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2016 (1) TMI 121 - ITAT KOLKATA

2016 (1) TMI 121 - ITAT KOLKATA - TMI - Entitlement for deduction u/s 80HHC - income earned by selling of Duty Entitlement Pass Book licences in the event of the turnover of the assessee exceeding ₹ 10 crores - CIT(A) allowed the claim - Held that:- Learned CIT-A had addressed the deduction u/s 80HHC of the Act by duly considering the third proviso to section 80HHC(3) of the Act by giving detailed workings of deduction in the light of the judgements in the case of Topman Exports vs CIT [20 .....

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NESH, AM These appeals of the revenue arise out of the order of the Learned CITA in Appeal No. 851/CIT(A)-XXIV/C-37/10-11 dated 30-05-2012 for the Asst Year 2000-01 Appeal No. 852/CIT(A)-XXIV/C-37/10-11 dated 30-05-2012 for the Asst Year 2001-02 Appeal No. 254/CIT(A)-XXIV/C-37/07-08 dated 30-05-2012 for the Asst Year 2002-03 Appeal No.1/CIT(A)-XXIV/A.C. Cir-37/07-08 dated 30-05-2012 for the Asst Year 2003-04 Appeal No. 134/CIT(A)-XXIV/A.C. Cir/06-07 dated 30-05-2012 for the Asst Year 2004-05 pas .....

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ces in the event of the turnover of the assessee exceeding ₹ 10 crores. Hence all the appeals are taken up together and disposed off by this common order for the sake of convenience. 4. The brief facts of this issue is that the assessee is a partnership firm engaged in the business of export of fabrics and textile materials apart from rendering financial services by advancing loans etc. The assessee claimed deduction u/s 80HHC of the Act in respect of profits derived from its export activi .....

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ns were made by the assessee. Having stated so, he proceeded to conclude that the deduction u/s 80HHC of the Act has been rightly granted to the assessee in terms of the third proviso to section 80HHC(3) of the Act in the original assessment proceedings itself and hence does not require any interference. On first appeal, the Learned CITA looked into the various arguments and details of the assessee on the impugned issue and applied the third proviso to section 80HHC(3) of the Act , applied the d .....

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ting the A.O to allow the benefit of deduction in respect of income earned by selling of DEPB/DFRC licenses while calculating the deduction 80HHC, though the assessee having export more than 10 crores, failed to satisfy the conditions as laid down in provisos to Sec. 80HHC(3) read with Sec. 28 as per amendment by Taxman laws (amendment) Act, 2005 w.e.f 1.4.1998. 5. The Learned DR vehemently argued that the issue that the applicability of the decision of Hon ble Supreme Court in the case of Topma .....

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l the details were duly filed before the Learned AO and Learned CITA and the Learned CITA after considering the entire details regarding the export incentives computed the deduction u/s 80HHC of the Act in the appellate order itself and directed the Learned AO to grant the same to the assessee and accordingly argued that the conditions stipulated in third proviso to section 80HHC(3) of the Act have been duly complied with by the assessee. 6. We have heard the rival submissions and perused the ma .....

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80HHC of the Act after due consideration of the amended provisions and the judgements of Topman Exports reported in (2012) 18 taxmann.com 120 (SC) and the decision of the Calcutta High Court in the case of GKW Ltd vs CIT in ITA No. 1 of 2004. We find that the assessee had duly exercised its option of proving that the duty drawback was more than the DEPB scheme before the Learned CITA who had duly appreciated the same in the light of the aforesaid judgements. Against the computation mechanism, t .....

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concluded that the assessee had proved the eligibility of the claim of deduction u/s 80HHC (3) of the Act after due satisfaction of the conditions stipulated therein before the lower authorities and the grievance of the revenue is duly addressed. At this juncture, let us get into the head notes and decision rendered by the Hon ble Supreme Court in the case of Topman Exports vs CIT reported in (2012) 18 taxmann.com 120 (SC) as below:- Head Notes: Section 28(iiib), read with section 28(iiid), of t .....

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DEPB accrues to assessee in first previous year and assessee transfers DEPB certificate in second previous year, it is only ninety per cent of profit on transfer of DEPB covered under clause (iiid) of section 28 and not ninety per cent of entire sale value including face value of DEPB gets excluded from 'profits of business' in terms of Explanation (baa) under section 80HHC and, as a result, assessee gets a bigger figure of 'profits of business' which becomes multiplier in formu .....

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roducts. The neutralization of the cost of customs duty under the DEPB scheme, however, is by granting a duty credit against the export product and this credit can be utilized for paying customs duty on any item which is freely importable. DEPB is issued against the exports to the exporter and is transferable by the exporter. [Para 10] It is necessary to consider the relevant provisions of section 28 for determining whether DEPB will fall under clause (iiib) or under clause (iiid) of section 28. .....

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an application is made by the exporter for DEPB. Therefore, there is no doubt that DEPB 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 and is chargeable to income tax under the head 'Profits and Gains of Business or Profession' even before it is transferred by the assessee. [Para 12] Under clause (iiid) of Section 28, any profit on transfer of DEPB is chargeable to income tax unde .....

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us with the cost of imports for manufacturing an export product, any amount realized by the assessee over and above the DEPB on transfer of the DEPB would represent profit on the transfer of DEPB. [Para 13] It is thus, opined that while the face value of the DEPB will fall under clause (iiib) of section 28, the difference between the sale value and the face value of the DEPB will fall under clause (iiid ) of section 28 and the High Court was not right in taking the view in the impugned judgment .....

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profits of business under clause (iiia) of section 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 clause (iiia ) of section 28. In taking the view that when the import license is sold the entire amount is treated as profits of business, the High Court has visualized a situation where the cost of acquiring the import license is nil. The .....

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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 clause (iiid) of section 28. The High Court has failed to appreciate that DEPB represents part of the cost incurred by a person for manufact .....

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n 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 section 28(iiid ) in the year in which the transfer of DEPB took place. This view of the High Court, is contrary to the language of section 28 under which 'cash assistance' received or receivable by any person against .....

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f the DEPB by that person will be chargeable as income under clause (iiid ) of section 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 clause (iiib) and the difference between the sale value and the DEPB (face value) would be the profits on the transfer of DEPB under clause (iiid ) for the same assessment year. Where, however .....

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taxation of the same income, which the legislature must be presumed to have avoided. [Para 16] The High Court has held that as the assessee had an export turnover exceeding ₹ 10 crores and did not fulfil the conditions set out in the third proviso to section 80HHC(3) the assessee was not entitled to a deduction under section 80HHC on the amount received on transfer of DEPB and to get over this difficulty the assessee contended that the profits on transfer of DEPB in section 28(iiid) would .....

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d to in sub-section (1B), derived by him from the export of such goods or merchandise. Sub-section (1B) of section 80HHC gives the percentages of deduction of the profits allowable for the different assessment years from the assessment years 2001-2002 to 2004-2005. Sub-section (3)(a ) of section 80HHC provides that where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such exports shall be the amount which bears to the profit .....

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iiie) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature including any such receipts and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situated outside India. Thus, ninety per cent of the DEPB which is 'cash assistance' against exports and is covered under clause (iiib) of section 28 will get excluded from the 'profits of the business' of the assessee if suc .....

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ness'. But, where the DEPB accrues to the assessee in the first previous year and the assessee transfers the DEPB certificate in the second previous year, only ninety per cent of the profits on transfer of DEPB covered under clause (iiid ) and not ninety per cent of the entire sale value including the face value of the DEPB will get excluded from the 'profits of the business'. Thus, where the ninety per cent of the face value of the DEPB does not get excluded from 'profits of the .....

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ss' becomes the multiplier in the aforesaid formula under sub-section (3)(a) of section 80HHC for arriving at the figure of profits derived from exports. [Para 20] To the figure of profits derived from exports worked out as per the aforesaid formula under sub-section (3)(a) of section 80HHC, the additions as mentioned in first, second, third and fourth proviso under sub-section (3) are made to profits derived from exports. Under the first proviso, ninety per cent of the sum referred to in cl .....

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to sub-section (3) of section 80HHC because he would not have any sum referred to in clause (iiib) of section 28. The second proviso to sub-section (3) of section 80HHC states that in case of an assessee having export turnover not exceeding ₹ 10 crores during the previous year, after giving effect to the first proviso, the export profits are to be increased further by the amount which bears to ninety per cent of any sum referred to in clauses (iiid) and (iiie) of section 28, the same prop .....

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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 Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme. Therefore, if the assessee having export turnover of more than ₹ 10 crores does not satisfy these two conditions, he will not be entitled to the addition of profit on transfer of DEPB under the third proviso to sub-section (3) of section 80HHC. [Para 21] The aforesaid discus .....

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w that this benefit of exclusion of a smaller figure from 'profits of the business' will not be available to an assessee having an export turnover exceeding ₹ 10 crores. In other words, where the export turnover of an assessee exceeds ₹ 10 crores, he does not get the benefit of addition of ninety per cent of export incentive under clause (iiid ) of section 28 to his export profits, but he gets a higher figure of profits of the business, which ultimately results in computation .....

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nder section 28 (iiid ) would not include the face value of the DEPB. It is a well-settled principle of statutory interpretation of a taxing statute that a subject will be liable to tax and will be entitled to exemption from tax according to the strict language of the taxing statute and if as per the words used in Explanation (baa) to section 80HHC read with the words used in clauses (iiid ) and (iiie) of section 28, the assessee was entitled to a deduction under section 80HHC on export profits, .....

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wherein it was held:- If we compare the language employed in sub-section(iiia) with which we are concerned in the present case with the next two sub-sections, i.e (iiib) and (iiic) as indicated above, it will appear that while in case of sub-section(iiia), it is the profit on actual sale of licence that will be chargeable to tax but in the cases covered by sub-sections (iiib) or (iiic), cash assistance (by whatever name called) received or receivable by any person against exports or any duty of .....

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