Income Tax Appellate Tribunal - Kolkata
Carnation Industries Ltd., Kolkata vs Department Of Income Tax on 22 June, 2012
आयकर अपीलीय अधीकरण, Ûयायपीठ - " सी ", कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH "C", KOLKATA
(सम¢)Before ौी महावीर िसंह, Ûयायीक सदःय, एवं/and
Shri Mahavir Singh, Judicial
Member.
ौी सी.
सी.डȣ.
डȣ.राव, लेखा सदःय
Shri C.D.Rao, Accountant Member
आयकर अपील संÉया /
ITA Nos.1571,1572 & 1573/Kol/2010
िनधॉरण वषॅ/Assessment Years : 2000-01,
2001-02 & 2002-03.
(अपीलाथȸ/APPELLANT ) (ू×यथȸ/RESPONDENT)
I.T.O., Ward-1(1), Kolkata M/s.Carnation Industries
Ltd., Kolkata.
(PAN:AABCC 0379 E)
अपीलाथȸ कȧ ओर से/ For the Appellant: Shri A.K.Pramanik,Sr.DR
ू×यथȸ कȧ ओर से/For the Respondent: Shri M.P.Thard & Shri
J.M.Thard
सुनवाई कȧ तारȣख/Date of Hearing : 22.06.2012.
घोषणा कȧ तारȣख/Date of Pronouncement : 22.06.2012.
आदे श/ORDER
पर बɅच Per Bench The above three appeals are filed by the Revenue against order dated 19.02.2010 of the ld. CIT-(A)-XIII, Kolkata pertaining to A.Yrs. 2000-01, 2001-02 & 2002-03 respectively.
2. There is a delay of 76 days in filing of the appeals by the Revenue for which the revenue has filed a condonation petition explaining the reasons for such delay. After considering the submissions by the Revenue the delay is condoned.
3. At the time of hearing the Bench pronounced as under :-
2"Delay condoned.
Revenue's appeal is dismissed in all the appeals. Pronounced in open court. Detailed order will follow."
Now the detailed order is as follows :
4. In all the three appeals of the revenue the only effective ground raised by the revenue is as under :-
"Ld.CIT(A) erred in deleting the disallowance of deduction u/s 80HHC relying on the decision of M/s.Topman Export Vs ITO [318 ITR (AT) 87] since the Hon'ble Mumbai High Court in the case of M/s.Kalpataru Colors & Chemicals has reversed the decision [ITA No.2887 of 2009 dated 29/06/2010]."
5. For the sake of convenience we will deal with ITA No.1571/Kol/2010 for A.Yr. 2000-01. The brief facts of this issue are that while doing the scrutiny assessment the AO has observed that the assessee has calculated its total income wrongly by computing u/s 80HHC of the IT Act by observing that the assessee is not entitled to deduction u/s 80HHC of the Act on the sales proceeds received on transfer of DEPB scheme credit.
5.1. On appeal the ld.CIT(A) after taking into consideration of the various submissions of assessee and based on the proposition laid down by Hon'ble Special Bench of Mumbai in the case of Topman Export vs ITO has recomputed the entitlement u/s 80HHC of the IT Act. For the sake of convenience the recomputation made by ld. CIT(A) at para 9.1 to 9.4. for A.Yr.2000-01 is as under :-
"9.1. In view of these figures revised according to the decision in the case of Topman Exports & Others the Profit and Loss Account of the assessee will get recast as follows :
Recast P&L A/c for 1999-2000 To Opening stock Rs.3,82,49,692/- By Sales Rs.21,13,14,718/-
To Purchase and expenses Rs.20,59,78,589/- By Liability
Written back Rs. 2,42,376/-
To Depreciation as per By Closing
Companies Act Rs. 48,45,378/- Stock Rs.3,98,68,892/-
To Face value of DEPB
Sold (as cost) Rs.1,16,26,387/- By Face value of
To Profit Rs.1,51,69,599/- DEPB appln.made
During the year
[u/s.28(iiib)] Rs.1,18,36,016/-
3
By sale of DEPB
During the year Rs.1,23,06,217/-
By Duty Drawback Rs. 3,01,426/-
Total Rs.27,58,69,645/- Total Rs.27,58,69,645/-
9.2. The business profit as per I.T.Act will be computed as follows :-
Business profit as above Rs.1,51,69,599/- Add: Depreciation as per Companies Act Rs. 48,45,378/- Rs.2,00,14,977/- Less : Depreciation as per I.T.Act Rs.1,63,22,357/-
(Rs.91,44,909(current depr.)+Rs.71,77,448 B/f depr.) Total Business Profit Rs. 36,92,620/-
9.3. Now on the basis of the above recast P & L A/c. the deduction u/s 80HHC will be computed, as per the decision of Topman Exports, in the following manner :
1) Total turnover Rs.22,36,20,935/-
(Rs.21,13,14,718/- + Rs.1,23,06,217/-
(DEPB sale proceeds)
As per Topman Exp.
Decision.
2) Export turnover Rs.21,13,14,718/-
3) Total profit of Business Rs. 36,92,620/-
(as per 9.2 above)
4) Profit of Business as per Expl.
(baa) (-) Rs.78,42,925/-
To Sec.80HHC [36,92,620 - 90% of (1,18,36,016 +
3,01,426 + 6,79,830/-)]
5) Adjusted Bus profit (As above in 4) : (-) Rs.78,42,925/-
6) Profit from export of (-) Rs.74,11,316/-
Manufactured goods [Rs.21,13,14,718/- x (-) Rs.78,42,925/-]
Rs.22,36,20,925/-
7) Profit to be increased in view of the first proviso to Sec.80HHC (3) [as per Topman
Exports decision the face value of DEPB claimed is to be taken as income u/s 28(iiib)].
Therefore 28(iiib) income + 28(iiic) income = Rs.1,18,36,016/-+Rs.3,01,426/-
= Rs.1,21,37,442/-
Profit to be increased by Rs.1,03,22,549/-
[90% x 1,21,37,442 x 21,13,14,718/-]
22,36,20,925
8) Total profit derived from exports = (6) + (7) Rs.29,11,233
9) Deduction u/s 80HHC Rs.29,11,233/-
[100% of (8)]
9.4. Thus the total income of the assessee will be computed as follows :
Gross Total Income (as in 9.2 above) Rs.36,92,620/- Less : Ddn. u/s 80HHC (as in 9.3 above) Rs.29,11,233/-
Total Income Rs. 7,81,387/-
Hence the total income of Rs.58,17,987/- determined by the A.O. is reduced to Rs.7,81,387/-"4
5.2. Similarly the ld. CIT(A) has made the recomputation u/s 80HHC of the IT Act for the subsequent assessment years i.e. Rs.22,90,846/- in A.Yr.2001-02 and Rs.49,90,050/-. In A.Yr.2002-03.
5.3. However, he further directed the AO to call for the record from assessee and verify these amounts and if any variation is found in these figures the recomputation described in paras 9.1. to 9.4 shall be changed accordingly while giving effect to the appellate order.
5.4. Aggrieved by this now the revenue is in appeal before us by stating that the decision of Special Bench in the case of Topman Exports vs ITO has been set aside by Hon'ble Mumbai High Court in the case of M/s.Kalpataru Colors & Chemicals as reported in 42 DTR (Bom) 193. Therefore the revenue preferred appeal for all the three Assessment years.
6. At the time of hearing both the parties have fairly conceded that now the Hon'ble Supreme Court has set aside the order of Hon'ble Bombay High Court in the case of CIT vs M/s.Kalpataru Colors & Chemicals and upheld the action of Special Bench in the case of Topman Exports vs CIT as reported in 67 DTR (SC) 185.
7. After hearing the rival submissions and on careful perusal of materials available on record, it is observed in the case of Topman Exports vs CIT (supra)the Hon'ble Supreme Court has held as under :-
It will be clear from the provisions of s. 28 that under cl. (iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India is by itself income chargeable to income-tax under the head 'Profits and gains of business or profession". DEPB is a kind of assistance given by the Government of India to an exporter to pay customs duty on its imports and it is receivable once exports are made and 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 cl. (iiib) of s. 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. Under cl. (iiid) of s. 28, any profit on transfer of DEPB is chargeable to income- tax under the head "Profits and gains of business or profession" as an item separate from cash assistance under cl. (iiib). The word "profit" means the gross proceeds of a business transaction 5 less the costs of the transaction. 'Profits', therefore, imply a comparison of the value of an asset when the asset is acquired with the value of the asset, when the asset is transferred and the difference between the two values is the amount of profit or gain made by a person. As 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. Thus, while the face value of the DEPB will fall under cl. (iiib) of s. 28, the difference between the sale value and the face value of the DEPB will fall under cl. (iiid) of s. 28 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. 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 cost of acquiring DEPB, on the other hand, is not nil because the person acquires it by paying customs duty on the import content of the export product and the DEPB which accrues to a person against exports has a cost element in it. Accordingly, when DEPB is sold by a person, his profit on transfer of DEPB would be the sale value of the DEPB less the face value of DEPB which represents the cost of the DEPB. The High Court has failed to appreciate that DEPB represents part of the cost incurred by a person for manufacture of the export product and hence even where the DEPB is not utilized by the exporter but is transferred to another person, the DEPB continues to remain as a cost to the exporter. When, therefore, DEPB is transferred by a person, the 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 which represents his profits on transfer of the DEPB.
The High Court has sought to meet the argument of double taxation 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 s. 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 s. 28 under which "cash assistance" received or receivable by any person against exports such as the DEPB and "profit on transfer of the DEPB" are treated as two separate items of income under cls. (iiib) and (iiid) of s.
28. If accrual of DEPB and profit on transfer of DEPB are treated as two separate items of income chargeable to tax under cls. (iiib) and (iiid) of s. 28, then DEPB will be chargeable as income under cl.. (iiib) of s. 28 in the year in which the person applies for DEPB credit against the exports and the profit on transfer of the DEPB by that person will be chargeable as income under cl. (iiid) of s. 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 cI. (iiib) and the difference between the sale value and the DEPB (face value) would be the profits on the transfer of DEPB under cl. (iiid) for the same assessment year. Where, however, the DEPB accrues to a person in one previous year and the transfer of DEPB takes place in a subsequent previous year, then the DEPB will be chargeable as income of the person for the first assessment year chargeable under cl. (iiib) of s. 28 and the difference between the DEPB credit and the sale value of the DEPB credit would be income in his hands for the subsequent assessment year chargeable under cl. (iiid) of s. 28. The interpretation suggested above, therefore, does not lead to double taxation of the same income, which the legislature must be presumed to have avoided.--CIT vs. Kalpataru Colours & Chemicals (2010) 233 CTR (Bom) 313 6 : (2010) 42 DTR (Bom) 193 and CIT vs. King Metal Works (2010) 235 CTR (Bom) 234 (2010) 45 DTR (Bom) 76 set aside."
7.1. It is further observed that while upholding the order of Special Bench of Mumbai the Hon'ble Apex Court has set aside the order of Hon'ble Bombay High Court in the case of CIT vs M/s.Kalpataru Colors & Chemicals as reported in 42 DTR 195 and CIT -vs- King Metal Works 235 CTR 234.
7.2. Keeping in view of the above Hon'ble Apex Court's decision (supra), we are of the view that the grounds taken by the revenue is not sustainable. It is further observed that ld. CIT(A) has directed the AO to call for the record from assessee and verify these amounts and if any variation is found in these figures the recomputation described in paras 9.1. to 9.4 shall be changed accordingly while giving effect to the appellate order. Therefore, in our considered opinion we find no infirmity in the orders of ld. CIT(A) to be interfered with. Therefore we confirm the same and dismiss the appeals of the revenue.
8. In the result all the appeals of revenue are dismissed.
Order pronounced in the open court on 22.06.2012.
Sd/- Sd/-
महावीर िसंह, Ûयाियक सदःय सी.
सी.डȣ.
डȣ.राव,
राव, लेखा सदःय,
सदःय
Mahavir Singh, Judicial Member C.D.Rao, Accountant Member.
(तारȣख)
तारȣख)Date: 22.06.2012.
R.G.(P.S.)
आदे श कȧ ूितिलǒप अमेǒषतः-
Copy of the order forwarded to:
1. M/s.Carnation Industries Ltd., 222, A.J.C.Bose Road, Kolkata-700017.
2 I.T.O., Ward-1(1), Kolkata.
3. The C.I.T. 4. CIT(A)-XIII, Kolkata.
5. The CIT(DR), Kolkata Benches, Kolkata स×याǒपत ूित/True Copy, आदे शानुसार/ By order, Deputy /Asst. Registrar, ITAT, Kolkata Benches 7