2013 (8) TMI 1049 - AT - Income Tax

Tribunal sets aside CIT(A)'s decision on section 80HHC, directs AO to recompute deduction.

Pahilajrai Jaikishin Versus Joint Commissioner of Income Tax, Range 19 (3) Mumbai

The Tribunal allowed the appeal, setting aside the CIT(A)'s decision and directing the AO to recompute the deduction under section 80HHC for DEPB income ... - ISSUES PRESENTED AND CONSIDERED 1. Whether the delay of 1,598 days in filing the appeal should be condoned for want of reasonable cause. 2. Whether DEPB income is to be treated, for income-tax purposes, (a) in part as income representing face value of DEPB and taxed under the head corresponding to section 28(iiib) and (b) any excess on sale of DEPB as business profit under the head corresponding to section 28(iiid), and consequently whether deduction under section 80HHC is to be computed after such classification. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of delay in filing appeal Legal framework: The appellate forum may condone delay if a reasonable cause exists for filing the appeal beyond the statutory period; discretion is exercised in the interest of justice, taking into account diligence of the appellant and reasons for delay. Precedent treatment: Earlier judicial decisions have condoned long delays where appellants showed bona fide reasons and lack of deliberate neglect. Interpretation and reasoning: The assessee relied on the pendency and uncertainty caused by a retrospective legislative amendment and consistent adverse treatment by lower appellate authorities, and asserted that only upon clarification by the highest court was it advised to approach the Tribunal. The appellate side did not press a strong objection. Considering the factual matrix and the existence of a substantial legal development that altered the appellate prospects, the Tribunal concluded there was reasonable cause and absence of deliberate inaction. Ratio vs. Obiter: Ratio - the Tribunal applied the established discretionary principle that reasonable cause arising from genuine legal uncertainty justifies condonation. Obiter - reference to other benches that condoned similar or larger delays is ancillary. Conclusion: Delay of 1,598 days was condoned and the appeal admitted for adjudication. Issue 2 - Tax treatment of DEPB income and computation of deduction under section 80HHC Legal framework: Income arising from DEPB (duty entitlement passbook) transactions requires characterization for assessment under the business income provisions; the computation of export profit-linked deductions (section 80HHC) depends on the correct classification and quantum of business income attributed to DEPB receipts and any consideration received on sale of DEPB. Precedent treatment (followed/distinguished/overruled): A special bench of the Tribunal had held that the face value of DEPB is to be treated as business income under the provision corresponding to section 28(iiib) and any excess on sale as business profit under section 28(iiid), and that deductions under export profit provisions must be computed accordingly. A High Court had taken a contrary view, treating the entire DEPB receipt including face value as profit under the provision corresponding to section 28(iii d). The highest court subsequently rejected the High Court's approach and confirmed the special bench's view. Interpretation and reasoning: The Tribunal examined the conflicting treatments and noted that the highest court's ruling confirmed the earlier special bench position: (i) the face value of DEPB is attributable as a specific class of business income distinct from profit on sale, and (ii) when DEPBs are sold, only the excess of sale consideration over the DEPB face value constitutes profit in the relevant category. Given that the issue as to computation of taxable income and consequent deduction was directly impacted by this judicial conclusiveness, the correct method for assessing taxable income and computing export-linked deduction is to segregate face value and sale excess as directed by the highest court's decision. Ratio vs. Obiter: Ratio - the binding principle adopted is that face value of DEPB is to be assessed under the provision corresponding to section 28(iiib) and only the excess on sale is to be assessed as profit under section 28(iiid), and deductions under section 80HHC must be computed after applying this classification. Obiter - historical discussion of differing earlier authorities is explanatory and not determinative. Conclusion: The order of the lower appellate authority rejecting the claim was set aside. The matter was remitted to the assessing officer with a direction to recompute the deduction under section 80HHC in accordance with the classification mandated by the highest court's ruling: treat DEPB face value as income under the relevant sub-clause and treat excess on sale as profit under the other sub-clause, and compute export-linked deduction accordingly. Cross-reference See Issue 1 regarding admission of the appeal - having condoned the delay, the Tribunal proceeded to apply the binding judicial determination summarized under Issue 2 and directed recomputation by the assessing officer.