The assessee was a manufacturer-exporter. For the assessment year 2003-04, the assessee filed return of income on 28th November, 2003, showing a total income of Rs. 1,79,80,000. The assessee also claimed deduction u/s. 80HHC of the Act. The claim of the assessee for such deduction included consideration of Rs. 1,54,67,000 upon transfer of the DEPB credit. The Assessing Officer was of the opinion that 90 % of such sum had to be excluded for the purpose of deduction u/s. 80HHC of the Act. He framed the assessment accordingly.
The assessee approached the Commissioner of Income Tax (Appeals), who confirmed the decision of the Assessing Officer, holding that the entire amount received by the assessee towards consideration on transfer of the DEPB credits would be covered u/s. 28(iiid) of the Act. Ninety per cent of the such amount, therefore, had to be excluded for the purpose of working out of the deduction u/s. 80HHC of the Act. The Commissioner of Income Tax (Appeals) observed that the treatment to the DEPB amount should be the same as that of duty draw back. In other words, the entire amount of the DEPB credit would be covered under section 28(iiid) of the Act. The Commissioner of Income Tax (Appeals) was of the opinion that the cost of acquiring the DEPB credit to the assessee was nil.
The assessee carried the issue in appeal before the Tribunal. The Tribunal in the detailed judgment considered various aspects including the interpretation of various clauses of section 28, and in particular, clause (iiid) of section 28 and its co-relation to section 80HHC of the Act. The Tribunal was of the opinion that the face value of the DEPB would be the cost of its acquisition by the assessee. If the assessee sold such DEPB credit at a price higher than the face value, the difference would be the profit of the assessee which would be covered u/s. 28(iiid) of the Act. It is only this element which to the extent of 90 per cent be excluded for the purpose of working out section 80HHC deduction. The Tribunal also referred to Explanation (baa) to section 80HHC, by virtue of which, 90 % of the income referred to in section 28(iiid) of the Act is to be excluded from the total turnover of the assessee for the purpose of working out section 80HHC deduction.
The Revenue carried the matter to the High Court, which on combined reading of the Government of India policy providing for the DEPB benefits, the decision of the Bombay High Court in Kalpataru Colours and Chemicals (2010) 328 ITR 451 (Bom.) and the apex court, in Liberty India vs. CIT (2009) 317 ITR 218 (SC) concluded that the face value of the DEPB credit cannot be taken to be its cost of acquision in the hands of the assessee-exporter.
According to the High Court, the Tribunal committed an error in coming to the conclusion that on transfer of the DEPB credit by an assessee only the amount in excess of the face value therefore would form part of profit as envisaged in clause (iiid) of section 28.
Before the Supreme Court, the learned Additional Solicitor General for the Revenue, fairly submited that in view of the decision of the Supreme Court in Topman Exports vs. CIT [2012] 342 ITR 49 (SC), the civil appeal deserved to be allowed and the matter should be sent back to the Assessing Officer.
The Supreme Court for the reasons given in Topman Exports (supra) set aside the judgement and order of the Gujarat High Court and directed the Assessing Officer to compute the deduction u/s. 80HHC of the Income-tax Act, 1961, in the light of the observations made by it in Topman Exports.
Note: A similar decision was delivered by the Supreme Court in the case of Global Agra Products vs. ITO (2014) 360 ITR 117 (SC)
