2012 (2) TMI 99 - SC - Income Tax

Supreme Court affirms Delhi High Court on Section 80HHC deductions, sets aside Bombay HC ruling

The Supreme Court set aside the Bombay High Court's decision and affirmed the Delhi High Court's decision regarding deductions under Section 80HHC of the ... Deduction - Assessee exporter of leather garments - AO denied exemption under 8HHC as sale value of Duty Entitlement Pass Book(DEPB) represents transfer under Section 28(iiid) - CIT(A) affirmed AO - Tribunal relied on decision of M/S Topman Exports(Tribunal Mumbai) and upheld order of CIT - Held That:- Judgement of CIT vs Kalpataru Colours and Chemicals (2010 - TMI - 76895 - BOMBAY HIGH COURT) reversed and M/s Topman Exports (2009 - TMI - 208946 - ITAT MUMBAI) and Ram Honda Power Equip (2007 - TMI - 2891 - HIGH COURT, DELHI was upheld. Issues:- Appeal against the orders of the Delhi High Court in ITA No.185 of 2011 and ITA No.308 of 2011 regarding deductions under Section 80HHC of the Income Tax Act, 1961.- Interpretation of profits from Duty Entitlement Pass Book (DEPB) under Section 28(iiid) of the Act.- Reversal of decision by the Bombay High Court in Commissioner of Income Tax v. Kalpataru Colours and Chemicals.- Consideration of Explanation (baa) under Section 80HHC excluding DEPB profits from total turnover.Analysis:The case involves appeals challenging the Delhi High Court's orders related to deductions under Section 80HHC of the Income Tax Act for the appellant engaged in manufacturing and exporting leather garments. The Assessing Officer disallowed the deduction claimed by the appellant under Section 80HHC, considering the entire sale value of DEPB as profit under Section 28(iiid) of the Act. The Commissioner of Income Tax (Appeals) upheld this decision, leading to appeals before the Income Tax Appellate Tribunal (the Tribunal).The Tribunal, following a previous decision by the Special Bench in the case of M/s Topman Exports, allowed the appeals, differentiating between the face value and sale value of DEPB. The Revenue challenged this decision before the Delhi High Court, which noted the reversal of the Special Bench decision by the Bombay High Court in Commissioner of Income Tax v. Kalpataru Colours and Chemicals. Consequently, the High Court remitted the case to the Tribunal for a fresh decision, considering the facts of the case.In addition to the DEPB issue, the High Court addressed the exclusion of DEPB profits from total turnover under Explanation (baa) of Section 80HHC in ITA No.308 of 2011. The High Court relied on its previous judgment in Commissioner of Income-Tax v. Shri Ram Honda Power Equip, emphasizing the need to consider this exclusion in determining the appellant's tax liability.The Supreme Court, in related judgments, set aside the Bombay High Court's decision in Commissioner of Income Tax v. Kalpataru Colours and Chemicals and affirmed the Delhi High Court's decision in Commissioner of Income Tax v. Shri Ram Honda Power Equip. Consequently, the appeals in question were disposed of in line with these judgments, with no order as to costs.