The Commissioner Of Income Tax Karnal v. Dalbir Singh

ITA No. 694 of 2009 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 694 of 2009 Date of Decision: 14.7.2010 The Commissioner of Income Tax Karnal Versus Dalbir Singh Proprietor M/s Sunny Exports ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Sukant Gupta, Advocate for the appellant. ADARSH KUMAR GOEL, J. 1.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (in short “the Act”) againstthe order of the Income Tax Appellate Tribunal, Delhi Bench “B”, NewDelhi (hereinafter referred to as “the Tribunal”) in ITA No.2440/Del/2007 dated 27.3.2009 for the assessment year 2004-05proposing to raise the following substantial question of law:- “Whether in the facts and in the circumstances of thecase, the ITAT was right in adopting the total exportturnover to be below Rs.10 crores after excluding thesales through export house and allowing deductionu/s 80HHC of the Income Tax Act, 1961 to theassessee, who is a supporting manufacturer, in the same manner, as in the case of direct exporter,treating the supporting manufacturer at par withdirect exporter and ignoring the provisions of section80HHC (1A) read with section 80HHC (3A) read withclause (baa) of explanation to section 80HHC of theAct?” 2.Facts necessary for adjudicating the present controversymay be noticed. The assessee is engaged in the business ofmanufacturing and exports of various items and is a supportingmanufacturer as well as direct exporter. Deduction under Section80HHC of the Act had been claimed on both the counts. The AssessingOfficer recorded that during the course of assessment proceedingswhile claiming deduction under Section 80HHC of the Act, the assesseehad ignored the provisions of Section 80HHC (1A) read with Section80HHC (3A) of the Act which governs the deduction under Section80HHC to the supporting manufacturer. The Assessing Officerdisallowed the claim of the assessee under Section 80HHC of the Acton export incentive of Rs.1,65,15,813/- as Duty Entitlement Pass Book(DEPB) and assessed income at Rs.3,23,57,190/- against declaredincome of Rs.2,32,10,000/-. On appeal by the assessee, the CIT (A)held that the assessee was entitled to the deduction under Section80HHC of the Act in respect of Duty Draw Back (DDB) as a supportingmanufacturer and did not allow deduction on DEPB in view of theamendment to Section 28 of the Act w.e.f 01.04.1998 as the turnover ofthe assessee was above Rs.10 crores. The CIT (A) recorded asunder:- “5. ......The assessee is a manufacturer andexporter of handloom products, where assesseemanufactured the products and exported as well assupplied to another exporter who finally exportedthese products, therefore, the assessee is a directexporter as well as supporting manufacturer andexporter. The assessee has received a disclaimercertificate from the main exporter, M/s IKEA Trading(India) Ltd. for the exports made as supportingexporter for claiming benefit u/s 80 HHC. Theassessee has claimed to have creditedRs.32,58,700/- as Duty Draw Back andRs.1,58,26,395/- as DEPB in its books of accountsas per the certificate from a chartered accountantdated 05.03.2007 filed by the assessee duringappellate proceedings. The assessee has furtherclaimed that the said total amount credited onaccount of Duty Draw Back and DEPB related to thegood supplied to another exporter, M/s IKEA Trading(India) Ltd., on which AO has not allowed deductionu/s 80HHC, whereas M/s IKEA Trading (India) Ltd.exported the goods and gave disclaimer certificate tothe assessee for claiming deduction u/s 80HHC. Theexport turn over of the assessee for F.Y. 2003-04 isRs.23,62,25,052/- out of which Rs.21,38,27,194/- isas supporting exporter as per the certificate of the chartered accountant dated 05.03.2007. Theassessee has claimed deduction u/s 80HHC assupporting manufacturer and exporter also and alsoclaimed Duty Draw Back and DEPB as part of theexport income and claimed deduction u/s 80HHC onDuty Draw Back and DEPB. The assessee has alsoclarified regarding 80HHC on DEPB with respect tothe amendment to section 28 by Taxation Law(Amendment) Act, 2005, that its turnover is morethan Rs.10 crores, but still it is eligible for deductionu/s 80HHC on DEPB even after amendment ofsection 28 and section 80HHC. 6. The similar issue has been considered by mypredecessor in his order dated 29.06.2005 in AppealNo. IT/22/PPT/CIT (A)/KNL/2005-06, A.Y. 2003-04 inthe case of the assessee vide para 2 of the AppealOrder in which assessee has been allowed deductionu/s 80HHC as supporting manufacturer and exporteralso on duty draw back. I have considered the submissions of theassessee and facts of the case. The facts andcircumstances of the case are similar to the case ofthe assessee in A.Y. 2003-04. Therefore,respectfully following the decisions in Appeal for A.Y.2003-04, the assessee is eligible for deduction u/s80HHC as supporting manufacturer and exporter and -5- accordingly, assessee is allowed deduction u/s80HHC on the Duty Draw Back received assupporting manufacturer and exporter also. But nodeduction is allowed u/s 80HHC on the amount ofDEPB received by the assessee because theturnover of the assessee is more than Rs.10 croresand the rate of DEPB is also more than the rate ofDuty Draw Back, therefore, it does not fulfil theconditions mentioned in the provisos to sub-section(3) of section 80HHC as introduced by the TaxationLaws (Amendment) Act, 2005. In result, the groundof appeal of the assessee is partly allowed.” 3.Two cross appeals were filed, one by the assessee and theother by the revenue before the Tribunal. The Tribunal while decidingthe issue regarding duty draw back involved in the revenue's appeal infavour of the assessee held as under:- “8. The assessee before us also is a supportingmanufacturer as understood for the purposes ofSection 80HHC (1A) and has exported goodsthrough the Export House. There is no dispute thatthe export house has given the necessary DisclaimerCertificate in respect of the export turn over inquestion. The CIT (Appeals) has recorded a findingwhich is not in dispute that the assessee companyhas exported goods directly as per the orders of theexports house and that it has received the duty draw back directly from the Government. The above factposition concerning the exports made through exporthouse is not controverted by the Revenue. In thisbackground a perusal of the order of the Tribunal inthe case of Eastern Leather Products Pvt. Ltd.(supra) shows that the stand of the assesseedeserves to be upheld. To the similar effect are alsothe subsequent decisions of the Tribunal in the caseof Sharda Exports (supra). In so far as the relianceplaced by the learned DR on the decision of theHon'ble Kerala High Court in the case of JanthaCashew Exporting Company (supra) is concerned,we have perused the said decision carefully. On thisaspect the learned counsel for the respondentassessee has submitted that the said decision hadsince been considered by the Delhi Bench of theTribunal in the case of Sharda Exports, ITA3921/Del/01 (supra) and it has been noted that thesame is not applicable to the instant controversy. Inour considered view the judgment of the Hon'bleKerala High Court is not in conflict with the decisionof the Tribunal in the case of Eastern Leather Pvt.Ltd. (supra). In fact the Hon'ble High Court dulynoted the decision of the Tribunal in the case ofEastern Leather Products Pvt. Ltd. (supra) and heldthat the said decision did not relate to the controversy before the Hon'ble High Court. The controversybefore the Hon'ble High Court was whether salesthrough export house also constituted export turnoverfor the computation of relief in terms of proviso toSection 80HHC (3) or not. Ostensibly the saidcontroversy has not been addressed to by theTribunal in the case of Eastern Leather Products Pvt.Ltd. (supra) and therefore, there is no conflictbetween decision of the Delhi Bench of the Tribunaland that of Hon'ble Kerala High Court. Therefore,the distinction sought to be made out by the learnedDR on the basis of the Kerala High Court decision inour view does not exist. The controversy in questionis covered by the decision of the Tribunal in the caseof Eastern Leather Products Pvt. Ltd. (supra) and noother contrary decision thereto has been cited by thelearned DR.” 4.Further, the Tribunal while deciding the issue involved inassessee's appeal regarding DEPB receipt followed the Tribunal'sdecision rendered in the case of Mrs. Kamini Jain in ITA 1821 and 2177dated 10.8.2007 and DCIT Vs. Kabir Old Tex dated 6[th] July, 2007passed in ITA No. 3918/Del/2004. The discussion in paras 10 and 11of the order of the Tribunal read thus:- “10.Regarding the issue involved in the assessee'sappeal i.e. DEPB receipt, we find that in the case ofMrs. Kamini Jain Vs. ACIT (supra) the Tribunal has decided this issue in favour of the assessee byrespectfully following the Tribunal decision renderedin the case of DCIT Vs. Kabir Old Tex dated 6[th] July,2007 rendered in ITA No. 3918/Del/2004. Para No.7of this Tribunal decision was reproduced in thatTribunal decision and the same is reproduced by usherein below:- 7.We have considered relevant facts,arguments advanced and the case laws cited.As regards the first ground of appeal we findthat the case falls under second Proviso tosection 80HHC (3) and not to third Proviso ascontended by the learned DR. A term “exportturnover” has been defined under clause (b) ofExplanation to section 80HHC. As perdefinition “export turnover” means saleproceeds received in or brought into India bythe assessee in convertible foreign exchange.Since the sale of goods of export house doesnot satisfy the meaning as defined in clause (b)of Explanation to section 80HHC, the turnoverin respect of goods sold through export houseis not to be reckoned for the purpose ofcomputing export turnover. Accordingly sincethe export turnover of the assessee is less thanRs.10 crores, the second Proviso below sub- section (3) of section 80HHC will apply. Thusthe assessee was rightly held as eligible fordeduction in respect of the amount received ontransfer of DEPB license while computingdeduction under sub-section (3) of section80HHC. 11.From the above, it is seen that Tribunal hasdecided similar issue in that case on the basis that asper definition of export turnover, it does not includesale of goods to export house because for such sale,proceeds of sale are not received in convertibleforeign currency or brought into India by theassessee. In the present case, we find that it isnoted by the AO on page No.10 of the asstt. orderthat turnover of the assessee as direct exporter is ofRs.2,23,97,858/- and the turnover of the assessee assupporting manufacturer is Rs.21,38,27,194/- andhence, as per the definition of export turnover givenin Section 80HHC, the export turnover of theassessee is only Rs.2.24 crores and hence, it doesnot exceed Rs.10 crores. If that be so, secondproviso of section 80HHC is applicable and as perthe same, profit of business should also include 90%of any sum referred to in clause (iiid) of section 28 inthe same proportion as export turnover to the totalturnover of the business carried on by the assessee. We therefore, direct the AO to include 90% of bothreceipts i.e. Duty Draw Back and DEPB into businessprofit in the same proportion as export turnover bearsto the total turnover of the business carried on by theassessee as provided in second proviso undersection 80HHC (3). Profit of business has to beascertained in this manner and thereafter for workingout deduction allowable to the assessee u/s 80HHCas a supporting manufacturer, the AO should workout the same as per sub section 3A of section80HHC which will be in the same proportion as theturn over in respect of sales to trading house to totalturn over of business as per clause (b) of section80HHC (3A).” 5.The revenue is in appeal against the aforesaid reliefgranted by the Tribunal to the assessee. 6.We have heard learned counsel for the revenue. Hesubmits that turnover of the assessee as a supporting manufacturershould have been held to be more than ten crores attracting 3[rd] provisoto 80HHC (3). We are unable to accept the submission. 7.The Tribunal after considering the definition of the termexport turnover as given in clause (b) of Explanation 80HHC of the Actconcluded that the turnover of the assessee as supporting manufacturerwould not be termed as export turnover as the proceeds of sale are notreceived or brought into India by the assessee in convertible foreignexchange. The Tribunal, thus, concluded that the export turnover of the assessee would be less than Rs.10 crores and, therefore, secondproviso to Section 80HHC (3) would be applicable and third provisothereto would have no application. 8.Learned counsel for the revenue was unable to point outany illegality or perversity in the impugned order which may warrantinterference by this Court. 9.In view of above, the question, thus, raised cannot be heldto be a substantial question of law. 10.The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE July 14, 2010gbs (AJAY KUMAR MITTAL)JUDGE