Income Tax Appellate Tribunal - Mumbai
Nhc Foods Ltd , Mumbai vs Assessee on 7 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH 'B' BENCH
BEFORE SHRI G.E. VEERABHADRAPPA (PRESIDENT) AND
SHRI AMIT SHUKLA (JUDICIAL MEMBER)
ITA No.3733 /Mum/2011
Assessment Year: 2000-01
AND
ITA No.3734 /Mum/2011
Assessment Year: 2001-02
NHC Foods Ltd.(Erstwhile NHC
Exports Corporation), NHC
House, 2/13, Anand Nagar, Near Vs. Income Tax Officer-13(3)(2), Mumbai
BSES House, Santacruz - East
Mumbai-400 055.
(Assessee) (Respondent)
PAN No : AAAFN5248F
Assessee by : Mr Vishwas V. Mehendale
Revenue by : Mr. N.M.Bandrawala
Date of hearing : 7th March 2012
Date of : 13th April 2012
pronouncement
O R D E R
PER AMIT SHUKLA, JM:
The assessee has preferred these two appeals i.e. ITA No.3733/Mum/2011 (for the assessment year 2000-2001) and ITA No.3734/Mum/2011 (for the assessment year 2001-2002) against separate orders, passed by the CIT (A).
ITA No.3733 /Mum/2011(A.Y 2000-2001) :
This appeal has been filed against the order dated 8-2-2011, passed by CIT (A)-24, Mumbai for the quantum of assessment determined under Section 143(3) read with Section 263 of the I.T. Act, (hereinafter referred to as the 'Act') for the assessment year 2000-2001 on the following grounds :-ITA No.3733 /Mum/2011
NHC Foods Ltd(AY2000-01) & ITA No.3734/Mum/2011 NHC Foods Ltd(AY2001-02) "1. On the facts and in the circumstances of the case and in law Hon. CIT-A-24 erred in computing deduction u/s 80 HHC at Rs.11,79,203/-, by holding that the unsold DEPB Licenses are not eligible for deduction.
2. On the facts and in the circumstances of the case and in law, Hon. CIT-A-24 erred in not reducing the Direct Cost of DEPB Licenses and Interest Cost of Rs.1,08,375/- while deriving the eligible business profits from appellant's export business.
3. On the facts and in the circumstances of the case and in law, Hon.CIT-A-24 erred in computing appellant's Interest Income at Rs.3,43,700/-."
2. Brief facts in appros are that the assessee had filed return on 20-10-2010 at "nil" income after claiming deduction under Section 80HHC of the Act for an amount of Rs.22,01,456/-. Thereafter, the assessment under Section 143(3) was completed vide order dated 29-8-2002, whereby the assessee's total income was computed at Rs.3,93,388/- after giving deduction under Section 80HHC of the Act, 1961 at Rs.17,72,106/-. In the said assessment, the Assessing Officer had made the following additions/disallowances (which are given at page 2 of the assessment order) :-
"i) Disallowance of a sum of Rs.77,853/- being 10% of export incentives (duty drawback and DEPB license) from the indirect cost and therefore, indirect cost was allowed at Rs.12,44,400/- as against claimed at Rs.11,67,092/-.
ii) Receipt of interest Rs.3,43,700/- is treated as income from other sources as against business income as per assessee.
iii) Disallowed interest earned of Rs.3,43,700/- and sundry creditors written off amounting to Rs.83,41/- from the direct cost of Export and worked out direct cost to Rs.7,89,28,411/- as against claimed at Rs.7,85,76,370/-. The deduction u/s.80HHC was allowed at Rs.17,72,106/- and total income was assessed at Rs.3,93,388/-."
3. In the first appeal against the aforesaid order, the CIT (A) gave part relief vide order dated 17-2-2003 by holding that, firstly, netting of interest has to be allowed while working out indirect cost for computing deduction u/s.80HHC after ITA No.3733 /Mum/2011 NHC Foods Ltd(AY2000-01) & ITA No.3734/Mum/2011 NHC Foods Ltd(AY2001-02) restricting the same to the extent of interest paid and received from the bank. Secondly, 10% of export incentive has to be allowed from the "indirect cost" for the purpose of relief u/s.80HHC. After giving effect to the orders of CIT (A), the indirect cost and indirect export expenses came down to Rs.11,75,310/- and Rs.11,67,092/-, respectively. The deduction u/s.80HHC was thus arrived at Rs.18,21,794/- and the income was finally assessed at Rs.3,43,700/-. Even from the stage of ITAT, the amount of claim for deduction and income remained the same, as the order of CIT (A) was confirmed.
4. Thereafter the said order was subject to revision under Section 263 of the Act by CIT, vide order dated 15-4-2009, whereby the assessment was cancelled after observing that the assessing officer has wrongly reduced 10% interest paid to the Bank i.e. Rs.1,08,375/- from direct cost of the exported goods, which is a mistake in the calculation and, thus, the excess deduction u/s.80HHC has been allowed and further the assessee had unsold Duty Entitlement Pass Book (in short 'DEPB') of Rs.2,31,780/-, which does not qualify for deduction under Section 80HHC.
5. In pursuance to the said direction of CIT, the Assessing Officer worked out the profit from transfer of DEPB at Rs.52,894/- and the working of claim u/s.80HHC for the relevant year was done in the following manner :-
Export Turnover 8,12,49,143
Direct Cost 7,89,28,411
23,20,732
Less 90% of Indirect Expenses 10,57,779
12,62,953
12,62,953 + 90% of 52,894 X 8,12,49,143
8,12,49,143
12,62,953 + 47,272
80HHC = 13,10,225
ITA No.3733 /Mum/2011
NHC Foods Ltd(AY2000-01) &
ITA No.3734/Mum/2011
NHC Foods Ltd(AY2001-02)
90% thereof = 11,79,203
Thus, the income was computed at Rs.9,86,290/- after restricting the claim of deduction under Section 80HHC of the IT Act 1961 at Rs.11,79,203.
6. Before the first appeal, the assessee contended that the disallowance of unsold DEPB license was against the decision of the Hon'ble Special Bench of ITAT in the case of Kalpataru Colours and Chemicals. It was further contended that the computation of profit of sale of DEPB entitlements after deducting the direct cost of the DEPB from the sale proceeds, is erroneous as the said direct cost was already included in the direct cost on exports done by the assessee and reduced from the export turn over for deriving the profit from business. Learned CIT (A) rejected the contention of the assessee on the ground that the Hon'ble Bombay High Court in the case of CIT Vs. Kapataru Colours & Chemicals, reported in [2010] 192 Taxman 435 (Bombay), is against the assessee. The relevant finding of the learned CIT(A) is reproduced herein below :-
"3.3(a) I have considered the submission of the ld. Counsel and in my opinion, the value of the unsold DEPB licence at Rs.2,31,780/- cannot be included while calculating the profit from export etc. u/s.80HHC because the Hon'ble Bombay High Court in the case of Kalpataru Colours and Chemicals has clearly held on page 34 as follows :-
"What constitutes profits u/s. 28(iiid) is amount received on transfer of DEPB credit and not the credit which the assessee was entitled to under DEPB scheme." Also further the court has stated that the taxability arises when the sale of DEPB is made. Thus, income from sale of DEPB is a profit u/s 28(iiid) and this is just like sale of license and taxability arises only on sale of such license of DEPB. Therefore, the eligibility can only arise when the sale of DEPB is made and therefore, this ground of appeal is dismissed."ITA No.3733 /Mum/2011
NHC Foods Ltd(AY2000-01) & ITA No.3734/Mum/2011 NHC Foods Ltd(AY2001-02)
7. On the issue of reduction of the direct cost of DEPB entitlement on the sale proceeds the CIT(A) directed the Assessing Officer to verify the contention of the appellant-assessee in the light of the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Kapataru Colours & Chemicals (supra).
8. On the second ground of appeal regarding treating the interest as income from the other sources, learned CIT (A) dismissed the contention of the assessee following the judgment of the Hon'ble Bombay High Court in the case of CIT Vs. Asian Star Co. Ltd., reported in (2010) 326 ITR 56 (Bom) after observing and holding as under :-
"4.1 I have considered the submission of the Ld. Counsel, but the same is contrary to the decisions. But in view of the recent decisions of the Hon'ble Supreme Court in the case of Liberty India Vs. CIT, (2009) 317 ITR 218- wherein such income has been held to be beyond the 1st degree and hence, not profits derived from the eligible business and not entitled for deduction u/s 80 HHC and further the other decision of Hon'ble Bombay High Court in the case of CIT Vs. Asian Star Co. Ltd.(2010) 326 ITR 56 (Bom) - the plea of the appellant is dismissed and the AO is directed to follow the decision of Hon'ble Bombay High Court in the case of Bombay High Court on the same issue in the case of CIT Vs. Asian Star Co. Ltd.(2010) 326 ITR 56 (Bom) and compute the deduction accordingly. This ground of appeal is dismissed."
9. Learned A.R. appearing on behalf of the assessee submitted that grounds No.1 & 2 are now covered by the judgment of the Hon'ble Supreme Court in the case of Topman Exports Vs. Commissioner of Income-tax, Mumbai, reported in [2012] 205 TAXMAN 119. For the ground No.3, the learned A.R. relief upon the decision of the ITAT's order in the I.T.A.No.1739 & ITA No.3733 /Mum/2011 NHC Foods Ltd(AY2000-01) & ITA No.3734/Mum/2011 NHC Foods Ltd(AY2001-02) 1740/Mum/2003, dated 26-7-2006 and the decision of the Hon'ble Supreme Court in the case of Hero Exports, reported in 295 ITR 494.
10. On the other hand, learned Senior D.R. supported the findings given by the Assessing Officer as well as CIT (A).
11. We have carefully considered the orders of the authorities below and the judgments relied upon by the CIT (A) as well as by the learned A.R. The CIT(A) has dismissed the assessee's contention (as has been raised in the grounds No.1 & 2) by following the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Kapataru Colours & Chemicals (supra). Now, the said judgment has been reversed by the Hon'ble Supreme Court in the case of Topman Exports Vs. Commissioner of Income-tax, Mumbai (supra). The Hon'ble Apex Court after analysing the policy and rules of DEPB (Duty Entitlement Pass Book) Scheme and provisions of Section 28 (iiia), (iiib) and (iiie), came to the following conclusions :-
"14. We are, thus, of the considered opinion that while the face value of the DEPB will fall under clause (iiib) of Section 28 of the Act, the difference between the sale value and the face value of the DEPB will fall under clause (iiid) of Section 28 of the Act and the High Court was not right in taking the view in the impugned judgment that the entire sale proceeds of the DEPB realized on transfer of the DEPB and not just the difference between the sale value and the face value of the DEPB represent profit on transfer of the DEPB."
12. The Hon'ble Supreme Court has also analyzed in detail as to why the judgment of the Hon'ble Bombay High Court is not correct. Thus, the respectfully following the judgment of the Hon'ble Supreme Court in the case of Topman Exports Vs. Commissioner of Income-tax, Mumbai (supra), we direct the ITA No.3733 /Mum/2011 NHC Foods Ltd(AY2000-01) & ITA No.3734/Mum/2011 NHC Foods Ltd(AY2001-02) Assessing Officer to recompute the deduction under Section 80HHC following the law and ratio laid down by the Hon'ble Supreme Court. In the result, grounds of appeal No.1 & 2 are allowed for statistical purposes.
13. So far as the ground No.3 is concerned, the learned CIT (A) has followed the judgment of the Hon'ble Bombay High Court in the case of CIT Vs. Asian Star Co. Ltd. (supra), however, the said judgment has now been reversed by the Hon'ble Supreme Court in the latest judgment and order dated 8-2-2012 passed by the Bench of three Judges in Civil Appeal No.1914/2012 in the case of M/s ACG Associated Capsules Pvt. Ltd. Vs. The CIT, Central-IV, Mumbai. Their Lordships after analyzing the provisions contained in Explanation (baa) to Section 80HHC, have opined as under :-
"12. If we now apply Explanation (baa) as interpreted by us in this judgment to the facts of the case before us, if the rent or interest is a receipt chargeable as profits and gains of business and chargeable to tax under Section 28 of the Act, and if any quantum of the rent or interest of the assessee is allowable as an expense in accordance with Sections 30 to 44D of the Act and is not to be included in the profits of the business of the assessee as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of the receipt of rent or interest will not be deducted under clause (1) of Explanation (baa) to Section 80HHC. In other words, ninety per cent of not the gross rent or gross interest but only the net interest or net rent, which has been included in the profits of business of the assessee as computed under the head "Profits and Gains of Business or Profession", is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of the business.
13. The view that we have taken of Explanation (baa) to Section 80HHC is also the view of the Delhi High Court in Commissioner of Income-Tax v. Shri Ram Honda Power Equip (supra) and the Tribunal in the present case has followed the judgment of the Delhi High Court. On appeal being filed by the Revenue against the order of the Tribunal, the High Court has set aside the order of the Tribunal and directed the Assessing Officer to dispose of the issue in accordance with the judgment of the Bombay High Court in Commissioner of Income-Tax v. Asian Star Co. Ltd. (supra). We must, thus, examine whether reasons given by the High Court in its ITA No.3733 /Mum/2011 NHC Foods Ltd(AY2000-01) & ITA No.3734/Mum/2011 NHC Foods Ltd(AY2001-02) judgment in Commissioner of Income-Tax v. Asian Star Co. Ltd. (supra) were correct in law.
14. On a perusal of the judgment of the High Court in Commissioner of Income-Tax v. Asian Star Co. Ltd. (supra), we find that the reason which weighed with the High Court for taking a different view, is that rent, commission, interest and brokerage do not possess any nexus with export turnover and, therefore, the inclusion of such items in the profits of the business would result in a distortion of the figure of export profits. The High Court has relied on a decision of this Court in Commissioner of Income-Tax v. K. Ravindranathan Nair [(2007) 295 ITR 228 (SC)] in which the issue raised before this Court was entirely different from the issue raised in this case. In that case, the assessee owned a factory in which he processed cashew nuts grown in his farm and he exported the cashew nuts as an exporter.
At the same time, the assessee processed cashew nuts which were supplied to him by exporters on job work basis and he collected processing charges for the same. He, however, did not include such processing charges collected on job work basis in his total turnover for the purpose of computing the deduction under Section 80HHC (3) of the Act and as a result this turnover of collection charges was left out in the computation of profits and gains of business of the assessee and as a result ninety per cent of the profits of the assessee arising out of the receipt of processing charges was not deducted under clauses (1) of the Explanation (baa) to Section 80HHC. This Court held that the processing charges was included in the gross total income from cashew business and hence in terms of Explanation (baa), ninety per cent of the gross total income arising from processing charges had to be deducted under Explanation (baa) to arrive at the profits of the business. In this case, this Court held that the processing charges received by the assessee were part of the business turnover and accordingly the income arising there from should have been included in the 1profits and gains of business of the assessee and ninety per cent of this income also would have to be deducted under Explanation (baa) under Section 80HHC of the Act. In this case, this Court was not deciding the issue whether ninety per cent deduction is to be made from the gross or net income of any of the receipts mentioned in clause (1) of the Explanation (baa).
15. The Bombay High Court has also relied on the Memorandum explaining the clauses of the Finance Bill, 1991 contained in the circular dated 19.12.1991 of the Central Board of Direct Taxes to come to the conclusion that the Parliament intended to exclude items which were unrelated to the export turnover from the computation of deduction and while excluding such items which are unrelated to export for the purpose of Section 80HHC, Parliament has taken due note of the fact that the exporter assessee would have incurred such expenditure in earning the profits and to avoid a distorted figure of export profits, ninety per cent of the receipts like brokerage, commission, interest, rent, charges are sought to be excluded from the profits of the business. In our considered opinion, it was not necessary to refer to the explanatory Memorandum when ITA No.3733 /Mum/2011 NHC Foods Ltd(AY2000-01) & ITA No.3734/Mum/2011 NHC Foods Ltd(AY2001-02) the language of Explanation (baa) to Section 80HHC was clear that only ninety per cent of receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits computed under the head profits and gains of business of an assessee could be deducted under clause (1) of Explanation (baa) and not ninety per cent of the quantum of any of the aforesaid receipts which are allowed as expenses and therefore not included in the profits of business of the assessee.
16. In the result, we allow the appeal and set aside the impugned order of the High Court and remand the matter to the Assessing Officer to work out the deductions from rent and interest in accordance with this judgment. No costs. CIVIL APPEAL No. 4534 of 2008 This is an appeal against the order dated 19.01.2007 of the Delhi High Court in I.T.A. No. 541 of 2006. 12. The facts of this case very briefly are that Bharat Rasayan Limited (for short `the assessee') filed a return of income tax claiming a deduction of Rs.72,76,405/- under Section 80HHC of the Act."
14. Thus, respectfully following the above judgment of the Hon'ble Supreme Court, we direct the Assessing Officer to give relief following the ratio and the principle laid down by the Hon'ble Supreme Court. In the result, ground No.3 is allowed to the extent that 90% of net amount of interest should be included in the profit of business of the assessee and to be deducted from the Profits of the business as mentioned in Clause 1 of Explanation (baa) to Section 80HHC. In the result, the grounds of appeal No.3 is allowed to the extent of directions given above.
ITA No.3734 /Mum/2011(A.Y 2001-2002) :
This appeal has been filed against the order dated 28-2-2011, passed by CIT (A)-24, Mumbai for the quantum of assessment passed under Section 143(3) read with Section 263 of the I.T. Act, (hereinafter referred to as the 'Act' ) for the assessment year 2001-2002 on the following grounds of appeal :-ITA No.3733 /Mum/2011
NHC Foods Ltd(AY2000-01) & ITA No.3734/Mum/2011 NHC Foods Ltd(AY2001-02) "1. On the facts and in the circumstances of the case and in law Hon. CIT-A-24 erred not allowing appellants' claim for the deduction u/s 80 HHC of Rs.37,76,179/-.
2. On the facts and in the circumstances of the case and in law, Hon. CIT-A-24 erred in holding that the appellants were not entitled to deduction u/s 80 HHC of the Act in respect of the DEPB Licenses in spite of the fact that the appellants' did not have any choice to select between Duty Drawback or DEPB License as their products were not eligible for Duty Drawback Benefit under the existing Export Policy
3. On the facts and in the circumstances of the case and in law, Hon.CIT-A-24 erred in not reducing the Direct Cost of DEPB Licenses while deriving the profit on sale of DEPB Licenses.
4. On the facts and in the circumstances of the case and in law, Hon.CIT-A-24 erred in holding that the unsold DEPB Licenses are not eligible for deduction.
2.1 The impugned assessment order is result of a chequered history of several orders passed for the same assessment year which is culled out from the assessment order itself. The assessee had filed its return on 2-8-2001 declaring total income of Rs.7,91,480/- after claiming deduction under Section 80HHC of the Act for an amount of Rs.37,34,353/-. Thereafter, the assessment under Section 143(3) was completed vide order dated 31-10-2002, whereby the assessee's total income was computed at Rs.11,24,470/- after allowing deduction under Section 80HHC of the Act at Rs.34,01,358/-. Later on, the assessment was rectified under Section 154 of the Act and total income was determined at Rs.10,41,360/- and deduction under Section 80HHC was allowed at Rs.34,84,470/-. In the first appeal against the assessment order certain relief was granted and after giving effect to the said order passed by the CIT(A) (vide order dated 17-2-2003), total income of the assessee was computed at ITA No.3733 /Mum/2011 NHC Foods Ltd(AY2000-01) & ITA No.3734/Mum/2011 NHC Foods Ltd(AY2001-02) Rs.35,99,678/-. The order of CIT (A) was later on confirmed by the ITAT also vide order dated 26-7-2006 on the same relief. The effect of the ITAT was also given u/s.143(3)/254.
2.2. Thereafter, the computation of income as arrived at in the aforesaid manner was again revised, when the assessee's case was reopened under Section 147. In pursuance of notice u/s.148, vide order dated 30-7-2007 passed under Section 143 (3) read with Section 147/254, the total income was determined at Rs.7,49,650/- and claim for deduction under Section 80HHC was allowed at Rs.37,76,179/-. This order was again subject to revision under Section 263 by the CIT, who vide order dated 15-4-2009, cancelled the assessment on the ground that while giving effect to the Tribunal's order, the Assessing Officer from the direct cost, 10% of the income paid to the bank i.e. Rs.2,29,389/-, has bee reduced, which is a mistake in the calculation and as a result the assessee has been allowed excess deduction under Section 80HHC. Further the assessee had unsold DEPB License of Rs.37.989/-, which will not be proportionate allowance in calculation for deduction under Section 80HHC and the same has been omitted to be considered in the re-assessment order. The order was thus set aside to the Assessing Officer to pass fresh order after keeping in mind with the following directions :-
"i) Allowance of 10% interest as per ITAT's order.
ii) The quantification of unsold DEPB
iii) Items exported by the assessee which are eligible for duty draw back.
iv) Application of provision of 3rd and 4th proviso to section 80HHC (3) and after calculating correctly the quantum of deduction to be allowed to the assessee u/s.80HHC of the Act."
ITA No.3733 /Mum/2011
NHC Foods Ltd(AY2000-01) & ITA No.3734/Mum/2011 NHC Foods Ltd(AY2001-02) 3.1. The Assessing Officer in pursuance of above, issued a notice under Section 142(1), to provide details and explain the same in terms of the directions given by the CIT. In response, the assessee vide letter dated 2-9-2009 gave brief note on the nature of business and contended that the claim for deduction of sale of DEPB License is covered by the decision of the Special Bench of the ITAT and the 10% of interest was allowed as per the directions of ITAT only. The Assessing Officer further required to submit the working of DEPB profit arrived at by it along with necessary proof, which was duly complied with by providing details of DEPB license account and DEPB License Stock Account along with copies of debit notes etc..
3.2. However, with regard to the Assessing Officer's query to give details of credited goods, nature of package made for the goods exported, DEPB & Duty draw back claimed on it, the assessee could not furnish the details as was required to be submitted on 9-12-2009. The AO in terms of directions of CIT, held that in terms of third proviso to Section 80HHC(3), the duty drawback eligibility of the assessee is taken as 'Zero' and since the assessee has opted for higher scheme, it is not eligible for deduction u/s 80HHC as in the instant year the total turnover of the assessee was exceeding Rs.10 Crores. Since the assessee has opted for DEPB, hence, the claim for deduction under Section 80HHC was disallowed being higher than the duty drawback. Thus, the total income was computed at Rs.45,25,830/- without giving any deduction under Section 80HHC. 4.1 In the first appeal, the CIT (A) after calling upon the remand report, confirmed the findings of the Assessing Officer in the following manner :- ITA No.3733 /Mum/2011
NHC Foods Ltd(AY2000-01) & ITA No.3734/Mum/2011 NHC Foods Ltd(AY2001-02) "2.3 I have considered the submission of the Ld. Counsel and the remand report of the AO- which is based upon the factual aspects of the matter after hearing the Ld. Counsel for the appellant and in my opinion the appeal deserves to be dismissed because as rightly held, the appellant is ineligible for any deduction u/s.80HHC of I.T. Act, as admitted by the appellant he had no opinion and the bare language of Sec.80HHC speaks of the requirement of the appellant having an option to choose either the Duty Draw Back or the Duty Free Replenishment Certificate- being the Duty Remission Scheme- and this requirement of the appellant is not met with because appellant has stated that he has no option, whereas the Section clearly requires the availability of the option to be operative. Hence, the appeal is dismissed."
4.2. The learned AR appearing on behalf of the assessee confined himself to the merits of the disallowance of claim u/s.80HHC. He submitted that the nature of the assessee's license was dealing with exports of agro products such as spices, pulses, sugar, cereals, oilseeds and similar agro products and agarbatti.
He also invited our attention to the third proviso to sub-section 3 of Section 80HHC and submitted that as per the provisions and the Government Scheme, the exporters are entitled to three types of export benefits such as 'Duty Draw Back', 'Duty Entitlement Pass Book Scheme' (DEPB) and 'Duty Free Replenishment Certificate' (DFRC), however, not all the exported items are entitled to the above benefits. In the assessee's case, so far as agro products are concerned, there is no rate prescribed for availing the 'Duty Draw Back' which can be claimed only on exports of agarbatti or the exports made in tin boxes. Since the agro products were exported in Gunny Bags, only DEPB was available and not 'Duty Draw Back'. As far as the 'Duty Free Replenishment Certificate' (DFRC) is concerned, it would not be applicable in the case of the assessee ITA No.3733 /Mum/2011 NHC Foods Ltd(AY2000-01) & ITA No.3734/Mum/2011 NHC Foods Ltd(AY2001-02) since it has not imported any material which has been exported. Thus, in the assessee's case, no 'Duty Drawback' rate is prescribed in the products exported by the assessee and he had only option left was of DEPB. Hence, the benefits of DEPB under the third proviso to sub Section 3 of Section 80HHC should be made available. On other aspects relating to claim of deduction, he relied upon the pleadings made in the earlier year i.e. for the Assessment Year 2000-2001.
5. Per contra, learned Senior DR relied upon the finding given by the AO as well as by CIT (A) and contended that since the amount of 'Duty Draw Back' even if it is nil, then also it is lower than the DEPB, therefore, the Assessing Officer has rightly disallowed the claim of the Assessee under Section 80HHC, in view of third proviso to Section 80HHC (3).
6. We have gone through the orders of the authorities below and the submissions given by the both the parties.
7. In this case, after various rounds of orders, the entire claim under Section 80HHC is now in dispute. Since, the validity and scope of disallowance of claim under Section 80HHC in the light of the various orders passed in the case has neither been canvassed before us nor has been raised in the grounds of appeal. Hence, we are confining ourselves to the merits of the issues involved. The A.O. has made the disallowance of entire claim of deduction in terms of third proviso to Section 80HHC (3) on the ground that the assessee had a choice of choosing the Duty Draw Back and DEPB and since the Duty Draw Back was less than ITA No.3733 /Mum/2011 NHC Foods Ltd(AY2000-01) & ITA No.3734/Mum/2011 NHC Foods Ltd(AY2001-02) DEPB, which has been opted by the assessee, and, therefore, the claim of deduction under Section 80HHC should be entirely disallowed.
8. From a perusal of the finding given by the AO as well as the commencts given by him in the remand report before the CIT (A), it seems to be an undisputed fact that in the instant year, the assessee had exported agro products in gunny bags and not in tin boxes. As per the Government Scheme, if the export is made in tin boxes, the assessee will get the benefit of Duty Draw Back and if the same has been exported in gunny bags, the benefit of DEPB is available to the assessee. The AO was of the view that since the benefit under Duty Draw Back is 'zero', the benefit of DEPB opted by the assessee is at much higher figure, and, therefore, the benefit of the claim for deduction under Section 80HHC cannot be available to the assessee. Once it is a categorical fact that the assessee though entitled for duty draw back but the condition for availing duty draw back was not fulfilled and only the benefit which was received in the form of DEPB, then it cannot be held that the duty draw back which was at 'Zero' figure can be taken as an option so as to make it comparable with DEPB. If any benefit is 'Zero' by virtue of non-availability, it cannot be held that it would be available for comparison with other benefits like DEPB. This will result in great hardship to the eligible assesses.
9. The provisions dealing with an exemption or deduction should be liberally construed so as to achieve the purpose for which the legislature has enacted the said provision, otherwise, it would amount to acute hardship and denial of benefit to which they are otherwise entitled to. If it is to be held that the duty draw back ITA No.3733 /Mum/2011 NHC Foods Ltd(AY2000-01) & ITA No.3734/Mum/2011 NHC Foods Ltd(AY2001-02) which was not available to the assessee in the instant year as its value being zero, then it cannot be taken for comparison also with the other scheme of benefit like DEPB. We, therefore, hold that as per the third proviso to sub Section 3 of Section 80HHC of the Act, the assessee did not had option for Duty Draw Back but only the benefit of DEPB and accordingly the claim of deduction under Section 80HHC cannot be denied and the finding of CIT(A) and the Assessing Officer is reversed. The A.O. is thus directed to give relief u/s. 80HHC to the assessee.
10. As far as other aspects in computing the claim for deduction under Section 80HHC is concerned, the finding given by us in I.T.A.No.3733/Mum/2011 would be squarely applicable and the Assessing Officer is hereby directed to re- compute the income under Section 80HHC in view of our finding given above and the finding given in the aforesaid appeal for the assessment year 2000-2001.
11. Resultantly, the appeals of the assessee i.e. I.T.A.No.3733/Mum/2011 for the assessment year 2000-2001 is partly allowed for statistical purposes and I.T.A.No.3734/Mum/2011 for the assessment year 2001-2002 is allowed subject to the directions given above.
Pronounced in the open court on 13th April, 2012
Sd/- Sd/-
(G.E. VEERABHADRAPPA) (AMIT SHUKLA )
President Judicial Member
Mumbai, Dated 13th April, 2012
Prakash
ITA No.3733 /Mum/2011
NHC Foods Ltd(AY2000-01) &
ITA No.3734/Mum/2011
NHC Foods Ltd(AY2001-02)
Copy to:
1. The assessee
2. The respondent
3. Commissioner of Income Tax (Appeals),, Mumbai
4. Commissioner of Income Tax, , Mumbai
5. Departmental Representative, Bench 'B' Mumbai //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI