The Commissioner Of Income Tax-12 v. M/S. Surendra Engineering Corporation(Export Division

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGNAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 659 OF 2011 The Commissioner of Income Tax-12 ..Appellant versus M/s. Surendra Engineering Corporation(Export Division) ..Respondent. Ms. Suchitra Kamble for Appellant.Mr. Atul K. Jasani for Respondent. ...... CORAM : S.J.VAZIFDAR &M.S. SANKLECHA, JJ. DATE: 14 June 2012. P.C. : (PER M.S.SANKLECHA, J.) 1By this Appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the said Act), the Revenue challenges the order dated 12.03.2010 passed by the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal) passed for the Assessment year 2003-04. In this Appeal the Appellant/Revenue seek to raise the following substantial questions of law: a)Whether on the facts and circumstance of the case and in law, the ITAT is right in law in holding that the entire amount received on sale of DEPB entitlement does not represent profit chargeable under Section 28(iiid) of the Income Tax Act, 1961 and the face value of the duty entitlement pass book shall be deducted from the sale proceeds? b)Whether on the facts and circumstance of the case and in law, the ITAT is justified in holding that the face value would be chargeable u/s 28(iiib) at the time of accrual of the income and under Section 28(iiid) at the time of sale? c)Whether on the facts and circumstance of the case and in law, the ITAT is right in holding that only profit on DEPB receipt can be considered for deduction u/s. 80HHC? d) Whether on the facts and circumstance of the case and in law, the ITAT is justified in directing the AO to recomputed the deduction u/s. 80HHC in accordance with the view taken by the Special Bench in the case of M/s. Topman Exports? e) Whether on the facts and circumstance of the case and in law, the ITAT is right in directing the AO to reduce the Central Excise refund and sales tax refund from the cost of the goods exported out of India for the purpose of deduction u/s. 80HHC ignoring that the said receipts had no linkage to the goods exported out of India? f) Whether on the facts and circumstance of the case and in law, the ITAT is right in directing the AO to reduce direct cost of goods in respect of unrealized export proceeds from the direct cost for the purpose of computing deduction u/s. 80HHC ignoring that provision of Section 80HHC speaks of excluding the unrealized sales but does not speak of reduction cost of unrealized sales? 2. The Appeals are admitted on questions (a) to (e) above. At the request of the Advocate for the Appellant and the Advocate for the Respondent the appeal itself is taken up for final disposal. 3.So far as questions (a) to (d) above are concerned, the Advocate for the Appellant and the Advocate for the Respondent are agreed that the above questions are covered by the decision of the Supreme Court in the matter of Topman Exports V/s. Commissioner of Income Tax, reported in 2012 67 DTR page 185. We agree with the above submissions and therefore the questions (a) to (d) are answered SNC 4ITXA 659-11(FINAL).doc in the affirmative i.e. in favour of the Respondent/Assessee and against the Revenue. So far as the question (e) above is concerned, Advocate for the Appellant and the Advocate for the Respondent are agreed that question (e) above is covered by the decision of this court in the matter of CIT V/s. Dresser Rand India P. Ltd., reported in 323 ITR page 429. We agree with the above submission and therefore question (e) above is answered in the negative i.e. in favour of the Appellant/Revenue and against the Respondent/Assessee. of Income Tax, reported in 2012 67 DTR page 185. We agree with the above submissions and therefore the questions (a) to (d) are answered SNC 4ITXA 659-11(FINAL).doc in the affirmative i.e. in favour of the Respondent/Assessee and against the Revenue. So far as the question (e) above is concerned, Advocate for the Appellant and the Advocate for the Respondent are agreed that question (e) above is covered by the decision of this court in the matter of CIT V/s. Dresser Rand India P. Ltd., reported in 323 ITR page 429. We agree with the above submission and therefore question (e) above is answered in the negative i.e. in favour of the Appellant/Revenue and against the Respondent/Assessee. 4. In so far as question (f) above is concerned, the relevant facts are that the Respondent/Assessee is engaged in exports of machinery, hardware, spares, PVC films etc. In the course of its business the Respondent/Assessee did not recover the sale proceeds some of its exports. Therefore the Assessing Officer in terms of Section 80HHC(2) of the Act did not include the profits which would have been attributable to the exports of goods for which the sale proceeds have not been received. However while doing so the Assessing officer did not reduce the cost of goods exported in respect of which the sale proceeds were not realized by the Respondent/Assessee. Being aggrieved the Respondent/Assessee took the matter in appeal to CIT(A). By its Order dated 1.09.2006 the SNC 5ITXA 659-11(FINAL).doc CIT(A) allowed the Respondents appeal on the above ground by directing the exclusion of the cost of goods exported in respect of which the sales proceeds were not obtained. The Appellant/Revenue being aggrieved by the Order of CIT(A) took up the matter in appeal to the Tribunal. By an Order dated 12.03.2010 the Tribunal dismissed the Revenue s appeal upholding the order of CIT(A) directing’reduction of the direct cost of goods exported in respect of which the export proceeds had not been received/realized. The Tribunal also relied upon its own decision rendered in the Respondent/Assessee s’own case for the assessment year 1998-99 granting identical relief. 5. Ms. Suchitra Kamble the Advocate for the Appellant in support to the Appeal submits that there is no provision under Section 80HHC of the said Act permitting reduction of the direct cost of exported goods in respect of which the sales proceeds have not been received. Therefore such reduction of direct cost is not permissible in computing the profits derived from export of goods under Section 80 HHC of the said Act. On the other hand Mr. Atul Jasani the Advocate for the Respondent submits that in the absence of reducing the cost of the goods exported in respect of which the sale proceed have not been realized will reduce their profits SNC attributable to their export business and the same is not permissible. Further he points out that the Appellant/Revenue has on an identical issue for the Assessment year 1998-99 accepted the Tribunal order and there is no change in facts and law warranting a different view for the Assessment year 2003-04. 6. Before considering the rival contentions it may be useful to set out Sub Section (2) (a) of Section 80HHC of the said Act as under: “ (2)(a) This section applies to all goods or merchandise, other thanthose specified in clause (b), if he sale proceeds of such goods or merchandise exported out of India are [received in, or brought into, India] by the assessee [(other than the supporting manufacturer)] in convertible foreign exchange [within a period of six months from the end of the previous year or, [within such further period as the competent authority may allow in this behalf]. [Explanation-For the purposes of this clause, the expression “competent authority means the Reserve Bank of India or such”other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.]” “ (2)(a) This section applies to all goods or merchandise, other thanthose specified in clause (b), if he sale proceeds of such goods or merchandise exported out of India are [received in, or brought into, India] by the assessee [(other than the supporting manufacturer)] in convertible foreign exchange [within a period of six months from the end of the previous year or, [within such further period as the competent authority may allow in this behalf]. [Explanation-For the purposes of this clause, the expression “competent authority means the Reserve Bank of India or such”other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.]” 7. It is clear from the reading of Section 80HHC(2)(a) of the said Act that Section 80HHC applies to only those exported goods in respect of which sales proceed have been received in convertible foreign exchange. In case such as the present, where the sales proceeds of exported goods have admittedly not been received then such goods fall outside the scope of Section 80 HHC of the said Act. Therefore such goods are not to be considered at all for the purposes of computation of profits under Section 80HHC of the said Act and consequently the cost of such exported goods along with the profits attributable to them are to be excluded from the working to arrive at profits of export. Therefore on a bare reading of Section 80HHC(2)(a) the appeal of the Revenue must fail and the Tribunal was correct in upholding the Order of CIT(A) directing the reduction of direct cost of goods exported on which the sale proceeds has not been received. One more reason to uphold the order dated 12.03.2010 of the Tribunal is that on identical issue the Revenue has accepted the Order for the earlier Assessment year 1998-99 and the Revenue has not made any submission as to why it seeks to take a different view from the one it has accepted for the Assessment year 1998-99. In the circumstances, therefore the question (e) is answered in the affirmative i.e in favour of the Respondent/Assessee and against the Revenue. 8 ITXA 659-11(FINAL).doc 8 In view of the above, questions (a) to (d) above are answered in the affirmative i.e. In favour of the Respondent/Assessee and against the Appellant/Revenue. So far as question (e) above is concerned, the same is answered in the negative i.e. in favour of the Appellant/Revenue and against the Respondent/Assessee. While question (f) is answered in the affirmative i.e. in favour of the Respondent/Assessee and against the Appellant/Revenue. 9. The Appeal is disposed of in above terms. No order as to costs. (S.J.VAZIFDAR J.) (M.S. SANKLECHA, J.)