TMI Blog2008 (5) TMI 667X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 80-HHC of the I.T. Act; 2. The CIT (Appeals) erred in directing the AO not to make any adjustments equivalent to the face value of DEPB while computing business profits for purpose of deduction under section 80-HHC. 3. The CIT (Appeals) erred in granting the above two relief's in an order under section 154 ignoring the facts of the case that place such relief's outside the ambit of section 154. 2.1 The facts of the case stated in brief are that the assessee is an export house. During the year under consideration the assessee received Special Import License [hereinafter referred to as SIL] as an export inventive and claimed deduction under section 80-HHC of the I.T.Act, 1961. The assessee also received DEPB receipts. As the turnover of the company in all the years under consideration was more than ₹ 10 crores, the assessee company was required to prove that it had fulfilled both the conditions of third proviso to section 80-HHC (3), namely, that the assessee has option to choose either duty drawback or DEPB and (ii) the rate of duty drawback was higher than the DEPB. The assessee was also requested to file documentary evidence to show that SIL was an exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment and Regulation) Act, 1992 were not covered under section 28 of the Act, he held as under:- It is seen that Special Import Licence benefit is a part of export incentive which is issued to specific categories of exporters and the entitlement rate of SIL is directly related to export on F.O.B. basis. Earlier various incentives on the export were given under the import Control order 1955 which was issued under the import and exports (Control) Act, 1947. Thereafter, various export incentives in the form of DEPB/SIL were given under foreign trade (Development and Regulations) Act, 1992. Since the benefits given as export incentives under the foreign trade. (Development and Regulations) Act, 1992 were not covered under section 28 of I.T. Act. Therefore, various disputes have arisen regarding the allowable deduction under section 80-HHC relatable to such export incentives. In order to resolve such dispute by the Taxation Laws (Amendment) Act, 2005 with retrospective effect 1/04/1998 sub section (iiid) and sub section (iiie) was inserted covering such export incentives which are given in the foreign trade (Development and Regulations) Act, 1992. Though, specifically, the word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted/negative lists as per Import Policy An importer can only import such items if he possesses a special import license for the purpose but in any case he has to pay full customs duty on imports. Thus, on this license no concession is granted and, therefore, it cannot be equal to any export incentive as defined under section 28 (iiia) to (iiie) where money was actually received or not paid Copies of the scheme and notifications in this regard were submitted during the course of assessment proceedings. Further, it has been incorrectly stated on page 17 of the appellate order that the Taxation Laws (Amendment) 2005 has brought amendment with retrospective effect from 1/04/1998 to include Special Import License in the definition of income. In the definition of income under section 28 (iiid) only profits on transfer of DEPB have been brought in as income. Neither the sale value of Special Import License nor of the DEPB has been considered as income therein. It was stated that profit is not synonymous to the sale value nor of the face value. Since in any Special Import License there is no face value of concessions in custom duty, the realization is only of profit and the same has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumption against the same DEPB. Since the Legislature wanted to give a different treatment to such extra profits only the words 'any profit on transfer' has been used u/s 28(iiid) instead of sale value because otherwise in that case there will be a discrimination in the two exporters as regards the cost of inputs of the exports. In fact, the scheme of DEPB itself specifically states in para 7.25 of the text of the policy already placed on record in the appellate proceedings that the objective of DEPB scheme is to neutralize the incidence of basic customs duty paid on imported contents of the goods exported. The DEPB rate is fixed by the DGFT on the basis of standard input output norms with a cap on per unit value of the exports wherever necessary. A copy of the said scheme as placed on your record during the appellate proceedings is again enclosed. Further, it is incorrect to say that the appellant did not incur any cost equivalent to the DEPB value. This cost even as per example given by the learned appellate authority in the appellate order is inbuilt and forms part of the cost of inputs which in the example on page 18 is ₹ 9,000/- and whereas the example 2 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and proviso under subsection (3) of the section 80HHC as these adjustments have to be made only for the items specifically provided therein and for no other item even if it is of the similar nature as no presumption, if and buts are permitted where the language of the law is clear as in this case. Necessary clarification may kindly be issued in the alternative, on this ground so that correct appeal effect is granted to appellant. 2.4 The ld. CIT (Appeals) examined the contention of the assessee and found the same as correct. He has observed that SIL did not grant any concession to the assessee either in exports or imports. It is a license, which authorizes the holder to import certain items on payment of full customs duty, which are not freely importable. The profits arise on transfer of same only. The Legislature has not included the same in the definition of income though retrospective amendments were made for the other concessions granted for exports. The existing definitions under section 28 (iiia) to (iiie) do not cover SIL. The ld. CIT (Appeals) further observed that the scheme of SIL is altogether different from the other schemes as provided under section 28 (iiia) to 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inclusive of duty and in turn transfers his DEPB license to the manufacturer by recovering its value which he has already paid while purchasing the goods. The ld. CIT (Appeals) found the explanation to be correct and held that the profits realized over and above the face value of DEPB in terms of amended provisions were to be taken into account under clause (baa). He directed the assessing officer accordingly. 3.1 While arriving at the aforesaid decisions, he placed reliance on the decision of Hon'ble Supreme Court in the case of ITO vs. 0and Manufacturing Co. Ltd. 34 ITR 143 (SC); Maharana Mills Pvt. Ltd. vs. ITO 36 ITR 350; CIT vs. Model Mills Nagpur Ltd. 64 ITR 67 wherein it has been held that any mistake apparent from record covers all mistakes discoverable from a perusal of the whole evidence in the case or from an omission to apply certain provisions of the Act to the facts of the case or a mistake due to an over-looking of certain aspects of the case or a mistake arising on account of long construction of any provisions of the Act. The error may be either of fact or error law. He also placed reliance on the decision of Hon'ble Supreme Court in the case of Karam Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and provisions of law cannot rectify order u/s 154. There was no mistake apparent from records and therefore the order passed is bad in law. 5. On the other hand, the ld. AR of the assessee submitted that in Revenue's appeal in ITA. Nos. 3771 to 3777 (Del) of 2006 for Assessment years 1998-99 to 2004-05 the issue relating to exclusion of DEPB/SIL from business profits under clause (baa) of Explanation to section 80-HHC was not decided on the ground that the CIT (Appeals) had amended his order under section 154 against which the Revenue had preferred appeal in ITA. Nos. 4313 to 4319 (Del) of 2006 [the present appeals]. Therefore, the issue relating to DEPB/SIL has to be decided in the present appeals. He also submitted that the ld. CIT [DR] appearing for the Revenue at the time of hearing of the appeals in ITA. Nos. 3771 to 3777 (Del) of 2006 had no objection if the issue was decided in Revenue's appeal in ITA. Nos. 4313 to 4319 (Del) of 2006. Therefore, the Revenue cannot take the plea now that no rectification was possible u/s 154 of the Act. He further submitted that the ld. CIT (Appeals) while deciding the issue relating to DEPB/SIL in order dated 11/09/2006 has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law apparent from records and has been rectified under section 154 relying on the various decisions of Hon'ble Supreme Court including the decision in the case of Karam Chand Prem Chand P. Ltd. vs. CIT 200 ITR 268 (SC) wherein it has been held that a decision rendered without taking note of a statutory provision can supply a ground for rectification. The ld. CIT (Appeals), therefore, came to the conclusion that SIL was altogether different than the other schemes as defined under section 28(iiia) to 28(iiie) and could not be subjected to the adjustments by way of exclusion from the business profits in terms of explanation (baa) to section 80-HHC of the Act. From these facts we find that the ld. CIT (Appeals) without considering the facts of the case treated the SIL as part of export incentives. Therefore, the ld. CIT (Appeals) committed an error of law in applying the provisions of section 28(iiid)/28(iiie) in respect of SIL. A mistake of law can be rectified under section 154 of the Act as held by the Hon'ble SC in the case of Karam Chand Prem Chand (P) Ltd. (supra). 6.2 As regards DEPB, the ld. CIT (Appeals) treated the entire DEPB amount under section 28(iiid) wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of SIL is similar to export incentive but not exactly export incentive as defined in section 28(iiic), 29(iiid) and 29(iiie). The assessee has also taken the following additional grounds of appeal on 21st May, 2007 for assessment years 1998-99 to 2001-02, which stand admitted vide order dated 26th March, 2008 as purely a question of law was involved. The additional grounds of appeal raised by the assessee for these years are reproduced as under:- 1. The ld. CIT (Appeals) erred in law and an facts in considering entire sales realization of special import license and DEPB as profit under section 28(iii)(d) of the Act though the words 'profits and sale proceeds' are not synonymous; 2. The ld. CIT (Appeals) erred in law and on facts in directing to make adjustments of the sale proceeds of special import license and DEPB under clause (baa) of the explanation and proviso under subsection (3) of section 80-HHC; 3. The ld. CIT (Appeals) erred in law and on facts in directing that depreciation for the purpose of computing deduction under section 80-IA and 80-HHC should be worked out notionally from the AY 1998-99 and not from the AY 1994-95 when a unit came into ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt incentive, then question of allowing deduction under section 80-HHC will not arise as it will be a separate receipt not covered for the purpose of deduction under section 80-HHC of the Act. 100 per cent of such income is to be excluded. The deduction under section 80-HHC of the Act is allowable on income derived from export business. Since the licenses are issued by DGFT, the SIL is, therefore, connected with export business of the assessee and hence its nature will be similar to sums covered under section 28(iiia), 28(iiib) and 28(iiic) of the Act. 90 percent of such receipts will be reduced under clause (baa) of Explanation to section 80HHC. He further submitted that since SIL is not export incentive and are receipts other than export incentives, the assessee will not be eligible for benefit under provisos to section 80HHC(3) of the Act. The ld. CIT (Appeals) has, therefore, rightly upheld the stand taken by the assessing officer in the first order. However, he has modified his order by directing the assessing officer not to reduce the SIL income under clause (baa) of the Explanation. As regards DEPB, he submitted that ld CIT(A) in original order has rightly treated these rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest etc. then provisions of clause (baa) of the Explanation will apply. Clause (baa) of the Explanation will also apply if the receipts are covered in clauses (iiia) to (iiie) of section 28 of the Act. Since special import license is part of the business income of the assessee and is neither in the nature of sums referred to in clauses (iiia) to (iiid) of section 28 or are not in the nature of brokerage, commission, interest etc. the profits earned on SIL will not be covered by the provisions of clause (baa) of the Explanation to section 80-HHC of the Act. He placed reliance on the decision of Special Bench of the ITAT, Mumbai Bench in the case of Surendra Engineering Corporation vs. ACIT 86 I.T.D. 121 (Mum.) (SB) wherein the scope of expression any other receipt of similar nature included in such profits has been explained. He further submitted that section 80-HHC of the Act is a special code. Clause (baa) was inserted by Taxation Laws (Amendment) Act, 1992. Under clause (baa) the sale proceeds received on sale of SIL has not been included in clause (baa). Therefore, the Legislative intention is clear so far as SIL is concerned. The Legislative intention can also be ascertai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said exporter to the Government. It can be paid indirectly through the supplier of the exporter who has supplied goods containing imported material to the exporter for exports. The DEPB is based on product and not for the person. If the exported goods do not contain any imported material on which any import duty has been paid, then the exporter is not eligible for any DEPB. Even in case of the assessee who is a rice exporter, it is getting DEPB for Jute bags with HDPE Liner/LDPE Liner used for packaging of rice exported. He further submitted that the legislature cannot differentiate between an exporter who imports the goods against DEPB License for self consumption and the exporter who transfers the said license to another manufacturer importer who produces the goods to be used by the exporters for exports. Therefore, the benefit equivalent to the value of the DEPB has to be granted to both the types of the exporters equally who imports the goods for self consumption will have higher export income as his cost would be less due to non payment of the customs duty but an exporter who has indirectly paid the said customs duty and recovers the same by transferring the license will hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der clause (iv) of section 28 of the Act. Thus the income arising on sale of special import license will be in the nature of business income. Under clause (baa) 90 per cent of the sums specified in clauses (iiia) to (iiie) of section 28 or any sum by way of interest, commission, brokerage, rent etc. or any amount of similar nature is to be excluded while computing business income for the purposes of deduction u/s 80HHC. The special import license is neither in the nature of sums specified in clauses (iiia) to (iiie) of section 28 nor does it represent the amount in the nature of interest, commission, brokerage etc. Therefore, the sale proceeds of special import license being in the nature of business income cannot be excluded under clause (baa) of the explanation to section 80-HHC of the Act. Further the expression any other receipt of similar nature included in such profits qualifies the receipts by way of brokerage, commission, interest, rent, charges. It does not refer to clauses (iiia) to (iiie) of section 28. Our view is supported by the decision in the case of Surendra Engineering Corporation vs. ACIT 86 I.T.D. 121 (SB) (Mum.) wherein at page 132 in para 9 it has been held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly. There is no dispute that the entire amount of DEPB receipt is assessable to tax. The face value of DEPB is the reimbursement of import duty included in packing material purchased by the assessee and represents the benefit derived from the business of exports. Therefore, the cost of element of DEPB will be assessable as business income under section 28(iv) of the Act. ITAT, Delhi Bench 'B' in the case of P.G. Enterprises P. Ltd. vs. DCIT 93 I.T.D. 138 (Del.) held that DEPB receipts falling under section 28(iv) would not fall within the ambit of words 'any other receipts of similar nature'. It was also held that 90 per cent of DEPB receipts assessable under section 28(iv) could not be excluded from profits of business as computed under the head 'Profits and gains of business or profession' for the purpose of computing profits of business under clause (baa) of the Explanation. From the above discussion it is clear that it is the profit part of DEPB receipts to be excluded under clause (baa) of the Explanation and not the cost part of the DEPB receipts. As held in foregoing paragraph the expression any other receipt of similar nature included in such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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