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2015 (7) TMI 800 - ITAT AHMEDABAD

2015 (7) TMI 800 - ITAT AHMEDABAD - TMI - Reopening of assessment - disallowance of deduction u/s.80HHC - Held that:- Respectfully following the ratio laid down in the judgement(s) of the Hon’ble High Court of Gujarat in the case of Rajesh Babubhai Damania vs. ITO reported at (2000 (6) TMI 5 - GUJARAT High Court ) and Ramgosri Constructions (P.)Ltd. vs. ITO, [2008 (11) TMI 73 - MADRAS HIGH COURT ] we proceed to decide that in the original assessment order placed at page Nos.90 to 108 of the pape .....

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O has applied his mind on the allowability of deduction u/s.80HHC and computation of book profit. Therefore, order under 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 BH .....

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ng 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 circumstances of the case, the Ld.CIT(A) has erred in restricting the relief u/s.80HHC, while computing book profit, merely for the reason that the assessment reopened u/s.147 cannot result into excess relief, when he himself has acc .....

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Act ) was framed vide order dated 30/12/2008, thereby the Assessing Officer (AO in short) held that since the amount deductible u/s.80HHC of the Act is NIL, no deduction u/s.80HHC is admissible to the assessee for the year under consideration. Against the said assessment order, the assessee filed an appeal before the ld.CIT(A), who after considering the submissions of the assessee, partly allowed the appeal. Against the order of the ld.CIT(A), now both the Assessee and the Revenue are in cross-a .....

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ed that the ld.CIT(A) ought to have adjudicated the issue. He submitted that reopening is based solely on the change of opinion and placed reliance on the judgement of Hon ble Jurisdictional High Court rendered in the case of P.V. Doshi vs. CIT reported at (1978)113 ITR 22 (Guj.). He submitted that the reasons for reopening the assessment are on the basis that the book profit u/s.115JB, net profit reduced by ₹ 783.75 lacs for, deduction u/s.80HHC was incorrect as (i) deduction u/s.80HHC wa .....

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9611.36 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 page .....

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e Gujarat High Court in the case of Vishwanath Engineer vs. ACIT reported at (2012) 21 txmann.com 5 (Guj.). 4.1. On the contrary, ld.Sr.DR supported the order of the AO and submitted that there is no illegality in rejecting the ground No.1 of the appeal. 5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. As per Form No.35, ground No.1 raised in the assessee s appeal reads as under:- 1. In law and in the facts and .....

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neral in nature. From the records, ex-facie it is transpired that the ld.CIT(A) has failed to adjudicate the ground raised by the assessee. It is admitted fact that the assessee had raised a ground against validity of reassessment. The ground so raised was not decided by the ld.CIT(A). The assessee has placed material before this Tribunal which was available before the ld.CIT(A). It is settled position of law that if the material that was available with the AO and the ld.CIT(A), is also before t .....

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the original assessment order placed at page Nos.90 to 108 of the paper-book, the AO in para-5 of its order decided this issue of deduction u/s.80HHC of the Act. For the sake of clarity, the finding of the AO is reproduced hereinbelow:- 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 ITA .....

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lso 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 Textiles Limited also cannot be distinguished on the ground of .....

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relief quantum is allowed based on book profit of the assessee company. 5.2 The assessee company in its letter dated 23.5.2005 stated that while passing the assessment order, the whole of the export profit shall be reduced from the book profit and not to restrict amount of deduction to the extent of 30% profit as provided in subsection (1B) of section 80HHC of the I.T. Act. The contention of the assessee company are examined in detail herein below: On the point whether the assessee company shoul .....

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in circular no.680 dated 21.2.1994 that only-the manner of computation as given in section 80HHC is to be imported in section 115JB. and therefore the restriction as prescribed in section 80HHC does not apply while deducting the export profit under section 115 JB of the Act, It also argued that the circumstances that section 80HHC continues on the statutes book and the circumstances that clause (iv) of Explanation to section 115JB does still continue to bear reference to section 80HHC can be def .....

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ons 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 .....

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lief under section 115JB without giving effect to section 80HHC(1B). This issue was also examined during the course of assessment proceeding for immediately preceding assessment year and after detailed examination the claim was accepted. Following the same, the claim arid contention of the assessee company are also acceptable for present assessment, year, however, it is rejected on the ground that the same is not made through filing a revise return of income but it is claimed by way of letter. T .....

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ated that DEPB should be considered as business income if the same is not held to be export incentive and hence no justification is required. During the course of the assessment proceedings, the assessee company was also asked clarify whether they are satisfying two conditions prescribed by the Taxation Laws (Second Amendment) Act 2005 being an exporter having turnover in excess of ₹ 10 crores. And if answer to the same is in negative then why the benefit of deduction under section 80HHC s .....

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ought in Section 80HHC of the Act by Taxation Laws (Second Amendment) Act 2005 and the history of section The said amendments can be summarised as under: (i) Profit on transfer of Duty Entitlement Pass Book (DEPB) licence and Duty Free Replenishment Certificate (DFRC)]is treated as business profit by inserting Sections 28(iiid) and 28(iiie) and correspondingly said income is made eligible for deduction u/s 80 HHC. (ii) Assessees having export turnover of less than ₹ 10 crores are eligible .....

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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 .....

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me. As a result, various export incentive including profit and gain as well as premium on sale of licence, cash assistance and duty draw back were covered under the scheme of Section 80HHC. This was further clarified through CBDT circular, bearing Ref. F. 133/131/97-TPL dated 23.02.1998, by treating premium on sale of quota as other export Incentives as envisaged under clauses (iiia), (iiib) and (iiic) of Section 28. Thus, the history of Section 80HHC clearly points towards the assurance of the .....

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ection 80HHC was one such incentive under the direct tax scheme, insofar as the indirect tax scheme was concerned, the exporters were granted various export incentive schemes which included duty drawback scheme [being license granted under the Imports (Control) Order 1955 made under the Imports, and Exports (Control) Act, 1947] and benefits under-DEPB Scheme/DFRC/Sale of licence, cash assistance and sale of quota, etc. Benefit of duty drawback at the rate that was specified in the schedule was d .....

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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 .....

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tion Act, 1992 has repealed the Imports and Exports (Control) Act 1947, as per the provisions of Section 8(1) of General Clauses Act any reference to the Imports and Exports (Control) Act, 1947 shall be deemed to be a reference to the Foreign Trade and Development Regulation Act, 1992. Accordingly though amendment are not made in 1. T. Act, in Section 28(iiia), reference to the Imports and Exports (Control) Act, 1947 has to be read as reference to the Foreign Trade and Development Control Regula .....

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is ex facie discriminatory vis-a-vis the exporters like the assesses, company having turnover, of over ₹ 10 crores and exporters with turnover of less than ₹ 10 crores. It is submitted that the classification sought to be introduced through the impugned amendment is not only without any reasonable basis and it tries to create new burden on the various exporters having annual turn of over ₹ 10 crores and having availed of DEPB Scheme, by denying the deduction under Section 80 HH .....

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f exporters with annual turn of over ₹ 10 crores and who have availed of DEPB Scheme by in effect imposes a levy for the past period of seven years when in fact there was no such levy during the saidpast period including the year under consideration. Without prejudice to what is stated above, we now state that Section 80-HHC read with section 28 of the Income-tax Act, 1961 has been amended by the Taxation Laws (Amendment) Act, 2005 which inter-alia, provides that Profits on sale of Duty En .....

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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 compo .....

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e for the year under consideration. Thus in our case so far as second condition is concern, the computation provision fails and therefore as per the settled provisions of the law, the above referred amendment do not apply to the fact of our case. WITHOUT PREJUDICE TO WHAT IS STATED ABOVE, Your honour will please note that above provisions are inserted in the statute book to neutralize effect of the judgement of ITAT as well as due to the contention of the revenue that the premium on the sale of .....

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r Section 80HHC. Probably the revenue has got carried away by the fact that the Imports and Exports (Control) Act, 1947 has been repealed and as such premium on the sale of DEPB licence which is granted under, the Foreign Trade, and Development Regulation Act, 1992 is something different, and the same is not covered by Section 28(iiia). However, this is not a correct view. 1. General Clauses Act As per provisions of Section. 8(V) of General Clause Act, whenever an set is repealed and any new act .....

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ports (Control) Act, 1947 has to be read as reference 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 o .....

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yment, 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 immediate credit, the government had introduced (he scheme later on, to transfer this credit to any other person who can claim this credit against the liability of the customs duty. DEPB is not like a licence which is ordinarily saleable in the market. The nature and ch .....

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the scheme by the government was to help its own fund flow because the government was not required to pay the money in cheque. As regards the transfer of DEPB, there is a Restriction on the transfer. An exporter can avail of the DEPB in his own name even when the export proceeds have not been realized. The transfer of the DEPB credit can be made by the exporter only when the payment of export has been realized. This is a very vital difference which endorses the above argument that it is a credit .....

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ase of goods. This view also gets supported by clause 7.17 of the Export and Import Policy wherein it has been specifically provided that the export made under the DEPB Scheme shall not be entitled for drawback which other confirms that DEPB and drawback are substitutes of each others. Accordingly no distinction is required to be made in DEPB and duty drawback while computing deduction under Section 80HHC. 3. All export incentives are eligible for 80 HHC deduction - Board clarification no.FNo.13 .....

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ein 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. .....

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the provision for exemption or relief need to be construed liberally in favour of the assessed Any other interpretation would mean depriving the assesses of the benefit, which the legislature desired to give to the assesses. In view of above, your honour will please appreciate that the premium on sale of DEPB licence is squarely covered under the provisions of section 28(iiia) and there was no need to insert new provisions viz 28(iiid) & 28(iiie) which are not only unconstitutional but also .....

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ainst payment of custom/import duty, if any, in respect of import of any material or he is not in position to utilise the said license/credit, he can transfer this license/credit at a premium or discount to any other person who can claim this credit against the liability of the customs duty. Your honour will please appreciate that the language of the amendments clearly suggests that the legislature wants to make discrimination between small and big exporters. It seeks, to grant concession to the .....

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PB scheme. Your good selves will please appreciate that the assesses company had realised net profit of ₹ 72,86,165/- on transfer of DEPB. So, as per the amended provisions, we 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 co .....

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red 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 by treating value of DEPB as capital receipt and the net profit on transfer of DEPB as export incentive under section 28(iiid) of .....

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39;s case, DEPB credit fall under clause 28(iii)(a) and receipt are in the nature of capital receipt are not at all acceptable and hence rejected. Similarly, the argument of the assessee company that the legislature through above amendment want to tax the profit on transfer of DEPB and not the value of DEPB and while computing deduction, the value of DEPB is to be considered as business profit also do not find merit and accordingly rejected. Thus for MAT computation under section 115JB, section .....

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deduction under section 80HHC, the assesses company adopted figure of book profit after tax i.e. ₹ 96,73,42,940/- (profit before tax of ₹ 101,28,42,940 minus deferred tax provision of ₹ 4,55,00,000/-. Hence the mistake committed by the assessee company in adopting figure of ₹ 96,73,42,-940/- is corrected and the deduction is worked out by taking correct profit of ₹ 101,28,42,940/-. 6. During the course of original assessment proceedings, the assessee vide letter dat .....

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ook 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 abo .....

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erefore, if from the selfsame materials, the Assessing Officer forms a second opinion and reopens-the assessment merely on the ground that on-second thought, a different view is possible, such fact does not authorize him to reopen the assessment within the purview of Section 147/148 of the Act. In this connection, we may profitably refer to the following observations made by the Supreme Court in the case of CIT v. Kelvirator of India Lid. [2010] 320 1TR 561 :: 187 Taxman 312. where the Court mad .....

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s remained viz. that where the assessing officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1- 4-1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the assessing officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se .....

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on" as an in-built test to check abuse of power by the assessing officer. Hence, after 1-4-1989, the assessing officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only de .....

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ollows: "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 it .....

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e see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs." (Emphasis supplied). 18. After applying the aforesaid principle to the facts of the present case, we are convinced that this is a case where the Assessing Officer has reopened the proceeding merely on the ground that from the material available, the view earlier adopted by him was erroneous one. Thus, such fact cannot be a ground for reassessment. 6.1. In view of the binding precedent .....

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