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Before: Shri Bhavnesh Saini & Shri L.P. Sahu
ORDER Per L.P. Sahu, A.M.: This is an appeal filed by the assessee against the order of ld. CIT(A)-XXIII, New Delhi dated 17.10.2011 for the assessment year 2002-03 on the following grounds : “
1. The learned CIT (A) has grossly erred on the facts of the case and in law in upholding the action of the ld. A.O. in treating the whole consideration received/receivable on transfer of DEPB as income against actual profit on the sale of DEPB during the period which could be considered as an income as per s. 28(iii)(d) of the Income Tax Act. 1961.
2. The learned CIT(A) has grossly erred on the facts of the case and in law in upholding the action of the A.O. in treating the DEPB receivable as an income of the assessee because as per S. 28(iii)(d) only the profit on the sale of DEPB can be considered as business income.
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3. The learned CIT(A) did not adjudicate on part of the Ground of appeal
taken at serial no. 4 which reads as follows : Amendment in 80HHC as per taxation law is against the Constitution of India because no discrimination can be made between the assessee on the basis of the turnover.
4. The ld. A.O. has grossly erred in law reopening the completed assessment after four years by issuing notice u/s. 148 read with S. 147 based on subsequent amendment of law with retrospective effect as there was no failure on the part of the assessee to disclose fully and truly all material facts required for completing the assessment, therefore initiation of proceeding u/s. 147 of the Income Tax Act is bad and invalid.”
Briefly stated, the facts of the case are that the assessee filed return of income on 30.10.2002 declaring an income of Rs.1,41,69,660/-. The return was processed u/s. 143(1). Subsequently, the case was reopened u/s. 147 read with section 148 on 26.03.2009 in pursuance to insertion of third proviso to section 80HHC(3) vide Taxation Laws Amendment Act, 2005 (No. 55 of 2005) w.e.f. 01.04.1998, as the Export turnover of the assessee exceeded Rs.10.00 crores. In response to notice, requiring the assessee to file fresh computation in terms of above amendment in section 80HHC(3), the assessee filed the requisite computation of income. The AO, however, was not satisfied and held that the assessee is not entitled to get benefit
ITA No. 108/Del./2012 3 adding back 90% u/s. 28(iiid) receipts, i.e., Import Entitlement/DEPB of Rs.1,52,11,598/- in view of proviso 3 to Section 80HHC(3), while computing the allowable deduction u/s. 80HHC. The Assessing Officer also reduced the difference in exchange amounting to Rs.54,68,469/- from the export turnover/total turnover, considering the same as income from other sources. The amount of Rs.52,073/- written off by assessee and Rs.130/- as profit on sale of assets, were also considered as income from other sources. The AO accordingly made the additions to the total income of assessee. The assessee carried the matter in appeal before the ld. CIT(A), who after considering the submissions of the assessee and the material available on record, partly allowed the appeal of the assessee observing as under : “(4). I have carefully considered the above submissions. Grounds of appeal Nos. 1 & 2 relate to the treatment of the exchange rate fluctuation of Rs. 54,68,469/- as Income from Other Sources. The appellant's contention that the balance in the EEFC Account with the Canara Bank as on 31.03.2002 was only Rs. 4,61,624/-, is verifiable from the balance sheet filed with the return of income. It is also observed that the Assessing Officer did not call for any explanation regarding the nature of this credit on account of exchange rate fluctuation, before treating the same as fluctuation in EEFC Account, ineligible for deduction under section 80HHC. The appellant has placed due reliance on the judgment of the Jurisdictional Bench Of the ITAT in the case of Sharp Credit
ITA No. 108/Del./2012 4 Ltd. [2004] 83 TTJ 1056, wherein it was held that the amount received on account of exchange rate difference is nothing but realization of the goods exported by it and hence such proceeds have to be construed as the turnover of the assessee. The Delhi Bench of the ITAT also held in the case of Sujata Grover [2002] 74 TTJ 347 that exchange rate fluctuation difference is nothing but part of sales. In view of the above, it is held that export realization on account of exchange difference is to be treated as Income from Business, and as part of total turnover for the purposes of section 80HHC. Hence, the appellant succeeds at grounds of appeal Nos. 1 &2. (5). At grounds of appeal Nos. 3 & 4, the appellant has contested the inclusion of DEPB received/receivable of Rs. 1,52,11,598/- as income of the year concerned, whereas only profit on the sale of DEPB received should have been considered. I find that this issue has already been decided against the appellant in the Assessment Year 2000-01 vide order of the CIT(A)-XXIII dated 17.12.2008, relying on the judgment of the ITAT, Delhi in the case of Eastman Industries Ltd. [2008] 306 ITR (AT) 254. In that case, the Hon'ble Tribunal held as under:- "We have considered the rival submissions and also perused the relevant material on record. As regards the contention of learned counsel for the assessee that the amount actually realized/received on transfer of the DEPB alone could be considered for exclusion to the extent of 90 per cent, as per Explanation (baa) below section 80HHC and not the amount receivable, we find it difficult to agree with the same. As rightly submitted by the learned Commissioner of Income Tax Departmental representative in this regard, the assessee was following the mercantile system of accounting and therefore, no such distinction could be made between the amount received or receivable on transfer of the DEPB. Secondly, the assessee company itself had shown the entire amount received as well as receivable on transfer of the DEPB as its income in the Profit & Loss Account and the same having already been Included in the profit as per Profit & Loss Account, it has to be entirety taken into consideration for exclusion to the extent of 90 per cent While making
ITA No. 108/Del./2012 5 adjustments as per Explanation (baa) below section 80HHC for the purpose of computing "profits of business”. Before us, learned counsel for the assessee has please that going by the expression any profits on transfer of the DEPB used in the provisions of section 28(iii)(d), which are to be strictly construed, only the profit actually realized on transfer alone is covered by the said provisions. However, if at all this plea of the assessee is to be accepted, then only the amount actually realized/received on account of sale of the DEPB would be liable to be included in the 'business income' of the assessee company for the year under consideration strictly construing the provisions of section 28(iii)(d) as against the total amount received as well as receivable included in its business income by the assessee company and in that case, there will be hardly any effect on the quantum of deduction permissible to the assessee under section 80HHC. Looking from any angle, we are, therefore, of the view that the contention raised by the learned counsel for the assessee in this regard cannot be accepted." (6) Moreover, the appellant's appeal for Assessment Year 2003-04 on this same issue has been dismissed by the CIT(A)-XXIII, which has been confirmed by the ITAT, Delhi vide order dated 28.11.2008. The ITAT has upheld the finding that the value of DEPB license whether received or receivable, is chargeable to tax under section 28(iv) in the year in which the assessee became entitled to receive them and profits on sale of DEPB license are assessable under section 28(iiid). Considering that the issue is covered by the order of the ITAT in its own case, the appellant cannot succeed in its contention. Accordingly, Grounds of Appeal Nos. 3 & 4 are held against the appellant.”
Aggrieved by the order of ld. First appellate authority, the assessee is in appeal before the Tribunal.
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The ld. Authorized Representative of assessee submitted that the assessee’s case is fully covered by the order of Hon’ble jurisdictional High Court in the case of Richa Apparels vs. ACIT in W.P. © No. 7649/2007 dated 17.03.2017 and order of ITAT, Delhi Bench in the case of DCIT vs. M/s. Sava Enterprises (ITA No. 3849 & 3850/Del./2014) dated 05.05.2017. He also submitted that the AO has relied on the amendment in taxation laws, as noted above, which, though was made effective retrospective from 01.04.1998, yet was held not applicable with retrospective effect, but with prospective effect in terms of above decisions of jurisdictional High Court and Tribunal and therefore, the reopening of the case and consequential additions, on this core issue are not sustainable.
On the other hand, the ld. DR relied on the order of the first appellate authority. She submitted that the lower authorities have rightly applied the amended provisions in the case of assessee, as the turnover of the assessee exceeded Rs.10.00 crores. Therefore, the order of the ld. CIT(A) should not be interfered with.
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We have considered the rival submissions and have gone through the entire material available on record and we find that the matter under consideration is covered by the decision of Hon’ble Jurisdictional High Court in the case of Richa Apparels vs. ACIT (supra), wherein the Hon’ble Court held as under : “The writ petitioner questions the reopening of its settled assessment for the assessment year 2002-03. This was purely on account of the retrospective amendment to section 28 and 80HHC of the Income Tax Act, 1961. The reason given for reopening is inter alia as follows: "Reasons for reopening: Deduction u/s 80HHC has been claimed on DEPB profits which is not allowable in your case in view of Taxation Law (Amendment) Act, 2005." At the outset, it is pointed out that the Gujarat High Court had in Avani Exports v. Commissioner of Income Tax (2012) 348 ITR 391 held that the said amendment was void, as contrary to Article 14 of the Constitution on account of its retrospective operation. The amendment had restricted benefits to a class of assessees whose turnover was less than 10 Crores. The Revenue's appeal to the Supreme Court and the appeals of the assessees with respect to the substantive part of the judgment upholding the amendment prospectively were disposed of by an order dated 30.03.2015 (SLP (C) No.9273/2013, CIT-5 & Anr. v. M/s Avani Exports & Anr.); the Supreme Court upheld the decision of the Gujarat High Court in the following terms: - of more than Rs.10 crores would be at par and both would be Against the High Court judgment these SLPs
ITA No. 108/Del./2012 8 are filed by the Union of India. Mr. Mukul Rohtagi, learned Attorney General for India submits that once the prayer made was to severe the aforesaid two conditions as onerous and ultra vires, the High Court should have couched the reliefs in terms of that prayer only, instead of stating that the operation of the Section would be given effect to prospectively only and these conditions would not operate retrospectively. At the same time, he accepts that the legal position would be that those exporters with turnover of Rs. less than Rs.10 crores and other like the respondents with turnover entitled to the benefits.
We find that in essence the High Court has quashed the severable part of third and fourth proviso to Sec. 80HHC (3) and it becomes clear therefrom that challenge which was laid to the conditions contained in the said provisos by the respondent has succeeded. However, to make the position crystal clear, we substitute the direction of the High Court with the following direction: ''Having seen the twin conditions and since 80HHC benefit is not available after 1.4.05, we are satisfied that cases of exporters have a turnover below and those above 10 cr. should be treated similarly. This order is in substitution of the judgment in Appeal. " With the aforesaid clarification all these SLPs including that of assessees filed against the judgment of M.P. High Court are disposed of." In the light of the above developments, the impugned reassessment notice under Section 147/148 cannot be sustained; it is hereby quashed.”
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Following the aforesaid principle of law, the ITAT has also taken the same view in the case of DCIT vs. M/s. Sava Enterprises (supra). Therefore, laying our hands on the aforesaid decisions, we find that the appeal of the assessee has merit and deserves to be allowed.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 16.06.2017.