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2015 (10) TMI 2038 - ITAT MUMBAI

2015 (10) TMI 2038 - ITAT MUMBAI - TMI - Sale value of DEPB - computation of deduction u/s 80HHC - whether only Profits on Sale of Licenses are to be treated as income of the Appellant? - Held that:- As decided in Topman Exports [2012 (2) TMI 100 - SUPREME COURT OF INDIA] 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 and while t .....

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assessee had made an appeal before the FAA and he had rejected the claim following the judgment of Goetz India (2006 (3) TMI 75 - SUPREME Court).

In the case of Pruthvi Brokers and Share Holders (P) Ltd. (2012 (7) TMI 158 - BOMBAY HIGH COURT ), the Hon'ble Bombay High Court has clearly held that the appellate authorities can admit new claim made by an assessee even if same was not made before the AO, that in case of the AO the claim could be made by filing a revised return only.As th .....

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countant Member & Parthasarathy Choudhury,Judicial Member For The Assessee : Shri Bhavin Parekh For The Revenue : Shri S.P. Walimbe Challenging the order dt.27.11.2007 of CIT(A)-IV, Mumbai,the Assessing Officer(AO)has raised following Grounds of Appeal: 1.The ld. CIT(A)IV has wrongly confirmed that the sale value of DEPB amounting to ₹ 70,70,739/- as the Income of the Appellant. Only Profits on Sale of Licenses are to be treated as income of the Appellant. 2.The ld. CIT(A)IV has wrongl .....

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AR) of the assessee stated that assessee was not interested in pursuing ground No.2.Hence,same stands dismissed, as not pressed. 2. Assessee-company, engaged in the business of export of fabric made- ups and handicrafts filed its return of income on 26.10.2004 showing total income at ₹ 4.78 crores. The AO completed the assessment u/s. 143(3) of the Act,on 22.12.2006,determining the income of the assessee at ₹ 5,30,08,030/-.The first Ground of appeal is about amount of DEPB (Duty Enti .....

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as amendment bill 2005, the AO held that the onus to prove that DEPB was an incentive eligible for inclusion in computation of deduction u/s. 80HHC of the Act was on the assessee as per the amended Act, that the rate of drawback attributable to custom duty was higher than the rate of ITA/1118/M/08-Mangal Creation 2 DEPB. Finally, he did not consider the DEPB for the purpose of deduction us/ 80HHC of the Act.As a result he reworked the deduction under 80HHC as under : Trading profit = ₹ 4,2 .....

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the assessee. Referring to the provisions of section 28(iiid) of the Act it was argued that profit on transfer of DEPB should be considered at ₹ 70,70,739/- only for the current year, that DEPB license of ₹ 1.16 crores was not sold in the A.Y. 2005-06, that same were sold in the A.Y. 2006-07 and the profit arising out of the transaction was duly accounted for in that AY.After considering the submission of the assessee and the assessment order the FAA held that provisions of section 2 .....

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of the DEPB on transfer of DEPB represented business profit for that year . Departmental representative (DR) left the issue to the discretion of the Bench. 2.3.We have heard the rival submissions and perused the material available before us. We find that the issue is squarely covered by the judgment of Topman Exports (supra), of the Hon'ble Supreme Court . We would like to reproduce the relevant portion of the judgment which reads as under :- The objective of the Duty Entitlement Passbook S .....

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orts to the exporter and is transferable by the exporter. The DEPB credit is cash assistance receivable by a person against exports under the scheme of the Government of India and falls under clause (iiib) of section 28 of the Income-tax Act, 1961, and is chargeable to Income-tax under the head Profits and gains of business or profession even before it is transferred by the assessee. Under clause (iiid) of section 28 , any profit on transfer of the DEPB credit is chargeable to Income-tax under t .....

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mports for manufacturing an export product, any amount realised by the assessee over and above the DEPB credit on transfer of the DEPB credit would represent profit on the transfer of the DEPB credit. Thus, while the face value of the DEPB credit will fall under clause (iiib) of section 28 of the Act, the difference between the sale value and the face value of the DEPB credit will fall under clause (iiid) of section 28 of the Act. The cost of acquiring the DEPB credit is not nil because the pers .....

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he entire sum received by him on such transfer does not become his profits. It is only the amount that he receives in excess of the DEPB credit which represents his profits on transfer of the DEPB credit. Under section 28 of the Act cash assistance received or receivable by any person against exports such as the DEPB credit and profit on transfer of the DEPB credit are treated as two separate items of income under clauses (iiib) and (iiid) . As a result, the DEPB credit will be chargeable as inc .....

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profits derived from such exports shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee. Explanation (baa) under section 80HHC states that profits of the business means the profits of the business as computed under the head Profits and gains of business or profession as reduced, inter alia, by ninety per cent. of any sum referred to in clauses (iii .....

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e DEPB credit, the difference between the sale value of the DEPB credit and the face value of the DEPB credit will represent the profit on transfer of the DEPB credit covered under clause (iiid) of section 28 and ninety per cent. of such profit on transfer of the DEPB credit certificate will get excluded from profits of the business . But, where the DEPB credit accrues to the assessee in the first previous year and the assessee transfers the DEPB credit certificate in the second previous year, o .....

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PB credit 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 credit accrues to the assessee in one previous year and transfer of the DEPB credit takes place in the subsequent previous year. The result in such case is that a higher figure of profits of the business becomes the multiplier in the formula under sub-section (3)(a) of section 80HHC for arriving at the figure of profits derived from exports. ITA/1 .....

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e business carried on by the assessee. In this first proviso, there is no addition of any sum referred to in clause (iiid) or clause (iiie) . Hence, profit on transfer of the DEPB credit or DFRC are not to be added under the first proviso. Where therefore in the previous year no DEPB credit or DFRC accrues to the assessee, he would not be entitled to the benefit of the first proviso to sub-section (3) of section 80HHC because he would not have any sum referred to in clause (iiib) of section 28 o .....

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