Supreme Court favors assessee on deduction; Tribunal upholds decisions on DEPB & depreciation.

The Supreme Court ruled in favor of the assessee regarding the deduction under section 80HHC on DEPB, stating that all exporters should be treated similarly. The Tribunal upheld the CIT(A)'s decision, dismissing the department's appeal. In the second issue, the Tribunal upheld the CIT(A)'s decision to delete the disallowance of depreciation made by the AO, emphasizing that the AO's disallowances were based on assumptions. The Tribunal dismissed both the department's appeals and the assessee's cross objections.

---

---

Issues Involved:
1. Deletion of addition made by the AO on account of deduction u/s 80HHC on DEPB.
2. Deletion of disallowance on account of depreciation made by the AO.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made by the AO on Account of Deduction u/s 80HHC on DEPB:

The primary issue in the departmental appeals concerns the deletion of the addition made by the Assessing Officer (AO) related to the deduction under section 80HHC on Duty Entitlement Pass Book (DEPB). The assessee, engaged in the manufacturing and export of various artwares, claimed deductions u/s 80HHC on DEPB credits amounting to Rs. 68,13,755 for the assessment year 2002-03 and Rs. 93,40,792 for the assessment year 2003-04. The AO disallowed these claims.

The assessee argued that DEPB licenses are export incentives directly arising from export activities, and thus, they should be eligible for deduction under section 80HHC. The CIT(A) accepted this argument, citing the Gujarat High Court's decision in the case of M/s Avani Exports vs. CIT, which held that retrospective amendments denying such deductions were ultra vires to the extent of their retrospective effect.

The department appealed, contending that DEPB receipts do not directly arise from exports and thus should not qualify for the deduction. However, the Supreme Court, in its order dated 30.3.2015, ruled in favor of the assessee, stating that all exporters, regardless of their turnover, should be treated similarly. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the department's appeal on this ground.

2. Deletion of Disallowance on Account of Depreciation Made by the AO:

The second issue pertains to the disallowance of depreciation on various assets by the AO. The AO disallowed depreciation on vehicles, factory/office buildings, and machinery & plant blocks for the assessment year 2002-03, totaling Rs. 8,11,230. The disallowances were based on the AO's observations regarding the lack of documentation and assumptions about the use and installation dates of the assets.

The assessee contested these disallowances, providing detailed explanations and supporting documents. The CIT(A) reviewed the submissions and deleted the disallowances, noting that the AO had not requested specific certificates and that the assets were indeed in use. The CIT(A) also aligned the disallowance of vehicle depreciation with the ITAT's decision in the assessee's case for the preceding year, reducing it to 6%.

The department appealed, but the Tribunal found no merit in the department's arguments. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's disallowances were based on assumptions and that the assessee had provided adequate evidence to support its claims.

Conclusion:

The Tribunal dismissed the department's appeals and the assessee's cross objections. The Tribunal's decision was pronounced in court on 02/09/2015.

---