K.C. Singhal, Judicial Member -
(1.) THE appeals and Cross Objection mentioned above have been heard together and are being disposed off by the common order for the sake of convenience.
(2.) The issue common to both the appeals as well as the cross objection relates to the computation of deduction Under Section 80HHC of the IT. Act, 1961 (the Act) with reference to export incentives including DEPB.
Briefly stated, the facts are these: The assessee was engaged in the business of manufacturing of textile goods and export thereof. It is an 100% exporter. In the year under consideration, the assessee declared Net Profit as per Profit & Loss Account at Rs. 41,88,578/- against the turnover of Rs. 5.79 crores and odd. The assessee had also claimed deduction of Rs. 33,70,381/- Under Section 80HHC of the Act being 80% of eligible profits of Rs. 42,12,976/-. While computing the profits of business as per Explanation (baa) to Section 80HHC, the assessee itself excluded 90% all export incentives including sale of DEPB entitlement. However, the same was again adjusted under the proviso to Sub-section (3) of Section 80HHC. In the course of assessment proceedings, the Assessing Officer noticed that assessee was entitled to import entitlement under Duty Exemption Pass Book (DEPB) Scheme and the assessee had sold the said entitlement for Rs. 52,37,512/- which was credited to the Profit and Loss A/c under the head 'license nomination'. The Assessing Officer asked the assessee to explain as to (i) how such amount could be covered under Clauses (iiia), (iiib) and (iiic) of Section 28 of the Act and (ii) why the same should not be treated Under Section 28(iv) of the Act. In reply, it was submitted on behalf of the assessee that export incentive by way of DEPB entitlement does not fall under any of the categories mentioned in Clause (baa) of Explanation to Section 80HHC and therefore question of excluding 90% of the same did not arise. It also relied on the Board Instructions dated 23rd February, 1998 to the effect that the profit derived from the sale of export quota is to receive the same treatment as profit derived from sale of import entitlement which is eligible for deduction Under Section 80HHC of the Act. However, the Assessing Officer was not satisfied with the explanation of the assessee. According to him, Section 28(iiia) was restricted to profits on sale of license granted under Imports (Control) Order, 1955 made under the imports and exports (Control) Act, 1947 while DEPB license/entitlement was granted to the assessee under the foreign trade (Development and Regulation Act, 1992). Therefore, Section 28 (iiia) was not applicable in the case of assessee. It was further held that provisions of Clauses (iiib) and (iiic) of Section 28 were also not applicable. According to him, such DEPB import entitlement was covered Under Section 28(iv) of the Act. In view of the same, he worked out the computation Under Section 80HHC as per Annexure 'A' to the assessment order. In such computation, the Assessing Officer excluded 90% of export incentives (DEPB) of Rs. 52,37,512/-, 90% of duty drawback of Rs. 2,51,163/- and 90% of NOE quota transfer fee of Rs. 28,463/- while computing 'profits of business'. This resulted in computation of adjusted profits of business at a negative figure of Rs. 7,52,510/-. The Assessing Officer adjusted 90% of duty draw back and NOE quota transfer, considered to be falling under Clauses (iiib) and (iiic) of Section 28, against the above negative figure and finally determined the profits of business at a negative figure of Rs. 5,00,847/-. No adjustment was made in respect of 90% of sale of DEPB entitlement as the first proviso did not refer to Section 28(iv) of the Act. Since there was a negative profit, the Assessing Officer denied any deduction Under Section 80HHC of the Act. On appeal, the learned CIT(A) confirmed the order of Assessing Officer.
(3.) SUBSEQUENT to the order of learned CIT(A), the provisions of Section 80HHC were amended by Taxation Laws Amendment Act, 2005 with retrospective effect and as a result thereof, the assessee became entitled to deduction Under Section 80HHC in respect of profit on sale of DEPB import entitlement. In view of the same, the assessee moved an application Under Section 154 of the Act., before the CIT(A) who accepted the contention of the assessee by holding that assessee was entitled to deduction in respect of profit on sale of DEPB entitlement and the impugned order of the assessment suffered from mistake apparent from record. However, considering the 5th proviso to Section 80HHC, he was of the view that deduction Under Section 80HHC was allowable only in respect of one of the items falling under the Clauses (iiia) to (iiie) of Section 28 of the Act. Consequently, he allowed deduction to the extent of Rs. 47,13,761/- being 90% of Rs. 52,37,512/- representing sale of DEPB import entitlement. This figure was adjusted against the negative figure of Rs. 7,52,448/-. As a result thereof, the eligible amount of 'profits of business' was computed at Rs. 39,61,313/- as against Rs. 42,12,976/- computed by the assessee. Impliedly, the adjustment of Rs. 2,51,663/- made by the Assessing Officer in the original order of assessment in respect of duty draw back and NOE quota transfer was withdrawn. Consequently, 80% of Rs. 39,61,313/- was allowed as deduction Under Section 80HHC of the Act.
Aggrieved by the order of learned CIT(A), the assessee as well as the Revenue have filed appeals before the Tribunal. The assessee has also filed a Cross Objection.;