mentioned in proviso to section 80HHC(3) as per which 90% of sum mentioned in section 28(iiia) in the ratio of export turnover to total turnover has to be added to the profit computed u/s 80HHC(3). The Chandigarh bench of the tribunal in case of M/s. Gateway Pvt. Ltd. (supra), has also allowed the claim of the assessee in relation to premium on sale of export quota while computing deduction u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) and the provisos to Section 80HHC(3). 29. In view of the position explained above, it is held that the premium/profit on sale of export quota is not covered by Section 28 (iiia) to (iiie) of the Act and accordingly the deduction under the provisos to Section 80HHC (3) has to be computed. The question of law is answered in favour of the Revenue and against the assessee. ITA Nos.993/2008 994/2008 30. These appeals by the Revenue in the case of Orient Crafts Ltd. pertain to the assessment years 2001-02 and 2000-01, respectively. By the order dated 17th May, 2010 following two substantial question of law were framed: a) Whether the proceeds from the sale of an export quota is covered by the provisions of section 28(iiia) of the Act so as to be taken into consideration while computing deduction under section 80HHC (3) of the said Act? b) Whether the Income Tax Appellate Tribunal had erred in law in holding that assessment order passed under section 143(3) of the Income Tax Act, 1961 was not prejudicial to the interest of the revenue and thereby holding that the proceedings under section 263 of the said Act were without jurisdiction? 31. Further on 22nd May, 2012, an addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that as per the provisos to Section 80HHC(3), the profit has to be computed after increasing the amount which bears to 90% of the same referred to in 28 (iiia) i.e. profit on sale of export license, but this had not been allowed and followed by the Assessing Officer. The assessee, therefore, succeeded in the first appeal. 35. The tribunal by order dated 7th September, 2007 in ITA 2210 2211/Del/2005 held that the Commissioner was not justified in invoking his power under Section 263 as the view taken by the Assessing Officer was plausible. They referred and relied upon Malabar Industrial Company Limited Vs. CIT (2000) 243 ITR 83 (SC) and the decision of Delhi High Court in Nabha Investments Pvt. Ltd. Vs. Union of India Others (2000)246 ITR 41. The tribunal also examined the case on merits and came to the conclusion that the addition was not justified in view of the circular issued by the Board. On correct interpretation of law, the assessee was entitled to include premium or profit on sale of export quota in Section 28 (iiia/b/c). Accordingly, the twin conditions i.e. order of the Assessing Officer should be erroneous and prejudicial to the interest of the Revenue, were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word erroneous in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word erroneous in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. 13. In the said judgment, Delhi High Court had referred to earlier decisions of the Supreme Court in Rampyari Devi Sarogiv. CIT (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal v. CIT (1973) 88 ITR 323 (SC), wherein it has been held that where Assessing Officer has accepted a particular contention/issue without any enquiry or evidence whatsoever, the order is erroneous and prejudicial to the interest of the Revenue. After reference to these two decisions, the Delhi High Court observed:- These two decisions show that it is not necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of lack of inquiry that such a course of action would be open. In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113): From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue‟. It is not an arbitrary or unchartered power, it can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or incomplete interpretation a lesser tax than what was just has been imposed We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be erroneous‟ simply because in his order he did not make an elaborate discussion in that regard. 16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT v. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. 18. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, (2000) 243 ITR 83 (SC), had observed that the phrase prejudicial to the interest of Revenue‟ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HHC. On this issue, the liberal interpretation of any statute cannot be relied upon in view of the judgment of the Hon‟ble Supreme Court in the case of NOVO Pan India [73 ELT 769] wherein it was held that The principal that in case of ambiguity, a taxing statute should be construed in favour of the assessee assuming that the said principle is good and sound-does not apply to the construction of an exception or an exempting provision; they have to be construed strictly. A person invoking an exception or any exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. In case of doubt or ambiguity, benefit of it must go to the State. This is for the reason explained in Mangalore Chemicals and other decisions, viz. each such exception/exemption increases the tax burden on other member of the community correspondingly. Once, of course, the provision is found applicable to him, full effect must be given to it.‟ Hence deduction u/s 80HHC has to be computed accordingly by reducing profit of business by 90% of the receipts from sale of quota rights. 8. x x x x x x x 9. Moreover, on perusal of the record, it is see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are covered under the first proviso to Section 80HHC (3) of the Income Tax Act? 40. For the reasons stated above, the question of law framed is answered in negative i.e. in favour of the Revenue and against the respondent-assessee. ITA 832/2009 41. This appeal has been preferred against Vogue Setters and relates to the assessment year 2003-04. By order dated 10th September, 2009, the following substantial question of law was framed:- Whether the amount received by the Assessee from the sale of quota for export of goods could be equated with income mentioned in Sections 28 (iiia) to 28 (iiie) or Section 28 (iv) of the Income Tax Act, 1961 so as to be eligible for a deduction under Section 80HHC of the Act. 42. In the said assessment year, the assessee had earned premium of Rs.12,26,140/- on sale of export quota. The Assessing Officer held that this premium is covered by Section 28 (iiia/b/c) and accordingly computed deduction under Section 80HHC but without giving benefit of provisos under sub Section (3) to Section 80HHC. He observed that the export turnover in the previous year was exceeding Rs.10 crores and the assessee had not complied with the several conditions men ..... X X X X Extracts X X X X X X X X Extracts X X X X
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