VIKAS KALRA vs. C.I.T

C.A. No.-001915-001915 - 2012Supreme Court08 February 2012Bench: S.H. KAPADIA A.K. PATNAIK SWATANTER KUMAR5 pages
For Petitioner: ASHWANI KUMARFor Respondent: B. V. BALARAM DAS
AI SummaryPartly Allowed

What were the facts?

The appellant, engaged in manufacturing and exporting leather garments, claimed deductions under Section 80HHC for assessment years 2001-2002 and 2004-2005. The Assessing Officer disallowed these deductions, treating the entire sale value of Duty Entitlement Pass Book (DEPB) as profit under Section 28(iiid). The Commissioner (Appeals) upheld this. The Income Tax Appellate Tribunal (ITAT), following a Special Bench decision in M/s Topman Exports, allowed the appellant's appeals, classifying DEPB face value as 'cash assistance' under Section 28(iiib) and the excess as profit on transfer under Section 28(iiid). The Revenue appealed to the Delhi High Court. The High Court, noting that the ITAT had followed M/s Topman Exports which was reversed by the Bombay High Court in Commissioner of the Income Tax v. Kalpataru Colours and Chemicals, set aside the ITAT orders and remitted the cases back to the ITAT for decision on merits. An additional issue regarding Explanation (baa) to Section 80HHC was also considered by the High Court.

What did the Supreme Court hold?

The Supreme Court disposed of these appeals in terms of its judgments delivered on the same day in Civil Appeal arising out of SLP (C) No.26558 of 2010 (M/s Topman Exports v. Commissioner of Income Tax, Mumbai) and other connected appeals, wherein the judgment of the Bombay High Court in Commissioner of the Income Tax v. Kalpataru Colours and Chemicals was set aside. The Court also referred to a separate judgment in Civil Appeal arising out of S.L.P. (C) No.32450 of 2010 (M/s ACG Associated Capsules Private Limited v. Commissioner of Income Tax, Central-IV, Mumbai) and other connected appeal, which affirmed the judgment of the Delhi High Court in Commissioner of Income-Tax v. Shri Ram Honda Power Equip. Therefore, the issue regarding DEPB treatment under Section 28(iiib) and 28(iiid) and its impact on Section 80HHC deduction would have been decided in line with the M/s Topman Exports judgment being set aside. The issue concerning Explanation (baa) to Section 80HHC would have been decided in line with the Shri Ram Honda Power Equip judgment. The operative directions would depend on the specific findings in those referenced judgments.

What were the issues?

1. Whether the Tribunal was correct in holding that the face value of DEPB is 'cash assistance' under Section 28(iiib) and the sale value less face value is profit on transfer under Section 28(iiid) of the Income Tax Act, 1961, for the purpose of calculating deduction under Section 80HHC. 2. Whether the Tribunal was correct in ignoring Explanation (baa) to Section 80HHC, which excludes profits of DEPB from total turnover. Assessee's Contentions: The assessee claimed deductions under Section 80HHC for profits retained for export business. The ITAT, following M/s Topman Exports, allowed these deductions based on its classification of DEPB benefits. Revenue's Contentions: The Revenue contended that the entire DEPB sale value represented profit under Section 28(iiid) and disallowed the Section 80HHC deduction. The Revenue also argued that the High Court was correct in reversing the ITAT's reliance on M/s Topman Exports, as it had been overturned by the Bombay High Court in Commissioner of the Income Tax v. Kalpataru Colours and Chemicals. The Revenue also relied on the High Court's decision in Commissioner of Income-Tax v. Shri Ram Honda Power Equip regarding Explanation (baa).

Which sections of the Income-tax Act were involved?

Section 80HHC,Section 28(iiib),Section 28(iiid)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
Reportable IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL No. 1915 OF 2012 (Arising out of SLP (C) NO. 16403 of 2011) Vikas Kalra … Appellant Versus The Commissioner of Income Tax-VIII, New Delhi … Respondent WITH CIVIL APPEAL No. 1916 OF 2012 (Arising out of SLP (C) NO. 20270 of 2011)

J U D G M E N T A. K. PATNAIK, J. Leave granted.

2.

These are the appeals against the order dated 18.02.2011 as modified by the order dated 22.03.2011 of the Delhi High Court in ITA No.185 of 2011 and the order

dated 21.02.2011 as modified by the order dated 22.03.2011 of the Delhi High Court in ITA No.308 of 2011. 3. The facts very briefly are that the appellant is engaged in manufacturing and exporting leather garments. For the assessment years 2001-2002 and 2004-2005, the appellant filed returns of income claiming deductions in respect of profits retained for export business under Section 80HHC of the Income Tax Act, 1961 (for short ‘the Act’). The Assessing Officer held in the assessment orders tha

The order continues below.

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