| SooperKanoon Citation | sooperkanoon.com/75779 |
| Court | Income Tax Appellate Tribunal ITAT Delhi |
| Decided On | Jul-27-2007 |
| Judge | N Karhail, P Jagtap |
| Reported in | (2007)110TTJ(Delhi)798 |
| Appellant | Eastman Industries Ltd. |
| Respondent | Deputy Commissioner of Income Tax |
2001-02 and 2003-04 involve some common issues and the same, therefore, are being disposed of by this consolidated order for the sake of convenience.
2. First, we shall take up the assessee's appeal for asst. yr. 2001-02 being ITA No. 3883/Del/2006 wherein the only issue involved relating to the computation of deduction under Section 80HHC is raised in the following grounds: 1. (a) That the learned CIT(A) has without understanding the issue raised by the appellant sustained the order of the learned AO by holding that the appellant is not entitled to the deduction under Section 80HHC of the Act.
(b) The ground that was raised before the learned CIT(A) was that only the profit on transfer of DEPB/DFRC should have been excluded while computing the 'profits of business' as per Expln. (baa) to Section 80HHC r/w Section 28(iiid) and 28(iiie) of the Act and not the entire amount realised on transfer of DEPB/DFRC.3. The material facts of the case relevant to this issue are as follows. The assessee is a company which is engaged in the business of export of cycle parts and light engineering goods-. A return of income for the year under consideration i.e. asst. yr. 2001-02 was filed by it on dt. 25th Oct., 2001 declaring a total income of Rs. 5,28,660 after claiming deduction of Rs. 4,95,63,383 under Section 80HHC. The income so returned was originally accepted in the assessment completed under Section 143(3)(ii) on dt. 24th Jan., 2003. Subsequently, a notice under Section 148 was issued by the AO on 2nd Nov., 2004 in response to which a return was filed by the assessee company on 20th Dec, 2004 declaring the same income as was declared in the return filed originally. During the course of reassessment proceedings, the claim of the assessee for deduction under Section 80HHC was examined by the AO and it was found on such examination, inter alia, that the export turnover of the assessee company for the year under consideration being more than Rs. 10 crores, the profit on transfer of the Duty Entitlement Pass Book (DEPB) could not be taken into account for the purpose of computing deduction under Section 80HHC as per the second proviso to Section 80HHC(3) inserted by the Amended Act of 2005 with retrospective effect from 1st April, 1988. The deduction claimed by the assessee under Section 80HHC and allowed in the original assessment, therefore, was recomputed/restricted by the AO by excluding 90 per cent of the amount of Rs. 2,85,15,702 towards sale of DEPB while working out the 'profits of the business' as per Expln. (baa) below Section 80HHC. The deduction claimed by the assessee under Section 80HHC thus was restricted by the AO in the reassessment completed under Section 148/143(3) which was challenged by the assessee in an appeal filed before the learned CIT(A). It was submitted on behalf of the assessee before the learned CIT(A), inter alia, that what actually deductible while computing the 'profits of the business' for the purpose of computing deduction under Section 80HHC was the profit on transfer of DEPB and not the entire amount of realization on account of the said transfer. It was contended that there is a clear distinction between the expressions "any profit on transfer of DEPB" used in the provisions of Section 28(iiid) and the "amount received on such transfer" and the AO, therefore, was wrong in excluding 90 per cent of the total amount received by the assessee on the said transfer instead of profit on such transfer. This stand of the assessee company, however, was not found acceptable by the learned CIT(A) and he proceeded to uphold the action of the AO in recomputing/restricting the quantum of deduction allowable to the assessee under Section 80HHC. Aggrieved by the same, the assessee is in appeal before the Tribunal.
4. The learned Counsel for the assessee submitted before us that the expression "any profit on transfer of DEPB" used in Section 28(iiid) is very specific and since the language of the said provision is very clear and unambiguous, the same has to be strictly construed. He contended that it covers only the profit realised by the assessee on transfer of DEPB which means the net profit actually realised by the assessee on transfer of DEPB. He submitted that the assessee in the present case had actually received an amount only to the extent of Rs. 1,72,00,349 on the sale/transfer of DEPB effected during the year under consideration whereas the remaining amount shown as receivable had not been realised. He also submitted that since the license value of the DEPB actually sold during the year under consideration representing proportionate duty paid on FOB value of imported goods was to the extent of Rs. 1,56,74,648, the profit on transfer of DEPB actually earned by the assessee during the year under consideration was only to the extent of Rs. 15,25,701. He contended that the same alone, therefore, should have been deducted to the extent of 90 per cent while computing 'profits of the business' as per Expln. (baa) for computing deduction under Section 80HHC. He contended that the DEPB scheme allows drawback of import duty paid on inputs used in the export product and the intention of the said scheme being to reimburse such duty paid by the assessee, the amount so paid towards duty has to be reduced from the sale proceeds of DEPB to work out the profit on transfer of DEPB as contemplated in Section 28(iiid). He also contended that the legislature in its wisdom has used the word "profit" in Section 28(iiid) as against "receipt" and therefore, while computing the deduction under Section 80HHC, what needs to be deducted is the profit on transfer of DEPB and not the entire amount of realization on account of transfer of DEPB.5. The learned CIT-Departmental Representative, on the other hand, submitted that the assessee company itself had credited the entire amount of Rs. 2,85,15,702 to its P&L a/c on account of DEPB receipts and the same having been included in the profit as per P&L a/c, it was entirely deductible to the extent of 90 per cent as rightly done by the AO. She submitted that the assessee company, in any case, is following mercantile system of accounting and therefore, no distinction can be made between the amount received and receivable from the sale of DEPB.She further submitted that the duty paid by the assessee company on imports is the expenditure incurred for the purpose of its business of export and the same cannot be said to be incurred for availing the benefit of DEPB. She contended that DEPB is the entitlement the assessee company is eligible to get as a result of export and therefore, it cannot be said that the said benefit was received by the assessee company as a result of payment of duty or that such payment of duty was made for the purpose of earning the benefit of DEPB. She contended that the duty paid by the assessee company, therefore, cannot be deducted from the sale proceeds of DEPB received by it for the purpose of computing profits on transfer of DEPB and the entire sale proceeds of such transfer has to be taken as the profit as envisaged in Section 28(iiid) as rightly done by the authorities below. She contended that the benefit of DEPB is incidental to the export turnover of the assessee which does not involve any cost consideration.
6. We have considered the rival submissions and also perused the relevant material on record. As regards the contention of the learned Counsel for the assessee that the amount actually realised/received on transfer of DEPB alone could be considered for exclusion to the extent of 90 per cent as per Expln. (baa) below Section 80HHC and not the amount receivable, we find it difficult to agree with the same. As rightly submitted by the learned CIT-Departmental Representative in this regard, the assessee was following mercantile system of accounting and therefore, no such distinction could be made between the amount received or receivable on transfer of DEPB. Secondly, the assessee company itself had shown the entire amount received as well as receivable on transfer of DEPB as its income in the P&L a/c and the same having already been included in the profit as per P&L a/c, it has to be entirely taken into consideration for exclusion to the extent of 90 per cent while making adjustments as per Expln. (baa) below Section 80HHC for the purpose of computing 'profits of the business'. Before us, the learned Counsel for the assessee has pleaded that going by the expression 'any profits on transfer of DEPB' used in the provisions of Section 28(iiid), which are to be strictly construed, only the profit actually realised on transfer alone is covered by the said provisions.
However, if at all this plea of the assessee is to be accepted, then only the amount actually realised/received on account of sale of DEPB would be liable to be included in the 'business income' of the assessee company for the year under consideration strictly construing the provisions of Section 28(iiid) as against the total amount received as well as receivable included in its business income by the assessee company and in that case, even if the exclusion as per Expln. (baa) is restricted to the amount actually received, there will be hardly any effect on the quantum of deduction permissible to the assessee under Section 80HHC. Looking from any angle, we are, therefore, of the view that the contention raised by the learned Counsel for the assessee in this regard cannot be accepted.
7. As regards the other contention of the learned Counsel for the assessee raised before us that only the profit on transfer of DEPB is to be excluded to the extent of 90 per cent for computing the 'profits of the business' as per Expln. (baa) and not the entire sale proceeds of DEPB, we are of the view that there cannot be two opinions on this point going by the clear and plain language used in Section 28(iiid).
The question, however, is whether there is any expenditure which can be said to have been incurred by the assessee for the purpose of earning income from sale/transfer of DEPB so as to reduce the same from the sale proceeds to compute the profit from sale or transfer of DEPB as distinguished from the amount received by the assessee from the sale/transfer of DEPB. In this regard, the contention raised by the learned Counsel for the assessee before us is that the license value of DEPB representing the amount of import duty paid on inputs used in the export products is the expenditure incurred by the assessee for getting the benefit of DEPB scheme and the same, therefore, has to be deducted from the gross amount received on sale or transfer of DEPB to arrive at the profit on such sale or transfer. We find it difficult to agree with this contention of the learned Counsel for the assessee. As rightly contended by the learned CIT-Departmental Representative, the import duty paid on inputs by the assessee company was an expenditure incurred for the purpose of its export business and the same cannot be said to be incurred for earning the benefit of DEPB. The benefit available to the assessee under DEPB scheme was incidental to its export business inasmuch as the same was given to encourage the exports and the assessee was entitled to avail the same only as a result of export. The said benefit thus was not made available to the assessee as a result of payment of import duty on inputs, but the same was available as a result of export subject to certain conditions. No doubt, the quantification of such benefit was linked to or based on the payment of duty on corresponding inputs inasmuch as an attempt was made to neutralize the incidence of the said duty so that the exporter can export the goods at prices which are competitive in the international market. However, such quantification will not make the import duty paid by the assessee on inputs to be an expenditure incurred by the assessee for earning the benefit under DEPB. As already observed, the said duty represents expenditure incurred by the assessee company wholly and exclusively for the purpose of its export business and the same cannot be deducted from the sale proceeds of DEPB to arrive at the profit as contemplated under Section 28(iiid). We, therefore, find no merits in the contention raised by the learned Counsel for the assessee in this regard and rejecting the same, we uphold the impugned order of the learned CIT(A) confirming the order of the AO recomputing/restricting the claim of the assessee for deduction under Section 80HHC.8. Now, we shall take up the assessee's appeal for asst. yr. 2003-04 being ITA No. 3884/Del/2006.
9. Ground No. 1 raised by the assessee in this appeal challenging the action of the AO in not determining its income under Section 115JB has not been pressed by the learned Counsel for the assessee at the time of hearing before us. The same is accordingly dismissed as not pressed.
10. The issue raised by the assessee in ground No. 2 relating to the computation of deduction under Section 80HHC is similar to the one involved in its appeal for asst. yr. 2001-02 disposed of by us in the foregoing portion of this order. Since all the material facts relevant to the said issue as involved in asst. yr. 2003-04 are admittedly similar to asst. yr. 2001-02, we follow our decision rendered in asst.
yr. 2001-02 and uphold the impugned order of the learned CIT(A) on this issue. Ground No. 2 of the assessee's appeal is accordingly dismissed.
11. As regards ground No. 3 challenging the levy of interest under Sections 234B and 234D, the learned Counsel for the assessee has relied on the CBDT Circular No. 2 of 2006 (F. No. 142/1/2006) dt. 17th Jan., 2006 [(2006) 200 CTR (St) 29] and has invited our attention to para No.2 of the said circular which, being relevant in this context, is reproduced below: 2. The amendments relating to Duty Entitlement Pass Book Scheme and Duty Replenishment Certificate have been brought into the statute with retrospective effect. Therefore, it has been decided that no penalty shall be levied or interest shall be charged in respect of any fresh demand raised consequent to the enactment of Taxation Laws (Amendment) Act, 2005, on account of variation in the returned/assessed income attributable to profits on sale of DEPB credits or DFRC. Further, in such cases where assessments have already been completed and,- (i) interest has been charged, the Chief CIT shall waive the interest relating to claim of profit on sale of DEPB credits or DFRC for deduction under Section 80-HHC; (ii) penalty has been levied, the Chief CIT shall waive the penalty relating to claim of profit ON sale of DEPB credits or DFRC for deduction under Section 80HHC; or (iii) penalty relating to claim of profit on sale of DEPB credits or DFRC for deduction under Section 80HHC, has been initiated but not levied, the penalty proceedings shall be dropped.
12. The learned Counsel for the assessee has contended that since the claim of the assessee for deduction under Section 80HHC was restricted by the AO in the present case relying on the amendment made in the relevant provisions by Taxation Laws (Amendment) Act, 2005 with retrospective effect and the demand was raised as a consequence thereof, no interest was chargeable under Sections 234B and 234D in view of the aforesaid circular issued by the CBDT. The learned CIT-Departmental Representative, on the other hand, has submitted that the claim of the assessee for deduction under Section 80HHC was restricted by the AO in the regular assessment completed under Section 143(3) for the first time and the demand raised consequent to the said assessment could not be said to be a fresh demand so as to make the assessee entitled for the benefit of the aforesaid CBDT circular. In our opinion, the expression "any fresh demand" used in the aforesaid CBDT circular has to be read with the following words of the sentence i.e. "raised consequent to the enactment of Taxation Laws (Amendment) Act on account of variation in the returned/assessed income attributable to profit on sale of DEPB credits or DFRC" so as to understand and appreciate the exact meaning thereof. In the present case, the income returned by the assessee was varied by the AO in the assessment by restricting the claim of the assessee for deduction under Section 80HHC as attributable to profits on sale of DEPB relying on the amendments made in the relevant provisions by Taxation Laws (Amendment) Act, 2005. The demand raised against the assessee as a result of the said assessment thus was clearly covered by the aforesaid CBDT circular and the said demand raised against the assessee for the first time was clearly a case of "any fresh demand" as envisaged in the said circular.
In our opinion, the said expression "any fresh demand" used in the Board's circular does not necessarily mean a revised demand raised against the assessee as a result of reassessment or revision of income already assessed as sought to be contended by the learned CIT-Departmental Representative. Moreover, the intention of the CBDT behind issuing the said circular apparently was to mitigate the rigours of the application of the relevant amendments made by the Taxation Laws (Amendment) Act, 2005 with retrospective effect from 1st April, 1998 in certain cases like the one in hand and such beneficial circular providing remedy for the genuine hardship being caused to the assessees as a result of the said retrospective amendments made in the statute, in our opinion, has to be construed in a reasonable and purposive manner so as to advance the objective of the remedy provided therein.
We are, therefore, of the view that the case of the assessee was squarely covered by the aforesaid circular issued by the CBDT and the AO was not justified in charging interest under Sections 234B and 234D ignoring the benefits given to the assessee by the said circular which was binding on him. In that view of the matter, we set aside the impugned order of the learned CIT(A) on this issue and direct the AO to cancel the interest charged under Sections 234B and 234D.13. In the result, the appeal of the assessee for asst. yr. 2001-02 being ITA No. 3883/Del/2006 is dismissed whereas the appeal of the assessee for asst. yr. 2003-04 being ITA No. 3884/Del/2006 is partly allowed.