TMI Blog2015 (7) TMI 800X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal is set aside and assessment framed u/s.143(3) read with section 147 is quashed being invalid. - Decided in favour of assessee. - I.T.A. No.673/Ahd/2011,I.T.A. No.269/Ahd/2011 - - - Dated:- 23-7-2015 - Shri G.D. Agarwal and Shri Kul Bharat, JJ. For the Petitioner : Shri S.N. Soparkar with Shri P.M. Mehta, ARs For the Respondent : Shri Rahul Kumar, Sr.DR ORDER PER SHRI KUL BHARAT, JUDICIAL MEMBER : These cross-appeals by the Assessee and the Revenue are directed against the common order of the Ld.Commissioner of Income Tax(Appeals)-VI, Ahmedabad ( CIT(A) in short) dated 14/12/2010 pertaining to Assessment Year (AY) 2004-05. These cross-appeals were heard together and are being disposed of by way of this consolidated order for the sake of convenience. 2. First, we take up the Assessee s appeal in ITA No.673/Ahd/2011 for AY 2004-05. The assessee has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in rejecting the claim of the assessee that the reassessment proceedings carried out in accordance with section 147 of the Income Tax Act. 2. On the facts and in the circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sorbed depreciation and brought forward loss income reduced to nil. While calculating the book profit, the deduction u/s.80HHC was made first instead of setting off least unabsorbed depreciation and brought forward loss (as per books of accounts). The assessee had reduced the aggregate unabsorbed depreciation and business loss of ₹ 29611.36 lacs instead of year-wise of ₹ 25502.72 lacs. ₹ 9066.49 lacs already set off in AY 2003-04 was not taken into account. This resulted in excess carried forward loss of ₹ 4892.35 lacs. The ld.counsel for the assessee submitted that the reopening of the assessment is made purely on the basis of change of opinion which is not permissible under law. He drew out attention towards original assessment order dated 29/12/2006. He submitted that the AO has devoted substantial pages on the issue of deduction u/s.80HHC and book-profit. He submitted that the AO also made adjustment. Therefore, he submitted that it cannot be said that the details were not before the AO and the AO has not applied his mind. Under these facts, he submitted that the reopening of the assessment is contrary to the law as laid down by the Hon ble Jurisdictiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below:- 5. Deduction u/s.80HHC of the Act. It is noticed that the assessee company had computed deduction under section 80HHC by taking book profit as profit of the business instead of considering business income for the same relying on the decision of the Hyderabad ITAT in case of Starchik Specialties Ltd. V DCIT 90 ITD 34 and the Kerala High court Decision in the case of CIT V GTN Textiles Limited 248 ITR 372. 5.1 On this issue, the assessee company during the course of discussion explained that for MAT computation under section 115JB, section 80HHC relief quantum should be based on Book profit of the company and. clause (iv) of the Explanation to section 115JB by applying methodology contained in section 80HHC(3) to such book profit figure. It also submitted that though the judgment of Kerala High Court was rendered in the context of interpretation of section 115J should apply as equally to section 115JB also as there are no essential distinction between the phrase computed in the manner specified in section 80HHC(3) which appeared in section 115JA as compared to the phrase computed under section 80HHC(3) as appearing in section 115JB. The decision of GTN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment proceedings, the authorized representative of the assessee produced for my perusal following extracts from the memorandum explaining finance bill 2000: The new provisions provide that all companies- having book profits under the Companies Act, prepared in accordance with Part II and Part III of Schedule VI to the Companies Act, shall be liable to pay a minimum alternate tax at a lower rate of 7.5% , as against the existing effective rate of, 10.5% of the book profits. These provisions will be applicable to all corporate entities without any. exception. However, export profits under section. 80HHC, 80HHE, and 80HHF are kept out of the purview of this provision during the period of phasing out of deductions available under those provisions. Further, my attention was invited to the circular no.794, dated 9/8/2000 which gives explanatory notes on provisions relating to Finance Act, 2000, which state as under: 43.5 The export profit under section 10A, 10B ,80HHC, 80HHE and 80HHF are kept out of the purview of this provision as these are being phased out............... . There are merits in the argument of the assessee company that it should compute ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome is made eligible for deduction u/s 80 HHC. (ii) Assessees having export turnover of less than ₹ 10 crores are eligible for deduction u/s 80HHC on the aforesaid profit on transfer of DEPB/DFRC without any further condition to be complied with. (iii) Assesse'es having export turnover of more than ₹ 10 crores have to comply with following two conditions so as to be eligible for deduction u/s 80HHC on the aforesaid profit. The conditions are - if the assessee has necessary and sufficient evidence to prove that - (a) he had an option to choose either the duty drawback or the DEPB/DFRC 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 DEPB Scheme, being Duty Remission Scheme. Now we would like to bring to your honour's kind notice the history of section 80HHC, history of introduction of various export incentive and a/so facts in brief giving rise to the present amendment as under: i)Section 80HHC grants deduction from total income of the assessee in respect of profits derived from expo/if business as contemplated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh reimbursement of duties and taxes paid directly or indirectly on export product. The said neutralisation was effected by way of grant of duty credit against the export performance. The credit admissible for an export product is calculated by taking Into account the deemed import contents of the export product, the value addition to be achieved by the export of the product as prescribed in iris Standard Input-Output Norms (SION) and the basic customs duty, special customs duty, surcharge leviable on the input contents. These DEPB entitlements can be used by the assessee while making payment of import duty on their own imports. The said DEPB is also transferable and can be used by the transferee against their, import duty liability. The effect and object of both the policies was same to compensate for taxes and duties levied on export material, it is pertinent to note from the above that an exporter is reimbursed custom duty as drawback in cash and the position under DEPB is exactly the same but in form of a certificate. Since the Foreign Trade and Development Regulation Act, 1992 has repealed the Imports and Exports (Control) Act 1947, as per the provisions of Section 8(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Duty Entitlement Pass-Book Scheme (DEPB).credits will be treated at par with duty drawback for the purposes of proportionate increase of profits derived from exports computed under clause (a) or clause (b) or clause (c) of sub-section (3) of section 80- HHC in the case of an exporter having export turnover exceeding ₹ 10 crores if (a) he had an option to choose either duty drawback or duty entitlement pass book scheme and (b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under duty entitlement pass book scheme. Now we respectfully submit that out of above two conditions prescribed, so far as the first condition is concern, like all other exporters, it is satisfied in our case also. Before furnishing details in respect of second condition, we request your honour to take a close look at the language used in clause (b) above. On perusing the said clause, your honour will appreciate that it requires an exporter to compare the component of duty drawback attributable in respect of custom duty payable by it on import permitted to an exporter with the rate of credit allowable under DEPB. We examined the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference to the Foreign Trade and Development Control Regulation Act, 1992. Since DEPB licence is granted to the exporter under this new Foreign Trade and Development Regulation Act, premium on sale of such licence shall be squarely covered by the provisions of Section 28(iiia). 2. DEPB refund of duty paid on purchases like Duty drawback Further, DEPB is a substitute of duty drawback. An exporter is entitled to get refund of the duty paid in respect of the purchases made by him. Under the scheme there is an option either to claim duty drawback or duty exemption passbook. The only difference in these two schemes is that in duty drawback, the refund is made by issuing a cheque in the name of the claimant whereas in the case of DEPB it is by way of credit in the passbook, not by way of cheque. This credit can be utilized against payment of Customs duty, if any, in respect of import of any material. Accordingly whereas duty drawback is a cash-payment, DEPB is a payment which can be adjusted against liability to pay Customs duty. This credit is primarily, to be used by the claimant only. It was because of the practical difficulties being faced by exporters of not getting imme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention is that all export incentives are eligible for deduction while computing deduction under Section. 80HHC. The three clauses mentioned in Section 28(iii) cover all incentives relating to exports. In support of this contention attention may be invited to the clarification issued by the CBDT vide Instruction no, F No.133/137/97-TPL dated 23rd February, 1998, (given in the annexure) wherein an issue has arisen on the premium received for the transfer of the garment export quota. It has been clarified in this instruction by the CBDT that the premium on the sale of export quote statutory receive the same treatment as profit on sale of import-licences, cash assistance and duty drawback. The garment export quota is issued by the Apparel Export Promotion Council. On the basis of this quota the exporter can make an export on his- own or can transfer the quota to some other exporter. The premium received for transfer of this garment quota from other exporters has been clarified to constitute export incentive and eligible for deduction under Section 80HHC. The case of the DEPB falls in a much better category in that this DEPB is being received against actual export as refund of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have revised our computation of deduction under section 80HHC by taking it as export incentive, under section 28(iiid) of the Act. Please also note that while revising the computation of deduction under section 80HHC of the I. T. Act, the value of DEPB allowable has been considered as business profit. The revised computation taking into account above adjustments, work out the deduction under section 80HHC of the I. T. Act ₹ 55,54,78,522/-. Now, in respect of above revised computation, if your honour is of the view that the amount of DEPB is not our business income then we request you to kindly consider the1 value of DEPB as capital receipt as per the view taken by the judiciary on the issue. In view of above factual position, according to us no adjustment that revises the amount of deduction is required to be made to the computation furnished by the assesses company by adopting book profit as business income vide its letter dated 30.3.2005 furnished alongwith Revise Return of Income. However, if our above submission is not acceptable to your honour than kindly consider our revise claims and either increase the deduction under section 80HHC or calculate deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settled position of law that the assessment cannot be reopened merely on the basis of change of opinion. We find force in the contention of the ld.counsel for the assessee that the AO had allowed the claim of deduction u/s.80HHC of the Act on the book profit and also considered the claim of deduction u/s.80HHC of the Act before setting off of lower of unabsorbed loss or depreciation for the purpose of determining the book profit. The reliance is placed on the judgement of the Hon ble Apex Court rendered in the case of CIT vs. Bhanji Lavaji reported at (1971)79 ITR 582(SC) in support of the contention that the initiation of re-assessment proceedings was not valid since the reopening of assessment was based merely on a change of opinion about admissibility of claim of allowance. Reliance is also placed on the judgement of Hon ble Gujarat High Court rendered in the case of Hynoup Food Oil Industries Ltd. vs. Asstt.CIT reported at (2008) 219 CTR 124(Guj.). Further relied on the judgement of Hon ble Apex Court rendered in the case of CIT vs. Kelvinator reported at 187 Taxman 312 (SC). The Hon ble Gujarat High Court in the case of Vishwanath Engineers vs. ACIT reported at (2012) 21 tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in Section 147 of the Act. However, on receipt of representations from the companies against omission of the words reason to believe , Parliament reintroduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the assessing officer. 8. We quote hereinbelow the relevant portion of Circular No. 549 dated 31- 10-1989, which reads as follows: 7.2. Amendment made by the Amending Act, 1989, to reintroduce the expression 'reason to believe' in Section 147.-A number of representations were received against the omission of the words 'reason to believe' from Section 147 and their substitution by the 'opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from Section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere chan ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
