ITA 4493, 4494 & 4495/D/2011
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `H' NEW DELHI
BEFORE SHRI A.N. PAHUJA, ACCOUNTANT MEMBER
AND
SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
I.T.A.No.4493/Del/2011
Assessment Year : 1999-00
I.T.A.No.4494/Del/2011
Assessment Year : 2003-04
I.T.A.No.4495/Del/2011
Assessment Year : 2004-05
Ultimate Fashion Maker Ltd., Vs Income Tax Officer,
B-286, Okhla Industrial Area, Ward 18(1),
Phase-I, New Delhi 110020 C.R. Building,
(PAN: AAACU2099N) New Delhi.
(Appellant) (Respondent)
Appellant by: Shri R.K. Mehra
Respondent by : Dr. B.R.R.Kumar, Sr. DR
ORDER
PER CHANDRA MOHAN GARG, JUDICIAL MEMBER
These appeals have been preferred by the assessee on the same
grounds against the order dated 9.8.2011 of the CIT(A)-XXI, New Delhi by
which ld. CIT(A) upheld the order of the AO dated 16.12.2010 passed u/s
254/143(3) of the Income Tax Act (hereinafter referred to as "the Act"). As
the grounds of all these appeals are same, therefore, for the sake of
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convenient and proper adjudication, we are deciding these appeals by this
common order.
2. The appeals are pertaining to A.Y. 1999-2000, 2003-04 and 2004-05
on identical grounds which read as under:-
"1. That on the facts and in the circumstances of
the petitioner company's case, the ld. CIT(A) erred
in law and on facts in upholding the order of the
learned assessing officer ignoring the fact that the
specific directions were given by the Hon'ble
Tribunal to decide the issue of deduction under
section 80HHV vis--vis receipts on account of sale
of DEPB by following the decision of the Special
Bench of the Tribunal in the case of Topman Exports
vs ITO (2009) 318 ITR 87 (Mum) which the learned
assessee failed to do so.
2. That on the facts and in the circumstances of the
petitioner company's case, the ld. CIT(A) erred in
law and on facts in not allowing appropriate amount
of deduction under section 80HHC by holding that
the entire amount received on the sale of DEPB
represents profits chargeable to tax under section 28
(iiid) of the Income Tax Act, 1961.
3. That on the facts and in the circumstances of the
petitioner company's case, the ld. CIT(A) erred in
law in upholding the charging of the interest under
section 234B of the Act, by completely ignoring the
beneficial circular no. 2/2006 dated 17.01.2006
issued by the Central Board of Direct Taxes.
4. That the order made is bad in law."
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3. Briefly stated, the facts of the case are that the fact that there were
specific directions by the ITAT to decide the issue of deduction u/s 80HHC
of the Act vis--vis receipts on account of sale of DEPB but the AO
disallowed the same with a finding that profit earned from the sale of DEPB
benefits are also to be included in the income of the assessee besides its face
value. The above assessment order was upheld by the CIT(A) by the
impugned orders by holding that the entire amount received on the sale of
DEPB represents profit chargeable to tax u/s 28(iiid) of the Act and he also
upheld the action of the AO in charging of interest u/s 234B of the Act.
Hence, these appeals by the assessee before this Tribunal.
4. The assessee's representative submitted before us that the AO passed
the assessment order on 16.12.2010 which was upheld by the CIT(A)
passing the impugned order dated 9.8.2011 and these appeals were filed on
7.10.2011 and during the pendency of these appeals, the decision by the
Hon'ble Supreme Court of India in the case of Topman Exports vs CIT,
Mumbai (2012) 205 Taxman 119(SC) was pronounced on 8.2.2012. The
relevant operating paras of the judgment of Hon'ble Supreme Court in the
case of Topman Exports (supra) are being reproduced hereinbelow:-
"11. We may now consider the relevant provisions of
Section 28 for determining whether DEPB will fall under
clause (iiib) or under clause (iiid) of Section 28. The
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relevant provisions of Section 28 of the Act are reproduced
hereunder:
Section 28. Profits and Gains of Business or Profession.--
The following income shall be chargeable to income-tax under
the head "Profits and gains of business or profession",--
.........................................................................
(iiia) profits on sale of a licence granted under the
Imports (Control) Order, 1955, made under the Imports
and Exports (Control)Act, 1947 (18 of 1947);
(iiib) cash assistance (by whatever name called) received
or receivable by any person against exports under any
scheme of the Government of India;]
(iiic) ..................................................................
(iiid) any profit on the transfer of the Duty Entitlement Pass
Book Scheme, being the Duty Remission Scheme under the
export and import policy formulated and announced under
section 5 of the Foreign Trade (Development and Regulation)
Act, 1992 (22 of 1992)
(iiie) any profit on the transfer of the Duty Free Replenishment
Certificate, being the Duty Remission Scheme under the
export and import policy formulated and announced under
section 5 of the Foreign Trade (Development and Regulation)
Act, 1992 (22 of 1992)."
12. It will be clear from the aforesaid provisions of Section 28 that
under clause (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 clause
(iiib) of Section 28 and is chargeable to income tax under the
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head "Profits and Gains of Business or Profession" even
before it is transferred by the assessee.
13. Under clause (iiid) of Section 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 clause (iiib). The word
"profit" means the gross proceeds of a business
transaction less the costs of the transaction. To quote from
Black's LawDictionary (Fifth Edition):
"Profit. Most commonly, the gross proceeds of a business
transaction less the costs of the transaction, i.e. net proceeds.
Excess of revenues over expenses for a transaction; sometimes
used synonymously with net income for the period. Gain
realized from business or investment over and above
expenditures."
This Court in E.D. Sassoon & Company Ltd. and Others v.
Commissioner of Income-Tax, Bombay City (1954) 26 ITR 27
(SC) has quoted the following observations of Lord Justice
Fletcher Moulton in The Spanish Prospecting Company Limited
[(1911) I Ch. 92] on the meaning of the word "profits":
".... `Profits' implies a comparison between the state of a business
at two specific dates usually separated by an interval of a year.
The fundamental meaning is the amount of gain made by the
business during the year. This can only be ascertained by a
comparison of the assets of the business at the two dates."
`Profits', therefore, imply a comparison of the value of an asset
when theasset is acquired with the value of the asset when the
asset is transferredand 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.
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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."
5. The AR has drawn our attention towards above judgement of the
Hon'ble Apex Court by submitting that now the position and interpretation
of Section 28(iiib) r/w section 28(iiid) of the Act make it clear that the cash
assistance receivable by the assessee is covered under clause (iiib) of Section
28, whereas profit on transfer of DEBP takes place on a subsequent date
when DEBP is sold by the assessee and is covered under clause (iiid) of
Section 28. The ld. DR also admitted that the judgment of Topman Exports
(supra) was delivered by Hon'ble Supreme Court during the pendency of
these appeals in hand and in the light of above judgement, it would be just
and proper that the AO may be allowed to decide the matter afresh in
accordance with the directions given by Hon'ble Supreme Court in this
regard.
6. We have considered the rival arguments of both the parties in the facts
and circumstances of the present case and carefully perused the entire record
before us. We observe that the action of the AO upheld by the ld. CIT(A) is
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not in accordance with the proper interpretation of provisions in the
judgment of Hon'ble Supreme Court in the case of Topman Exports (supra).
In the light of above judgement of Hon'ble Supreme Court, we set aside the
impugned orders and restore all these issues to the file of the AO with the
direction that he will decide the matter afresh de novo in accordance with
directions given by the Hon'ble Apex Court in the case of Topman Exports
(supra) after affording opportunity of being heard to the assessee. The
assessee would cooperate with the AO during fresh adjudication.
7. In the result, the appeals of the assessee are allowed for statistical
purposes.
Order pronounced in the open court on 8th June, 2012.
Sd/- Sd/-
(A.N. PAHUJA) (CHANDRA MOHAN GARG)
ACCOUNTANT MEMBER JUDICIAL MEMBER
DT. 8th JUNE, 2012
`GS'
Copy forwarded to:-
1. Appellant
2. Respondent
3. CIT(A)
4. CIT 5. DR By order
Asstt. Registrar
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