Income Tax Appellate Tribunal - Mumbai
Glow Export Trading P.Ltd, Mumbai vs Assessee
आयकर अपील य अ धकरण,
धकरण, मंुबई यायपीठ 'जी
जी'
जी मंुबई
IN THE INCOME TAX APPELLATE TRIBUNAL
"G" BENCH, MUMBAI
ी राजे संह, लेखा सद य,
य एवं ी अ मत शु ला, या यक सद य के सम
BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND
SHRI AMIT SHUKLA, JUDICIAL MEMBER
आयकर अपील सं. / ITA no. 2939/Mum./2012
( नधारण वष / Assessment Year : 2003-04)
आयकर अपील सं. / ITA no. 2940/Mum./2012
( नधारण वष / Assessment Year : 2002-03)
M/s. Glow Export Trading Pvt. Ltd. ....................... अपीलाथ /
102, Pratmesh Apartment Appellant
Navakar Lane, Gindivali
Andheri (E), Mumbai 400 099
बनाम v/s
Dy. Commissioner of Income Tax ................... यथ /
Circle-8(1), Aayakar Bhavan Respondent
101, M.K. Road, Mumbai 400 020
थायी लेखा सं./ Permanent Account Number - AAACG3678F
नधा रती क ओर से / Assessee by : Mr. P.R. Majithia a/w
Mr. B.R. Majithia
राज व क ओर से / Revenue by : Mr. D.K. Sinha
सनवाई
ु क तार ख / आदे श घोषणा क तार ख /
Date of Hearing - 16.05.2013 Date of Order - 16.05.2013
आदे श / ORDER
अ मत शु ला, या यक सद य के ारा /
PER AMIT SHUKLA, J.M.
The present appeals are preferred by the assessee challenging the impugned separate orders of even date 2nd September 2011, passed by the learned Commissioner (Appeals)-XVI, Mumbai, for the quantum of M/s. Glow Export Trading Pvt. Ltd.
2assessment passed under section 143(3) r/w 254 of the Income Tax Act, 1961 (for short "the Act"), for the assessment years 2002-03 and 2003-
04. Since the issues involved in both the appeals are common, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order.
2. The sole dispute in these appeals is disallowance of ` 27,78,862, for the assessment year 2002-03 and ` 58,44,160, for the assessment year 2003-04, which relate to deduction under section 80HHC being bad in law as the assessee was deprived of making comparison on the duty draw back and DEPB @ 90% of the product being sold by the assessee were not covered under the duty draw back.
3. Facts in brief:- In the present case, the assessment, in both the years under appeal, was completed under section 143(3) vide orders of even date 28th February 2006, determining the total income at ` 54,81,620, for the assessment year 2003-04 and ` 84,05,660, for the assessment year 2002-03. In the said assessment, certain additions were made on account of disallowance of deduction under section 80HHC of ` 27,78,862, for the assessment year 2003-04 and ` 59,44,160, for the assessment year 2002-03. Being aggrieved by the said orders, the assessee preferred appeals before the learned Commissioner (Appeals), who, vide order dated 21st July 2006, dismissed the assessee's appeals. During the course of second appellate proceedings, the Tribunal, vide order dated 8th October 2009, directed the Assessing Officer to recompute and consider the face value of DEPB as covered under section 28(iiib) and the profit on transfer of DEPB in view of the Special Bench decision of the Tribunal in Topman Exports v/s ITO, [2009] 318 ITR (AT) 87 (Mum.) (S.B). Against the said order, the Revenue preferred appeal under section 260A before the Hon'ble Jurisdictional High Court wherein Their Lordships, vide judgment dated 13th July 2010, disposed off the appeal by the Revenue directing the Assessing Officer to pass an order in accordance with the judgment of Bombay High Court in CIT v/s Kalpataru Colours & Chemicals, [2010] 192 Taxman 435 (Bom.). The Assessing Officer, M/s. Glow Export Trading Pvt. Ltd.
3following the judgment of Jurisdictional High Court, held that the decision of Special Bench of the Tribunal in Topman Exports Ltd. (supra), has been reversed by the High Court and, therefore, no relief can be given to the assessee.
4. The learned Commissioner (Appeals) also, following the judgment of Bombay High Court in Kalpataru Colours & Chemicals (supra) decided the issue against the assessee after detail discussion appearing from Pages-5 to 12 of the appellate order.
5. Before us, the learned Counsel submitted that now the judgment of Bombay High Court in Kalpataru Colours & Chemicals (supra) has been reversed by the Hon'ble Supreme Court in Topman Exports Ltd. v/s CIT, [2012] 342 ITR 049 (SC).
6. We have carefully considered the relevant findings of the learned Commissioner (Appeals) and the judgment of Hon'ble Supreme Court as relied upon by the learned Counsel. In this case, the Assessing Officer as well as the learned Commissioner (Appeals) has followed the principles and the ratio laid down by the Bombay High Court in Kalpataru Colours & Chemicals (supra) which has reversed the decision of Special Bench in Topman Exports Ltd. (supra). Now the Hon'ble Supreme Court has reversed the decision of Bombay High Court after discussing the decision of the Special Bench of the Tribunal in Topman Exports Ltd. (supra) and Kalpataru Colours & Chemicals (supra). The Hon'ble Supreme Court has discussed the concept of DEPB and the relevant provisions of section 28, clause (iiib) and (iiid). The relevant findings of the Hon'ble Supreme Court, for the sake of ready reference, is reproduced herein below:-
"On a reading of the aforesaid paras of the Hand Book on DEPB and the Export and Import Policy of the Government of India, 1997- 2002, it is clear that the objective of DEPB scheme is to neutralize the incidence of customs duty on the import content of the export products. Hence, it has direct nexus with the cost of the imports made by an exporter for manufacturing the export products. 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.
M/s. Glow Export Trading Pvt. Ltd.4
11. We may now consider the relevant provisions of s. 28 for determining whether DEPB will fall under cl. (iiib) or under cl. (iiid) of s. 28. The relevant provisions of s. 28 of the Act are reproduced hereunder:
xxx xxx xxx
12. It will be clear from the aforesaid 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. We have, therefore, 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.
13. 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 less the costs of the transaction.
14. We are, thus, of the considered opinion that while the face value of the DEPB will fall under cl. (ilib) of s. 28 of the Act, the difference between the sale value and the face value of the DEPB will fall under cl. (iiid) of s. 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.
15. We may now point out the errors in the impugned judgment of the High Court. The first reason given by the High Court is that cl. (iiia) of s. 28 treats profits on the sale of an import license as income chargeable to tax and when the license is sold, the entire amount is treated as profits of business under cl. (iiia) of s. 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 cl. (iiia) of s. 28 of the Act. 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 DEPS. The second reason given by the High Court in the impugned judgment is that under the DEPB 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 M/s. Glow Export Trading Pvt. Ltd.
5himself 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 cl. (Hid) of s. 28. 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.
16. 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, in our considered opinion, is contrary to the language of s. 28 of the Act 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 of the Act, 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. (hid) 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 cl. (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. (ilid) of s. 28. The interpretation suggested by us, therefore, does not lead to double taxation of the same income, which the legislature must be presumed to have avoided.
17. The High Court has held that as the assessees had an export turnover exceeding Rs.10 crores and did not fulfill the conditions set out in the third proviso to s. 80HHC(3) of the Act, the assessees were not entitled to a deduction under s. 80HHC on the amount received on transfer of DEPB and to get over this difficulty the assessees have contended that the profits on transfer of DEPB in s. 28(iiid) would not include the face value of the DEPB so that the assessees get a deduction under s. 80HHC on the face value of the DEPB. This finding of the High Court is not based on an accurate understanding scheme of s. 8OHHC of the Act."
7. In view of the proposition settled by the Hon'ble Supreme Court, we set aside the impugned orders passed by the learned Commissioner M/s. Glow Export Trading Pvt. Ltd.
6(Appeals) and allow the ground raised by the assessee for both the years under appeal.
8. प रणामतः नधा रती क अपील वीकत ृ मानी जाती है ।
8. In the result, assessee's appeals are treated as allowed.
आदे श क घोषणा खले ु यायालय म दनांकः 16th May 2013 को क गई ।
Order pronounced in the open Court on 16th May 2013 Sd/- Sd/-
राजे संह अ मत शु ला
लेखा सद य या यक सद य
RAJENDRA SINGH AMIT SHUKLA
ACCOUNTANT MEMBER JUDICIAL MEMBER
मंुबई MUMBAI, दनांक DATED: 16th May 2013
आदे श क त ल प अ े षत / Copy of the order forwarded to:
(1) नधा रती / The Assessee;
(2) राज व / The Revenue;
(3) आयकर आयु (अपील) / The CIT(A);
(4) आयकर आयु / The CIT, Mumbai City concerned;
(5) वभागीय त न ध, आयकर अपील य अ धकरण, मंुबई / The DR, ITAT, Mumbai;
(6) गाड फाईल / Guard file.
या पत त / True Copy
आदे शानसा
ु र / By Order
द प जे. चौधर / Pradeep J. Chowdhury
वर नजी स चव / Sr. Private Secretary
उप / सहायक पंजीकार / (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण, मंुबई / ITAT, Mumbai