Commissioner Of Income Tax-Iiisurat v. Bhojal Gems(R.f)....Opponent(S

O/TAXAP/847/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 847 of 2006 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI andHONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX-IIISURAT....Appellant(s) Versus BHOJAL GEMS(R.F)....Opponent(s) ================================================================ Appearance: MR SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1MR MANISH J SHAH, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERIand HONOURABLE MR.JUSTICE K.J.THAKER Date : 20/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Being aggrieved and dissatisfied with the impugned judgment and order passed by the Income Tax Appellate Tribunal, Rajkot Bench (hereinafter referred to as ITAT) dated 30.11.2005 in ITA No. 704/Ahd/2003 for the Assessment Year 1997-98, the revenue has preferred the present Tax Appeal for consideration of the following substantial question of law which was raised while admitting this appeal: “(A) Whether, on the facts and circumstances of the case, and in law the Appellate Tribunal was justified in holding that the interest received on Fixed Deposits should be netted out for the purpose of computation of deduction u/s 80HHC? (B) Whether on the facts and the circumstances of the case, and in law the Appellate Tribunal was justified in holding that the export of rejected and rough diamonds are eligible for deduction u/s 80HHC of the Act?” 2. The assessee firm is engaged in the business of cutting and processing and export the ready cut and polished diamond. During the year under consideration, the assessee claimed deduction u/s 80HHC for export sales. The Assessing Officer rejected the claim. On appeal the CIT (Appeals) confirmed the finding of the assessing officer. On appeal before the ITAT, by impugned order, ITAT partly allowed the appeal. 3. Being aggrieved and dissatisfied with the impugned judgment and order passed by the ITAT, the revenue has preferred the present Tax Appeal for consideration of the aforesaid substantial question of law. 2. The assessee firm is engaged in the business of cutting and processing and export the ready cut and polished diamond. During the year under consideration, the assessee claimed deduction u/s 80HHC for export sales. The Assessing Officer rejected the claim. On appeal the CIT (Appeals) confirmed the finding of the assessing officer. On appeal before the ITAT, by impugned order, ITAT partly allowed the appeal. 3. Being aggrieved and dissatisfied with the impugned judgment and order passed by the ITAT, the revenue has preferred the present Tax Appeal for consideration of the aforesaid substantial question of law. 4. Mr. Manish Shah, learned Counsel appearing on behalf of the respondent – assessee has submitted that as such the issue involved in the present Tax Appeal is now not res integra. He submitted that question no. (A) is governed by the decision of the Honble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. vs. CIT reported in [2012] 343 ITR 89 (SC) wherein the Hon’ble Supreme Court has held that for the purpose of Section 80HHC of the Income Tax Act, 1961 it is not the entire amount received by the assessee on sale of DEPB credit but the sale value less the face value of the DEPB that will represent profit on transfer of DEPB credit by the assessee. It is also held that if any quantum of any receipt of the nature mentioned in clause (1) of Explanation (baa) has not been included in the profits of business of an assessee as computed under the head ‘Profits and gains of business or profession’, ninety per cent of such quantum of the receipt cannot be deducted under Explanation (baa) to section 80HHC. He submitted that this Court has also taken the same view in Tax Appeal No. 1139 of 2010 vide order dated 19.03.2014. 4.1Mr. Shah submitted that so far as question no. (B) is concerned, the same issue came up for consideration before this Court and this Court vide order dated 28.09.2006 rendered in Tax Appeal No. 62 of 2006 wherein this court has held that rejected rough diamonds which are exported are eligible for deduction under section 80HHC. 5.Mr. Sudhir Mehta, learned advocate appearing on behalf of the Department is not in a position to dispute the above and is not in a position to show and/or point out any contrary decision. 6. Having heard Mr. Mehta, learned Counsel appearing on behalf of the Department and Mr. Shah, learned advocate appearing on behalf of the assessee and the question posed for consideration by us reproduced hereinabove and considering the decision of the Hon’ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd (Supra) wherein it is held by the Hon’ble Supreme Court that ninety percent of not the gross rent or gross interest but only the net interest or net rent which had been included in the profits of business of the assessee as computed under the head “Profits and gains of business or profession” was to be deducted under clause (1) of Explanation (baa) to section 80HHC for determining the profits of the business. Accordingly, the question no. (A) is against the appellant – revenue and in favour of the assessee. 6.1Similarly, in view of the order dated 28.09.2006 rendered in Tax Appeal No. 62 of 2006 wherein this court has held that rejected rough diamonds which are exported are eligible for deduction under section 80HHC, we answer question no. (B) also in favour of the assessee and against the revenue. 7. In view of the above, the present Tax Appeal is decided in favour of the assessee and consequently, the impugned judgment and order passed by the ITAT is confirmed. Hence, the present Tax Appeal is dismissed. divya (K.S.JHAVERI, J.) (K.J.THAKER, J)