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ACE IMPEX, 105, New Tejpal Indl. Premises, Andheri Kurla Road, Sakinaka, Andheri (E), Mumbai 400 072 Vs. The Asst.Comm.of Income Tax, Range 12(1), Aaykar Bhavan, MK Road, Mumbai 400020
January, 27th 2015
                           ,  Û  

    IN THE INCOME TAX APPELLATE TRIBUNAL " A " BENCH,
                        MUMBAI

     [^ .. [ ,    ^  [ Û  ¢

       BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER &
             SHRI SANJAY GARG ,JUDICIAL MEMBER

                 ITA NO.2329/MUM/2011(A.Y. 2004-05)
    ACE IMPEX,                 / The Asst.Comm.of Income
    105, New Tejpal Indl.            Tax, Range 12(1),
                               Vs.
    Premises, Andheri Kurla          Aaykar Bhavan,
    Road, Sakinaka,                  MK Road, Mumbai 400020
    Andheri (E),
    Mumbai 400 072

        . /   . / PAN/GIR No. : AAGFA0317A
      (Applicant)   ..           Respondent)

         Appellant by   Shri Iswar Rathi
         Respondent by  Shri S. Padmaja
             / Date of Hearing       : 01/12/2014
             /Date of Pronouncement : 23/01/2015

                                     / O R D E R

Per Sanjay Garg, Judicial Member:

      The present appeal has been preferred by the assessee against order of Ld.

CIT(A)-23 Mumbai dated 31/1/2011 for assessment year 2004-05. The assessee has

taken the following grounds of appeal:


      1. That the learned Commissioner of Income Tax Appeals has erred in confirming the
      reopening of assessment, whereas against the original assessment order u/s 143 (3) the
                                               2                      ITA NO.2329/MUM/2011(A.Y. 2004-05)




      appellant has filed an appeal before the CIT (A) and hence the original assessment order
      u/s 143(3) has been merged with the order of the CIT (A).

      2. Further without prejudice to the above, the learned Commissioner of Income Tax
      Appeals has erred in confirming the reopening of assessment for change of opinion on the
      facts which were on records and the same has been considered by the assessing officer
      while passing the original assessment u/s 143 (3) of the IT Act.

      3. Without prejudice to the above, the learned Commissioner of Income Tax Appeals has
      erred in confirming the reduction of claim u/s 80 IB on export incentives in the form of
      DEPB.

      4. Without prejudice to the above, the learned Commissioner of Income Tax Appeals has
      erred in confirming the reduction of claim u/s 80 HHC on total export incentives received in
      the form of DEPB.

      5. That the learned Commissioner of Income Tax (Appeals) has erred in confirming the
      chargeability of Income Tax on profit on transfer of Duty Entitlement Pass Book scheme
      defined u/s 28 (Hid), whereas the same is not forming part of Income as definition u/s 2
      (24).

      6. That the learned Commissioner of Income Tax (Appeals) has erred in not adjudicating
      the issue on chargeability of interest u/s 234 B, 234 C and 220 (2) though as per CBDT's
      circular No. 2/2006 dt. 17/01/2006 no interest should have been charged.
      7. Your appellant craves leave to consider each of the above grounds of appeal without
      prejudice to each other and to add, alter, amend or furnish fresh and detailed grounds of
      appeals.



2.    The brief facts are that the assessee had filed its return of income on

30/10/2004 declaring total income at Rs.4,80,13,460/- in which deduction under

section 80 HHC      and 80 IB of the Income Tax Act, 1961 (the Act) was claimed.

The assessment was completed under section               143(3) of the Act on 18/9/2006

assessing total income at Rs.5,95,91,520/-. The AO in the said assessment order had

allowed deduction under section 80HHC at Rs.86,78,486/- and deduction under

section 80 IB at Rs.2,11,10,855/-. The AO thereafter observed that while calculating

deduction allowable under section 80HHC the total adjusted turnover was taken at

Rs.31,54,41,033/-. However, while doing so, turnover of 80IB unit was not included
                                          3                  ITA NO.2329/MUM/2011(A.Y. 2004-05)




in the total turnover over. Thus, the assessment had resulted into under assessment to

the extent of Rs.18,53,039/-. The AO also observed that while calculating profits

eligible for claim of deduction under section 80IB, the assessee had included DEPB

of Rs.92,62,828/-. Since DEPB was not a profit derived from industrial undertaking,

therefore, the same was not eligible for deduction under section 80IB of the Act.

He, therefore, relying upon the decision of Hon'ble Supreme Court in the case of

Sterling Foods, 237 ITR 579(SC) reopened the assessment under section 147 of the

Act. The assessee objected to the reopening of the assessment and also contested the

proposed additions on merit. It was submitted that the reopening was based only on

change of opinion whereas the issue was properly dealt with during the assessment

proceedings under section 143(3) of the Act. It was also submitted that the assessee

was maintaining separate books of account for both the units and as such while

calculating deduction under section 80HHC only relevant figure of non 80IB units

was required to be considered and not the total turnover to the entire unit. It was

also submitted that so far the deduction under section 80IB relating to DEPB was

concerned, the decision of the Hon'ble Supreme Court in the case of Sterling Foods

(supra) was not applicable which was given in relation to deduction under section

80HH and not under section 80IB of the Act. The AO however, was not satisfied

with the submissions of the assessee. He, therefore, included the turnover of 80IB

unit and thus, took the total turnover of both the units at Rs.43,57,35,269/-. He

observed that as per the the third proviso to section 80HHC which has been inserted

by the Taxation Law Amendment Act, 2005 with retrospective effect from 1/4/1998,
                                           4                   ITA NO.2329/MUM/2011(A.Y. 2004-05)







the deduction under section 80HHC could be allowed to the assessee with respect to

DEPB, only if ,the assessee fulfils certain conditions as laid down in the said proviso.

The burden to prove that the assessee fulfilled those conditions was on the assessee,

which , the assessee failed to discharge. The AO,therefore, took the value of DEPB

for calculating deduction under section 80 HHC at Rs.nil. He further observed that

as per the provisions of section 80IA(9) r.w. provisions of section 80 IB(13), if an

assessee had claimed the deduction under section 80 IB, then the deduction under

any provision of Chapter VIA-C cannot be allowed. He, therefore, held that no

deduction could be allowed to the assessee as per provisions of section 80HHC with

respect to the profits that were claimed and allowed as per provisions of section

80IB. He also held that the DEPB receipts did not constitute the profits derived from

industrial undertaking, hence, was not eligible for deduction under section 80IB.

Aggrieved by the order of the AO the assessee preferred an appeal before Ld.

CIT(A).



3.     Ld. CIT(A) upheld the findings of the AO in reopening of the assessment

under section 147 of the Act holding that the AO had sufficient reasons to believe

that the income of the assessee had escaped assessment. He also upheld the

findings/computation made by the AO with regard to section 80HHC and 80IB of the

Act.   He however, noticed that there were certain calculation mistake while

computing the income which he directed the AO to rectify. Aggrieved by the order

of Ld. CIT(A) the assessee has come in appeal before us.
                                          5                  ITA NO.2329/MUM/2011(A.Y. 2004-05)




Ground No.1 &2.


4.     Vide ground No.1 & 2 the assessee has agitated the reopening of the

assessment under section 147 of the Act. Ld. AR of the assessee drew our attention

to paper book page -37, which is the copy of reasons recorded by the AO on the basis

of which the AO formed the belief that the income of the assessee had escaped

assessment during the assessment proceedings under section 143(3) of the Act. The

first reason mentioned by the AO is that while calculating deduction allowable under

section 80HHC the turnover of 80IB unit was not included which resulted into under

assessment of income. The assessee has contended that it was maintaining separate

accounts of both the units and the turnover of 80IB unit was not to be included in the

total turnover. We find that as per the provisions of section 80HHC the turnover of

80IB and non 80IB units is to be taken together, hence, there was escapement of

income as the AO had failed to include the total turnover of 80IB unit into total

turnover of the business of the assessee. Hence, the reopening of the assessment on

this ground was valid as the AO had reasons to believe that the income of the

assessee had escaped assessment. The second issue on which the assessment was

reopened was in relation to receipts of DEPB, wheth, eligible for 80 IB deduction.

This issue at the time of reopening of the assessment was a debatable issue.             The

view taken by the AO the assessment proceedings was that DEPB receipts had to be

included in respect of in the deductions claimed under section 80IB of the Act. The
                                           6                   ITA NO.2329/MUM/2011(A.Y. 2004-05)




other view that the DEPB receipts were not the income derived from industrial

undertaking hence, not eligible for deduction under section 80IB was also a possible

view which was later on upheld by the Hon'ble Supreme Court in the case of Liberty

India vs. CIT, 317 ITR 218 (SC).         However, at the time of reopening of the

assessment, the view taken by the AO during the assessment proceedings under

section 143(3), was one of the possible view, hence, the reopening on this ground

was not justified.



4.1   However, since we haveupheld that the first contention that the total turnover

would include turnover of 80IB unit, hence, the AO had reasons to believe that the

income of the assessee had escaped assessment, hence, reopening of the assessment

is held to be valid. This issue is accordingly decided against the assessee.


Ground No.3,4,&5:




5.    Grounds No.3,4 & 5 are inter connected and hence the same are taken

together for adjudication. Vide ground No.3 the assessee has agitated the action of

Ld. CIT(A) in reducing the receipts of DEPB from deduction claimed under section

80IB of the Act. Ground No.4 & 5 relate to the computation of deduction under

section 80HHC of the Act and chargeability          of income in relation to export

incentives received by the assessee in the form of DEPB.
                                          7                  ITA NO.2329/MUM/2011(A.Y. 2004-05)




5.1   The AO held that DEPB profit was not eligible for deduction u/s 80IB as the

same was not the income derived from eligible industrial undertaking. It may be

observed that the Hon'ble Supreme Court in the case of Liberty India v. CIT[(2009)

317 ITR 218 (SC)] has      held that duty drawback / DEPB are not derived from

industrial undertaking and hence no deduction is available u/ss 80-I, 80-IA and 80-

IB. This issue is accordingly decided against the assessee. So far the deduction u/s

80HHC in relation to receipts of DEPB is concerned , We may note here that certain

amendments have been made in section 28 & 80HHC of the Income Tax Act vide

Taxation Laws Amendment Act, 2005, according to which, the assessee whose total

export turnover exceeds Rs. 10 crores, is not entitled for the deduction u/s.80-HHC

on the receipt of DEPB licence premium unless he fulfills the following

two conditions :-


      "(a) he had an option to choose either the duty drawback or the duty
      entitlement pass book scheme, being the duty remission scheme; and

      (b) the rate of drawback credit attributable to the customs duty was higher than
      the rate of credit allowable under the duty entitlement pass book scheme being
      the duty remission scheme."


5.2   The said amended provisions have been made operative retrospectively w.e.f.

1.4.1998. The Assessing Officer observed that in view of the amended provisions,

the assessee was not entitled for deduction u/s. 80HHC on the receipt of DEPB

incentives as the assessee did not furnish the relevant details in respect of those

credits/receipts and thus failed to justify the claim u/s. 80HHC. However, we find
                                                8                     ITA NO.2329/MUM/2011(A.Y. 2004-05)




that the Hon'ble Bombay High Court in the case of Vijaya Silk House (Bangalore)

Ltd. (WP No. 2446 of 2010 aongwith other WPs), wherein the Taxation Laws

Amendment Act, 2005 was challenged in respect of insertion of clause (iiid) & (iiie)

to section 28 and insertion of the third and fourth provisos to section 80HHC of the

Income Tax Act, 1961, has disposed off the said petition in view and in terms of the

law laid down by Hon'ble Gujarat High Court passed in other similar Writ Petitions.

Operative part of the order is reproduced as under :-


      "26. On consideration of the entire materials on record, we, therefore, find substance in the
      contention of the learned counsel for the petitioners that the impugned amendment is
      violative for its retrospective operation in order to overcome the decision of the Tribunal,
      and at the same time, for depriving the benefit earlier granted to a class of the assessees
      whose assessments were still pending although such benefit will be available to the
      assessees whose assessments have already been concluded. In other words, in this type of
      substantive amendment, retrospective operation can be given only if it is for the benefit of
      the assessee but not in a case where it affects even a fewer section of the assessee.

      27. We, accordingly, quash the impugned amendment only to this extent that the operation
      of the said section could be given effect from the date of the amendment and not in respect
      of earlier assessment years of the assessees whose export turnover is above Rs. 10 Crore. In
      other words, the retrospectiveamendment should not be detrimental to any of the assessee."


5.3    Learned AR has further brought our attention to the law laid down by

Hon'ble Supreme Court in the case of Topman Exports Vs. CIT, 342 ITR 49, where

in the hon'ble Supreme court has observed that the objective of DEPB is to neutralise

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 cost of customs duty is neutralized under the DEPB scheme,

by granting a duty credit against the export product and this credit can be utilised for

paying customs duty on any item which is freely importable. DEPB is `cash
                                           9                   ITA NO.2329/MUM/2011(A.Y. 2004-05)




assistance' receivable by a person against exports under the scheme of the

Government of India and falls under Section 28(iiib) of the Act. Accordingly, DEPB

is chargeable to income tax under the head `Profits and Gains of Business or

Profession' even before it is transferred by the taxpayer. Under Section 28(iiid) of the

Act, 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 Section 28(iiib) of the Act. The face value of the DEPB will fall

under Section 28(iiib) of the Act, the difference between the sale value and the face

value of the DEPB will fall under Section 28(iiid) of the Act. The cost of acquiring

DEPB 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, we direct the Assessing Officer to

make assessment a fresh on this issue in view of the law laid down by Hon'ble

Bombay High Court in the case of Vijaya Silk House (Bangalore) (supra) and

further, if need be, as per the law laid down by Hon'ble Supreme Court in the case of

Topman Exports (supra).


Ground No.6:

6.    Vide ground No.6 the assessee has agitated the levy of interest under section

234B, 234C and 220(2) of the Act. The assessee has pleaded that as per CBDT

Circular No. 2/2006 dated 17/1/2006 no interest should have been charged from the

assessee.    This ground being consequential does not require any specific
                                            10                   ITA NO.2329/MUM/2011(A.Y. 2004-05)




adjudication. However, we direct that the AO will take into consideration the said

Circular No.2/2006 dated 17/1/2006, if any, interest is found chargeable from the

assessee under section 234B, 234C and 220(2) of the Act.


Ground No.7:

       Ground NO.7 is general in nature, therefore, does not require any adjudication.

       In the result, appeal of the assessee is partly allowed for statistical purposes.

     Order pronounced in the open court on 23 /01/2015                               .

            Û                                         23 /01/2015    

        Sd/-                                         Sd/-
 (R.C.SHARMA)                                     (SANJAY GARG)
  /ACCOUNTANT MEMBER                             Û  /JUDICIAL MEMBER
 Mumbai;            Dated               23/01/2015
    /Copy of the Order forwarded to :
1.  / The Appellant
2.   × / The Respondent.
3.    () / The CIT(A)-
4.     / CIT
5.    ,   , 
     / DR, ITAT, Mumbai
6.   [  / Guard file.
                                                                / BY ORDER,
             ×  //True Copy//
                                         / 
                                      (Dy./Asstt. Registrar)
                                      ,  / ITAT, Mumbai
.. Sr. PS-VM

 
 
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