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2015 (4) TMI 800 - ITAT AHMEDABAD

2015 (4) TMI 800 - ITAT AHMEDABAD - TMI - Deduction u/s 80HHC of Income Tax Act, 1961 on DEPB receivables & accruals - Denial of deduction u/s 80HHC on 90% of other income - Treatment of insurance claim received and C&F Stockist interest for the purpose of deduction u/s 80HHC - Addition on account of staff welfare expenses, selling & distribution expenses in absence of complete bills & vouchers - Treatment of Deferred revenue expenditure - Held that:- In the case of Topman Exports [2012 (2) TMI .....

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nd gains of business or profession" even before it is transferred by the assessee.

We are, thus, of the considered opinion that while the face value of the DEPB will fall under cl. (iiib) of s. 28 of the Act, the difference between the sale value and the face value of the DEPB will fall under cl. (iiid) of s. 28 of the Act and the High Court was not right in taking the view in the impugned judgment that the entire sale proceeds of the DEPB realized on transfer of the DEPB and not jus .....

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conclusion that as the assessee did not (sic) have the export turnover exceeding ₹ 10 crores and as the assessee did not fulfill the conditions set out in the third proviso to s. 80HHC(3), the assessee was not entitled to a deduction under s. 80HHC on the amount received on transfer of DEPB and with a view to get over this difficulty the assessee was contending that the profits on transfer of DEPB under s. 28(iiid) would not include the face value of the DEPB. It is a wellsettled principl .....

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ecide it afresh in the light of judgement of Hon’ble Gujarat High Court rendered in the case of Avani Exports [2012 (7) TMI 190 - GUJARAT HIGH COURT] and the judgement of Hon’ble Apex Court in the case of Topman Exports [2012 (2) TMI 100 - SUPREME COURT OF INDIA]. This ground of assessee’s appeal is allowed for statistical purposes.

Denial of deduction u/s 80HHC on 90% of other income - In the case of ACG Associated Capsules Pvt. Ltd. [2012 (2) TMI 101 - SUPREME COURT OF INDIA], it wa .....

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herein the Hon’ble Supreme Court held that ninety percent of not the gross rent or gross interest but only the net interest or net rent, which had been included in the profits of the business of the assessee as computed under the head “profits and gains of business or profession” is to be deducted under clause(1) of Explanation (baa) to section 80HHC for determining the profits of business. Therefore, respectfully following the ration laid down by the Hon’ble Apex Court, we hereby restore the is .....

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Interest, Misc. Income and Insurance Claim from the profits of the Business while calculating the deduction u/s. 80HHC of the Act - it was held that Applying the law laid down by the Hon'ble Supreme Court in the case of ACG Associated Capsules (P.) Ltd. (supra) the aforesaid questions are held in favour of the assessee and order passed by the ITAT in ITA No.2053/Ahd/2004 for AY 1997-98 is hereby quashed and set aside. Now, the AO to recompute the deduction under Section 80HHC of the Income- .....

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d/2007 - Dated:- 10-4-2015 - Shri N.S. Saini And Shri Kul Bharat For the Appellant : Shri S.N. Soparkar, AR For the Respondent : Shri M.K.Singh, Sr.DR ORDER Per Shri Kul Bharat, JUDICIAL MEMBER : These cross-appeals by the Assessee and the Revenue are directed against the order of the Ld.Commissioner of Income Tax(Appeals)-VIII, Ahmedabad ( CIT(A) in short) dated 25/01/2007 pertaining to Assessment Year (AY) 2003-04. 2. Briefly stated facts are that this is second round of litigation. In earlier .....

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on u/s.80HHC on DEPB receivables & accruals and deduction u/s.80HHC on 90% of other income and in Revenue s appeal the issue related to insurance claim received of ₹ 39,78,429/- and C&F Stockist interest at ₹ 5,77,309/- from the profit of the business for the purpose of computation of deduction u/s.80HHC of the I.T.Act. 3. First, we take up the Assessee s appeal in ITA No.1591/Ahd/2007 for AY 20033-04. The assessee has raised the following grounds of appeal:- 1. The learned C .....

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s right to add, or alter any grounds of appeal till the disposal of appeal. 4. Apropos to ground No.1, the ld.counsel for the assessee submitted that the ld.CIT(A) erred in disallowing deduction u/s.80HHC on DEPB receivables and accruals of 251.43 lacs and treating recognition of DEPB income in the year of realization of sale proceeds and not on accrual basis. The ld.counsel for the assessee reiterated the submissions as were made in the MA Nos.9 & 10/Ahd/2014. The submissions are reproduced .....

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er observed that no evidence was produced by the assessee company before the Tribunal to show that the conditions of the third Proviso have been fulfilled. The Hon'ble Tribunal has also referred to the finding of the learned CIT(A) that DEPB income accruing in the year of sale of DEPB entitlement would be considered and the provision for DEPB receivables and accruals on notional basis would not be considered as income for this purpose. It is further observed that the learned AR of the assess .....

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House (Bangalore) Ltd. v. Union of India (349 ITR 566). In its judgment the Hon'ble Bombay High Court has reproduced the following findings recorded by the Hon'ble Gujarat High Court in the case of Avani Exports (supra) on page 568 of the Report: "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 th .....

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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 ₹ 10 crores. In other words, the retrospective amendment should not be detrimental to any of the assessees." 5. It is respectfully submitted that the foresaid finding recorded by the Hon'ble jurisdictional High Court has resulted into reversal of the legal p .....

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this regard laid down by the Hon'ble Supreme Court in the case of Top Man Exports v. CIT (342 ITR 49). 4.1. On the contrary, the ld.DR has fairly conceded the legal position in view of the judgement of Hon ble Apex Court rendered in the case of Topman Exports vs. CIT reported at (2012) 342 ITR 49 (SC) and the judgement of Hon ble Jurisdictional High Court rendered in the case of Avani Exports vs. CIT reported at 348 ITR 391 (Guj.). 5. We have heard the rival submissions, perused the material .....

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DEPB is a kind of assistance given by the Government of India to an exporter to pay customs duty on its imports and it is receivable once exports are made and an application is made by the exporter for DEPB. We have, therefore, no doubt that DEPB is "cash assistance" receivable by a person against exports under the scheme of the Government of India and falls under cl. (iiib) of s. 28 and is chargeable to income-tax under the head "Profits and gains of business or profession" .....

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s transaction less the costs of the transaction, i.e. net proceeds. Excess of revenues over expenses for a transaction; sometimes used synonymously with net income for the period. Gain realized from business or investment over and above expenditures." This Court in E.D. Sassoon & Co. Ltd. & Ors. vs. CIT (1954) 26 ITR 27 (SC) has quoted the following observations of Lord Justice Fletcher Moulton in The Spanish Prospecting Company Ltd. (1911) I Ch. 92 on the meaning of the word " .....

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ferred and the difference between the two values is the amount of profit or gain made by a person. As DEPB has direct nexus with the cost of imports for manufacturing an export product, any amount realized by the assessees over and above the DEPB on transfer of the DEPB would represent profit on the transfer of DEPB. 14. We are, thus, of the considered opinion that while the face value of the DEPB will fall under cl. (iiib) of s. 28 of the Act, the difference between the sale value and the face .....

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fits on the sale of an import license as income chargeable to tax and when the license is sold, the entire amount is treated as profits of business under cl. (iiia) of s. 28 and thus there is no justification to treat the amount which is received by an exporter on the transfer of the DEPB any differently than the profits which are made on the sale of an import license under cl. (iiia) of s. 28 of the Act. In taking the view that when the import license is sold the entire amount is treated as pro .....

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resents the cost of the DEPB. The second reason given by the High Court in the impugned judgment is that under the DEPB Scheme, DEPB is given at a percentage of the FOB value of the exports so as to neutralize the incidence of customs duty on the import content of the export products, but the exporter may not himself utilize the DEPB for paying customs duty but may transfer it to someone else and therefore the entire sum received on transfer of DEPB would be covered under cl. (iiid) of s. 28. Th .....

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profits on transfer of the DEPB. 16. The High Court has sought to meet the argument of double taxation made on behalf of the assessees by holding that where the face value of the DEPB was offered to tax in the year in which the credit accrued to the assessee as business profits, then any further profit arising on transfer of DEPB would be taxed as profits of business under s. 28(iiid) in the year in which the transfer of DEPB took place. This view of the High Court, in our considered opinion, is .....

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ib) of s. 28 in the year in which the person applies for DEPB credit against the exports and the profit on transfer of the DEPB by that person will be chargeable as income under cl. (iiid) of s. 28 in his hands in the year in which he makes the transfer. Accordingly, if in the same previous year the DEPB accrues to a person and he also earns profit on transfer of the DEPB, the DEPB will be business profits under cl. (iiib) and the difference between the sale value and the DEPB (face value) would .....

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under cl. (iiid) of s. 28. The interpretation suggested by us, therefore, does not lead to double taxation of the same income, which the legislature must be presumed to have avoided. …… 20. Explanation (baa) under s. 80HHC states that "profits of the business" in the aforesaid formula means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by (1) ninety per cent of any sum referred to in cls. (iiia), .....

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the assessee if such DEPB has accrued to the assessee during the previous year. Similarly, if during the same previous year, the assessee has transferred the DEPB and the sale value of such DEPB is more than the face value of the DEPB, the difference between the sale value of the DEPB and the face value of the DEPB will represent the profit on transfer of DEPB covered under cl. (iiid) of s. 28 and ninety per cent of such profit on transfer of DEPB certificate will get excluded from "profit .....

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e face value of the DEPB does not get excluded from "profits of the business" under Expln. (baa) and only ninety per cent of the difference between the face value of the DEPB and the sale value of the DEPB gets excluded from "profits of the business", the assessee gets a bigger figure of "profits of the business" and this is possible when the DEPB accrues to the assessee in one previous year and transfer of the DEPB takes place in the subsequent previous year. The r .....

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ninety per cent of the sum referred to in cls. (iiia), (iiib) and (iiic) of s. 28 are added in the same proportion as export turnover bears to the total turnover of the business carried on by the assessee. In this first proviso, there is no addition of any sum referred to in cl. (iiid) or cl. (iiie). Hence, profit on transfer of DEPB or DFRC are not to be added under the first proviso. Where therefore in the previous year no DEPB or DFRC accrues to the assessee, he would not be entitled to the b .....

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oportion as the export turnover bears to the total turnover of the business carried on by the assessee. The third proviso to sub-s. (3) states that in case of an assessee having export turnover exceeding ₹ 10 crores, similar addition of ninety per cent of the sums referred to in cl. (iiid) of s. 28 (sic) only if the assessee has the necessary and sufficient evidence to prove that (a) he had an option to choose either the duty drawback or the DEPB Scheme, being the Duty Remission Scheme; an .....

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ding ₹ 10 crores and has made profits on transfer of DEPB under cl. (d) [sic.-(iiid)] of s. 28, he would not get the benefit of addition to export profits under third or fourth proviso to sub-s. (3) of s. 80HHC, but he would get the benefit of exclusion of a smaller figure from "profits of the business" under Expln. (baa) to s. 80HHC of the Act and there is nothing in Expln. (baa) to s. 80HHC to show that this benefit of exclusion of a smaller figure from "profits of the bus .....

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clusion that as the assessee did not (sic) have the export turnover exceeding ₹ 10 crores and as the assessee did not fulfill the conditions set out in the third proviso to s. 80HHC(3), the assessee was not entitled to a deduction under s. 80HHC on the amount received on transfer of DEPB and with a view to get over this difficulty the assessee was contending that the profits on transfer of DEPB under s. 28(iiid) would not include the face value of the DEPB. It is a wellsettled principle of .....

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ing of any contrary later judgement of Hon ble Apex Court. Therefore, this ground is restored to the file of AO to decide it afresh in the light of judgement of Hon ble Gujarat High Court rendered in the case of Avani Exports vs. CIT(supra) and the judgement of Hon ble Apex Court in the case of Topman Exports vs. CIT (supra). This ground of assessee s appeal is allowed for statistical purposes. 7. Now, we take up the ground No.2 of the Assessee s appeal that reads as under:- The learned CIT(A) h .....

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were made in the Misc.Application No.10/Ahd/2014. For the sake of clarity, the relevant contents are reproduced hereinbelow:- 3. …. . This Ground has been dealt with and adjudicated by the Hon'ble Tribunal at para 8 of the order. It has been held by the Hon'ble Tribunal that in respect of the other incomes referred to in the aforesaid Ground No. 4, 90% of the gross income is required to be excluded under clause (baa) of the Explanation u/s. 80HHC of the Income-tax Act. The Hon' .....

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further observed that to take care of any expenditure which may have been incurred in earning this income, an ad hoc deduction of 10% has been allowed by the Legislature and as per the Bombay High Court judgment no further deduction is permissible. 4. It is respectfully submitted that the Hon'ble Bombay High Court decision in the case of Asian Star Co. (supra) has been overruled by the Hon'ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. (343 ITR 89). The Head Note of .....

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ceipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in the profits of the business as computed under the head "Profits and gains of business or profession". Therefore, if any quantum of the receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature is allowed as expenses under sections 30 to 44D of the Act and is not included in the profits of business as computed under the head "Pr .....

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ction 80HHC. Explanation (baa) has to be construed on its own language and as per the plain natural meaning of the words used in it, the words "receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits" will not only refer to the nature of receipts but also the quantum of receipts included in the profits of the business as computed under the head "Profits and gains of business or profession" referred to .....

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terest or net rent, which had been included in the profits of business of the assessee as computed under the head "Profits and gains of business or profession", was to be deducted under clause (1) of Explanation (baa) to section 80HHC for determining the profits of the business. Decision of the Bombay High Court reversed. Decision of the Delhi High Court affirmed. Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120 (SC) relied on. CIT v. Shri Ram Honda Power Equip [2007] .....

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he case of Topman Exports v. CIT (342 ITR 49). 7.2. Ld.Sr.DR fairly conceded the legal position as enunciated in the above referred judgement of the Hon ble Supreme Court rendered in the case of ACG Associated Capsules (P) Ltd. vs. CIT (supra). 7.3. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. It is contended by the ld.Sr.Counsel for the assessee that the issue is covered by the judgement of Hon ble Apex Court .....

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down by the Hon ble Apex Court, we hereby restore the issue to the file of the AO for re-computation of deduction u/s.80-HHC in the light of the judgement of Hon ble Supreme Court rendered in the case of ACG Associated Capsules Pvt.Ltd.(supra). Accordingly, this ground of assessee s appeal is allowed for statistical purposes. 8. As a result, Assessee s appeal is allowed for statistical purposes. 9. Now, we take up the Revenue s appeal in ITA No.1601/Ahd/2007 for AY 2003-04. The Revenue has raise .....

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or want of verification of complete details. 3. The Ld.CIT(A) has erred in law and on the facts of the case in directing the A.O. to delete the disallowance of ₹ 1,13,19,049/- made on account of Deferred Revenue Expenditure relating to marketing of the products of the company spread over in the books of accounts to 5 years whereas for the Income-tax purpose it was claimed as revenue expenditure in the same year. 4. The Ld.CIT(A) has erred in law and on the facts of the case in directing th .....

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cer may be restored to the above effect. 9.1. At the outset, ld.Sr.counsel for the assessee Shri S.N.Soparkar pointed out that in MA No.10/Ahd/2014, the Tribunal has recalled its order in view of the change in legal position. He submitted that the issue is now squarely covered by the decision of Hon ble Jurisdictional High Court rendered in the case of Milton Laminates Ltd. vs. ACIT reported at (2014) 43 taxmann.com 93 (Guj.) and also the judgement of Hon ble Supreme Court rendered in the case o .....

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nue s appeal are dismissed. Ground Nos.5 & 6 are general in nature need no separate adjudication. 9.4. Apropos to Ground No.4, the contention of ld.Sr.counsel for the assessee is that the issue is covered by the judgement of Hon ble Gujarat High Court rendered in the case of Milton Laminates Ltd. vs. ACIT (43 taxmann.com 93) and the judgement of Hon ble Apex Court in the case of ACG Associated Capsules Pvt.Ltd. vs. CIT (343 ITR 89). This Tribunal in earlier round of litigation has held as un .....

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ranathan Nair(supra) as also by the Hon'ble Bombay High Court in Asian Star Co. Ltd. (supra) & Dresser Rand India Pvt. Ltd. (supra) , we have no hesitation in upholding the findings of the Id. CIT(A) in excluding of 90% of the receipts on account of interest(including on FDRs), rent and other misc. income while computing profits of the business in terms of explanation(baa) to sec. 80HHC of the Act. Therefore, ground no. 2 in the appeal of the assessee is dismissed. 8. As regards exclusio .....

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we have no hesitation in reversing the findings of the Id. CIT(A) in so far as these receipts are concerned and accordingly, conclude that the AO was perfectly justified in excluding 90% of these receipts while computing profits of the business in terms of explanation (baa) to sec. 80HHC of the Act. Therefore, ground no.4 in the appeal of the Revenue is allowed. 9.5. The Hon ble High Court of Gujarat in the case of Milton Laminates Ltd. vs. ACIT(supra) had formulated the following substantial qu .....

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g 90% of the ' Other Income' viz. Interest, Misc. Income and Insurance Claim from the profits of the Business while calculating the deduction u/s. 80HHC of the Act? (iii) Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in not allowing the "Netting Off of interest income against interest expenditure?" 9. 6. We find that the Hon ble High Court answered the above questions by holding as under:- 3. Heard Shri S.N. Soparkar, le .....

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of ACG Associated Capsules (P.) Ltd (supra) it is held by the Hon'ble Supreme Court in the said decision that 90% of not the gross interest but only the net interest, which has been included in the profits of the business of the assessee as computed under the heads "Profits and gains of business or profession" is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining AT profits of business. 5. Applying the law laid down by the Hon'ble Supreme Cour .....

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