CIT-I, LDH vs. M/S JACOB EXPORT HOUSE

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ITA/620/2010HC Punjab & HaryanaPHHC01093574201019 November 2010Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court disposed of the appeal by stating that the matter is covered by its own order dated 13.9.2010 in ITA No. 424 of 2010 (Commissioner of Income Tax v. M/s The Designer). Although the specific findings of the ITAT are not detailed in this judgment, the Revenue's appeal was dismissed based on the precedent. The underlying principle, as suggested by the Revenue's questions, likely relates to the correct computation of profits from DEPB for Section 80HHC deduction. The Revenue's questions indicate a dispute over whether the entire DEPB receipt, or only the premium over face value, constitutes profit, and how this impacts the Section 80HHC calculation, especially in light of amendments to Section 28 and provisos to Section 80HHC. The High Court's decision to follow a previous ruling implies that the treatment of DEPB as upheld in that prior case was applied here, effectively allowing the assessee's position on the exclusion of 90% of the DEPB amount from business profits for the purpose of Section 80HHC deduction.

What were the facts?

The Revenue (Commissioner of Income Tax-I, Ludhiana) has filed an appeal under Section 260A of the Income Tax Act, 1961, against an order dated 31.8.2009 passed by the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench. The appeal pertains to Assessment Year 2001-02 and concerns the calculation of profits for the purpose of deduction under Section 80HHC. The dispute revolves around the treatment of Duty Entitlement Pass Book (DEPB) benefits received by the assessee, M/s Jacob Export House. The Revenue is challenging the ITAT's decision to exclude 90% of the DEPB amount while computing the profits of the business.

What were the issues?

The Tribunal had to decide several substantial questions of law, primarily concerning the computation of profits for Section 80HHC deduction in relation to DEPB benefits. The key questions were: 1. Whether 90% of the DEPB amount was rightly excluded in working out "Profits of the Business" as per Explanation (baa) to Section 80HHC read with Sections 28(iiid) and 28(iiie) of the Income Tax Act, 1961, as amended by the Taxation Laws (Amendment) Act, 2005. 2. Whether the entire DEPB consideration received by the assessee is profit, given its nil cost. 3. Whether 90% of the profit on transfer of export incentives should not be increased while computing profits under Section 80HHC(3)(a) due to the assessee's export turnover exceeding Rs. 10 crores, failing to fulfill conditions of the Third or Fourth proviso inserted by the Taxation Laws (Amendment) Act, 2005. 4. Whether the total sale consideration of DEPB, including premium, represents profit chargeable under Sections 28(iiid) and 28(iiie). 5. Whether profit on transfer of DEPB entitlement represents the entire amount inclusive of premium. 6. Whether "profit" under Sections 28(iiid) and 28(iiie) means the difference between the sale price and face value of DEPB, or the entire amount. 7. Whether deducting the face value of DEPB from the sale price for calculating profit under Sections 28(iiid) and 28(iiie) is justified. 8. Whether an "artificial cost" needs to be interpolated by deducting the face value of DEPB from sale proceeds for determining deduction under Section 80HHC. 9. Whether the deduction under Section 80HHC was rightly computed in accordance with the amendment made by the Taxation Laws (Amendment) Act, 2005, retrospectively effective from 01.04.1998. The Revenue argued that the entire DEPB amount should be considered profit and that the ITAT erred in excluding 90% of it. The Revenue also contended that the conditions for the proviso to Section 80HHC were not met. The judgment does not explicitly record the assessee's arguments but implies they supported the ITAT's order.

Which sections of the Income-tax Act were involved?

Section 260A,Section 80HHC,Section 28

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision: 19.11.2010 Commissioner of Income Tax-I, Ludhiana ....Appellant. Versus M/s Jacob Export House ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Katoch, Advocate for the appellant. ADARSH KUMAR GOEL, J.

1.

This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 against order dated 31.8.2009 passed by the Income Tax Appellate Tribunal, Chandigarh Bench “A” in ITA No. 346/CHANDI/2008, for the assessment year 2001- 02, proposing following substantial questions of law:- “(i) Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal is justified in law in not holding that 90% amount of DEPB was rightly excluded while working “Profits of the Business” as per explanation (baa) to section 80HHC read with clause (iiid) and (iiie) of section 28 of the -2- Income Tax Act, 1961 inserted by Taxation Laws (Amendment) Act, 2005? (ii) Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal is justified in law in not holding that the whole amount of consideration of DEPB that the assessee received is profit, because of the cost of same is Nil to the assessee? (iii) Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal is justified in law in not holding that 90% of profit on transfer of export incentives is not to be increased while computing profits u/s 80HHC(3)(a) as the assessee failed to fulfil the conditions as contained in Third or Fourth proviso inserted by the Taxation Laws (Amendment) Act, 2005 as the export turnover of the assessee company is more than Rs.10 crores? (iv) Whether on the facts and circumstances of the case, the ITAT is right in law in not holding that the total sale consideration inclusive of face value of DEPB and premium amount received thereof represents profit chargeable under sections 28(iiid) and 28(iiie) of the Income Tax Act, 1961?

-3- (v) Whether on the facts and circumstances of the case, the ITAT is right in law in not holding that profit on transfer of DEPB entitlement represents the entire amount inclusive of premium of sale of such DEPB? (vi) Whether on the facts and circumstances of the case, the ITAT is right in law in holding that the word “profit” referred to in sections 28(iiid) and 28(iiie) of the Income Tax Act, 1961 means the difference between the sale price of DEPB and the face value of DEPB ignoring the fact that the entire amount represents the profit in the hands of assessee? (vii) Whether on the facts and circumstances of the case, the ITAT is right in law in deducting the fare value of DEPH from sale price of DEPB for calculating profit under sections 28(iiid) and 28 (iiie) of the Income Tax Act, 1961 as if the face value is the cost incurred by the assessee to acquire the DEPB? (viii) Whether on the facts and circumstances of the case, the ITAT is right in holding that the word profit referred to in sections 28(iiid) and 28(iiie) of the Income Tax Act, 1961 requires any artificial cost to be interpolated to the extent that the face value of DEPB/DFRC should be -4- deducted from the sale proceed for the purpose of determination of deduction under section 80HHC of the Income Tax Act, 1961? (ix) Whether on the facts and circumstances of the case, the ITAT is right in law in not appreciating that deduction u/s 80HHC of the Income Tax Act, 1961 was rightly computed in accordance with amendment made by the Taxation Laws (Amendment) Act, 2005 with retrospective effect from 01.04.1998?”

3.

Learned counsel for the revenue states the matter is covered by order of this Court dated 13.9.2010 in ITA No. 424 of 2010 (Commissioner of Income Tax v. M/s The Designer).

4.

Accordingly, the appeal is disposed of in same terms. (ADARSH KUMAR GOEL) JUDGE November 19, 2010 (AJAY KUMAR MITTAL) gbs JUDGE

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